(Bloomberg) -- Two weeks after the US election, hundreds of allies gathered at the White House to soothe Joe Biden in defeat. Tracking the closed-door bash for clues was a group rarely interested in the routine preening of Washington: arbitrage traders.
The traders, who buy and sell the stock of companies in the middle of mergers and acquisitions, and investors were hanging on every event for a clue to the fate of the sale of United States Steel Corp., a hallowed but humbled American giant, to Japan-based Nippon Steel Corp. And the deal’s key opponent, steelworkers union chief David McCall, was at the party. Would McCall meet Biden? Did the party offer an elaborate cover?
One question has swirled among investors and unions, from local mayors to the White House, since Nippon Steel announced its plans in December 2023: whether anyone could persuade Biden to back the sale, or whether McCall would succeed in having it killed.
The split was emblematic of so many shifts in US policy - a test case on how far American officials would go in treating steel as a strategic sector, of Biden’s pledge to build trust with allies, of the race against China, of competing factions within his party and of his fealty to the union. Ultimately, Biden didn’t budge, finally on Friday announcing his long-telegraphed veto of the sale on national security grounds.
The traders were particularly active, camped out in Pittsburgh and Washington in recent months. They texted, called and emailed each other about every move by Nippon Steel Vice Chairman and Executive Vice President Takahiro Mori and McCall, the president of the United Steelworkers union that opposed the deal.
With many millions of dollars at stake, Mori and McCall were widely viewed as the most important figures influencing the proposed $14.1 billion acquisition of US Steel. Many believed a decision was finally imminent as the bitter presidential contest was wrapping up.
Tracking Mori’s and McCall’s proximity to Biden, many surmised, might offer a clue to the president’s thinking.
The Biden administration signaled its opposition within days of the announcement, though officials were guarded in what they could say publicly. Donald Trump went further, saying in January 2024 that if re-elected he would “block it instantaneously.” Trump hasn’t commented on Biden’s decision.
The conflict created factions within Biden’s orbit. Secretary of State Antony Blinken and National Security Adviser Jake Sullivan each privately pitched Biden an option to allow the deal with conditions — potentially with so many it would have amounted to a virtual block anyway, according to people familiar with the internal deliberations who spoke on condition of anonymity. Proponents of the deal have argued publicly it is an affront to ally Japan, and undercuts Biden’s push to reinvigorate alliances and “friend-shore” supply chains to like-minded nations.
The entreaties from the two longtime aides reflected a division that played out in the Committee on Foreign Investment in the United States panel, consisting of many Cabinet figures who were divided on the issue.
The question before them was not whether there was an inherent risk in handing the steel giant to a foreign buyer, but whether that risk could be mitigated.
The deliberations amounted to shades of gray. The departments of State, Defense and Treasury believed mitigation was possible and ultimately that there could be a way for the deal to proceed, people familiar with the Cfius deliberations said. On the flip side, the United States Trade Representative and the Department of Energy each believed the risk was too great, the people said. Those two offices’ opposition gave the president what he needed.
The Cabinet agencies involved either declined comment or didn’t respond to requests. Both Nippon Steel and US Steel declined to comment.
The committtee’s overall position has never been clear. The Commerce Department’s risk analysis underpinned much of the examination, but ultimately Secretary Gina Raimondo — among the most business-friendly members of the administration — left her department’s position ambiguous to the committee, the people said, and stopped short of digging in along with the trade representative and Energy.
This was all playing out around a US presidential election, at that time a rematch between Trump and Biden, and the steel fight was centered in Pennsylvania, the most critical of swing states and Biden’s birthplace, where he says he developed his affinity for union workers.
White House concerns ran deeper than the fear that US jobs would be cut in favor of Japanese imports. The administration worried about the precedent of other sectors, including autos, where foreign ownership of a domestic giant can upend an industry and leave the goals of its major players misaligned.
Further stoking doubts was a force majeure clause in the conditional mitigation agreement the companies reached with Cfius, were the deal to be approved. It considered labor actions, including strikes, lockouts, boycotts or picketing, as a potential force majeure that could allow Nippon Steel to void pledged investments.
The union also believed Nippon Steel’s production commitments were simply a promise to keep plants idled at minimum — not necessarily running.
