Thwarting of $14B US Steel Deal Won’t Dampen Japan-U.S. M&A, Lawyers Say

Japanese companies are paying close attention to the fallout from U.S. President Joseph Biden’s decision to block Nippon Steel’s $14 billion bid to acquire United States Steel.

Biden announced on Friday that he would block Nippon Steel’s $14.9 billion takeover bid of U.S. Steel.

Lawyers in Japan told Law.com International that, while their Japanese clients are “paying attention”, none are alarmed. Nippon’s unsuccessful endeavor will “unlikely dampen outbound M&A,” they said.

They may be right. After all, Japan’s outbound M&A volume grew by 36% to nearly $45 billion last year, according to Hong Kong-based fundraising placement agent Finex.

Japanese companies are increasingly looking beyond their borders, particularly towards the U.S. and Europe, where they can make opportunistic acquisitions of undervalued assets.

According to Dealogic data, by September 2024, outbound M&A from Japan to the U.S. was up a remarkable 160% to $32 billion, accounting for more than 70% of Japan’s total outbound M&A.

Three partners at separate law firms in Tokyo spoke to Law.com International but requested anonymity as all three firms have previously advised Nippon Steel in separate mandates.

In December 2023, U.S. Steel announced that it had received multiple unsolicited bids including Nippon’s $14 billion offer, plus an assumption of $800 million worth fo debt.

That same month, Law.com reported that Ropes & Gray, Milbank, Wachtell, Lipton, Rosen & Katz were engaged to advise on the transaction with the latter two firms advising the American target.

The deal, however, has since faced strong opposition from American politicians.

According to a statement by U.S. Steel on December 23, 2024, the company was notified by The Committee on Foreign Investment in the United States (CFIUS), an interagency committee authorized to review certain transactions involving foreign investment in the U.S., that it was unable to reach a consensus on the transaction.

“The President now has 15 days to act,” U.S. Steel said then in its statement.

“The transaction between U. S. Steel and Nippon Steel enhances U.S. national and economic security through investment in manufacturing and innovation–by a company based in one of the United States’ closest allies—and forges an alliance in steel to combat the competitive threat from China. This is a transaction that should be approved on its merits, and one that should be a model for friendshoring investment,” the company added.

The Pittsburgh-based company formed in 1901 as a merger with Carnegie Steel Corp, a deal which made it the world’s first company valued at more than $1 billion, according to Barron’s. Fast forward to 2024, however, U.S. Steel business viability now depends on Nippon’s offering going through. In an interview with The Wall Street Journal last year, U.S. Steel chief executive officer David Burritt said that Nippon Steel’s pledge to invest $3 billion in its operations in the U.S. is needed for it to be economically competitive and to keep workers employed.

According to a Japanese law firm partner, Japanese investors have found it disappointing to see that Nippon’s efforts over the past few months to allay America’s potential national security concerns have “not been appreciated.”

Last year, Nippon dissolved its joint ventures with the world’s second largest steel company ArcelorMittal in China and Alabama. It has also pledged to keep the U.S. Steel’s brand and name, its Pittsburgh headquarters, as well as existing union contracts, all in addition to investing $3 billion in the American company.

“Well from the U.S. side, people are thinking about what’s going to happen to U.S. Steel if this doesn’t go through,” said a U.S. law firm partner based in Tokyo. “It will need investment to survive so is it only going to accept offers from U.S. bidders?”