Blocked Nippon deal leaves fate of U.S. Steel in question

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On Friday, President Joe Biden officially blocked Nippon Steel of Japan from purchasing the United States Steel Corp. over national security concerns. The decision will invite legal challenges and a new bidding war that could cloud the company’s future for years to come.

The news caused me to think of a couple recent TV shows. Was this like “Deal or No Deal?” Or was it “Squid Game 2?”

If you know “Deal or No Deal,” contestants draw from a group of briefcases. Each case is worth anywhere from a penny to $1 million. Contestants get to open a case at a time to try to estimate what their case is worth. If their odds of having a valuable case increase, they are given higher cash offers. If the odds go lower, so does their offer.

U.S. Steel was offered $14.9 billion by Nippon. That’s billion with a “b.” You’d have to win “Deal or No Deal” 14,900 times in a row to match that offer. (Though it’s still half what Elon Musk paid for Twitter, and a pittance to Apple, Google or Facebook, which says something about the nature of our bizarre economy).

Nippon also vowed to spend an additional $2 billion to modernize aging steel mills in Pennsylvania and Indiana. In addition, the Japanese steelmaker offered the U.S. veto power on any reduction in production in hopes of assuaging the national security concerns.

But the deal came with long strings. Nippon is a Japanese company. Politicians couldn’t be seen endorsing the handover of the granddaddy of American corporations to foreign owners. It’s not partisan, either. Both Biden and President-elect Donald Trump opposed the deal, as did a number of key leaders in Congress.

Meantime, the United Steelworkers union expended unprecedented political capital to block this deal. The union warned that Nippon’s American holding company could declare bankruptcy and walk away from production and pensions.

The union got its wish. No deal. Maybe there’s a better deal in another suitcase. We just have to hope this isn’t like the episode of “Squid Game 2” I just watched the other day. In that surrealistic South Korean fictional universe, hundreds of contestants compete for a fortune in a game show that will kill all but one of them. In one early episode of the second season, we meet a sadistic “Squid Game” representative who offers homeless people the choice between a scratch-off lottery ticket or some bread. Nearly all choose the lottery ticket. None win anything, and end up just as bad off as before.

U.S. Steel needs investment badly. It has for decades. Investors battered the company when it announced capital investments a few years ago, sufficient to cause the company to give up on updates to the Gary Works and other facilities. That’s why it went up for sale.

The steel industry is at a generational crossroads. New technology allows steel production with significant reductions in carbon emissions and vast customization to the steel produced. Bigger companies are installing such mills around the world, each more cost-effective and cleaner than blast furnaces.

Without these investments, American steel will fall further behind. It’s already lost a lot of ground. The top 10 steel producers in the world are all foreign. The largest American company, Nucor, runs efficient mini-mills, is non-union and primarily based in the U.S. South. U.S. Steel is a blip in an international industry that it helped define 100 years ago.

The U.S. government and United Steelworkers are gambling on a future they claim will be better without the cash infusion from a Japanese company. The next most likely American suitor for U.S. Steel would be Cleveland-Cliffs. So this also plays as a massive bet on one company that currently competes with U.S. Steel in North America.

Cliffs just bought the Canadian steelmaker Stelco last year after acquiring ArcelorMittal’s American holdings in 2020. But would one large integrated steelmaker have more employees and facilities than two such companies? History suggests not.

I suppose the gamble could pay off. Gambling is like that. But the odds of another company coming in with that kind of money just got lower. And now foreign investors know that they have to play high stakes American political games to do business in the United States.

In Minnesota, U.S. Steel employs 1,800 miners and supports another 3,000 jobs in related industry. Though U.S. Steel and Cliffs have invested in new iron ore pellet technology in recent years, both will need to do a lot more in coming years to stay competitive.

This is it. Our moment. We might create value-added iron ore production in Minnesota, moving toward greener steel and more sophisticated integration with the supply chain. Or, we lose market share, shed jobs and shrink.

I know which suitcase I would choose. It remains to be seen which one the big players will open.