“In every promise that Nippon made, it was always careful to build in opportunities to back out,” McCall said Saturday in response to a question on the force majeure clause. “A clause allowing itself the option of picking a dispute with the union in order to justify canceling its weak commitments is in line with its overall approach and its disingenuous public relations barrage.”
The trade representative’s office saw a risk to national security from a scenario in which Nippon Steel would move production off-shore to keep pace with China in a race to source from lower-wage countries, a person familiar with the agency’s thinking said. The Japanese government’s involvement in lobbying for the deal only fueled doubts within Biden’s administration about where the company’s loyalties were.
In blocking the deal Friday, Biden pointed to what he said was “credible evidence” that Nippon Steel’s $14.1 billion bid would “create risk for our national security and our critical supply chains.” He didn’t say what the evidence was, though he invoked the Defense Production Act, which gives the president power over the economy to ensure the supply of critical goods.
Biden Consistently Opposed
While Cabinet members and White House aides held their tongues, Biden did not. In April, when he was still seeking re-election, Biden told a Pittsburgh rally that US Steel would remain domestically run, “guaranteed.” In September, after a procedural delay, he said flatly he hadn’t changed his mind.
The administration had gone so far as to loosely schedule an announcement twice — once in September and again in early December, before the full 90-day Cfius review period elapsed, according to a person familiar with the planning.
As the panel deliberated, the company offered more sweeteners — $1.4 billion in capital expenditures to upgrade plants, and later an additional $1.3 billion. But it didn’t sway the union. Days before Biden’s announcement, Nippon Steel offered to give the US government a veto over any reduction in US Steel Corp.’s production capacity. None swayed the president.
Steelers and steelmakers
The divisions and fears spread from Washington across state politics and Pittsburgh, the cradle of US steelmaking. Local union officials from area plants favored the deal, and proponents spent months courting grassroots support.
One major political figure stopped short of joining Biden, Trump and the union in blasting the deal: Pennsylvania Governor Josh Shapiro, one of the Democratic Party’s rising stars.
Shapiro avoided a public stance but facilitated talks behind the scenes. According to people familiar with the meetings, the governor held separate meetings in his office with the key figures two weeks after the election. He met with McCall on a Monday and on Tuesday with Mori and US Steel Chief Executive Office David Burritt. It was all preparation for what once seemed an impossible task — a sit-down between Mori and McCall.
But at one point, Shapiro asked Burritt to leave his office after the governor took umbrage with Burritt’s dismissive attitude toward his concerns about Pennsylvania workers, according to two people familiar with the event.
Two months before, Burritt had told the Wall Street Journal that if the deal fell through the company would have to close plants and would likely move the headquarters from its nearly 125-year-old home of Pittsburgh. The CEO’s attitude was the final straw for Shapiro.
Mori remained in the meeting. In fact, two days before, Mori had even attended a game of the Pittsburgh Steelers, the beloved NFL franchise named for the city’s cherished industrial roots.
Shapiro succeeded, with McCall and Mori meeting the Tuesday before Thanksgiving. McCall eventually walked out dissatisfied with the talks, two people familiar with the actions said.
Mori also met in Pittsburgh with rank-and-file steelworkers who supported the deal, openly challenging union leadership, around the time McCall attended the White House farewell party for Biden.
The gamesmanship was on display in one meeting when McCall arrived to meet a group of mayors whose cities include US Steel facilities and was suprirsed to see Mori was already there. It didn’t work.
“The fact that the USW sent out its statement criticizing the meeting while it was still taking place and all parties were still at the table was a slap in the face,” the local mayors said in a statement.
Soon after, on Dec. 10, arbitrage traders betting against the deal’s completion were able to cash in as shares of U.S. Steel plunged as much as 22% after Bloomberg reported Biden planned to formally block the takeover.
In the end, divisions within the government and the alternatives offered by Blinken and Sullivan had no impact. The mind of the key decision maker was unchanged. Biden would kill the deal when it reached his desk. About two months later, he followed through and formally blocked the deal on grounds of national security.
--With assistance from Eric Martin and Jenny Leonard.
(Adds steel companies declining to comment, more details beginning in 13th paragraph)
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