By Alexandra Alper, Atri Dasgupta, and Yuka Obayashi
WASHINGTON (Reuters) – U.S. President Joe Biden illegally blocked Nippon Steel's $14.9 billion bid to buy US Steel through a sham national security review, the companies alleged in a lawsuit filed on Monday.
The companies want a federal appeals court to overturn Biden's decision to scuttle the deal so they can secure another chance at approval through a new national security review unconstrained by political influence.
The lawsuit alleges that Biden violated the Committee on Foreign Investment in the United States, which screens foreign investments for national security risks, and violated the companies' right to fair review.
The merger has become highly politicized ahead of the US presidential election in November, with Democratic candidate Biden and Republican President-elect Donald Trump vowing to kill it as they seek to woo voters in the swing state of Pennsylvania where US Steel is headquartered. United Steelworkers union President David McCall opposed the connection.
Both Trump and Biden stressed that the company should remain US-owned even after the Japanese company offered to move its US headquarters to Pittsburgh, where the US steelmaker is based, and promised to respect all agreements between US Steel and USW.
The companies allege that Biden sought to cancel the deal in order to “curry favor with USW leadership in Pennsylvania in his re-election bid.”
“As a result of President Biden’s undue influence to advance his political agenda, CFIUS failed to conduct a good faith regulatory review process focused on national security,” the companies said in a statement.
A White House spokesperson defended the review, adding that “President Biden will never hesitate to protect this nation's security, infrastructure, and the resiliency of its supply chains.”
The lawsuit, which mirrors claims the companies made in a Dec. 17 letter to the Committee on Foreign Investment in the United States and seen by Reuters, shows the companies are making good on their threats to sue.
“We cannot back down after being treated unreasonably. We will respond forcefully,” Takahiro Mori, vice president of Nippon Steel, said on Monday.
Mori said the review process conducted by CFIUS lacked integrity because the Japanese company did not receive any written comments on the proposed national security agreement.
The prospects for the lawsuit, which also includes U.S. Attorney General Merrick Garland and Treasury Secretary Janet Yellen, are unclear. Yellen oversees the Committee on Foreign Investment in the United States. Experts say courts generally give too much weight to CFIUS in defining national security.
The Justice Department declined to comment, and the Treasury Department did not respond to a request for comment.
Trump said in a post on his social media platform on Monday: “Why would they want to sell US Steel now when tariffs would make it a more profitable and valuable company?”
Nippon Steel's partnership with US Steel aligns with Trump's vision to boost U.S. manufacturing, Eiji Hashimoto, CEO of Nippon Steel, told reporters Tuesday in Tokyo.
“If we win the case and CFIUS reopens the review…we will demonstrate once again that this acquisition is beneficial to the United States,” Hashimoto said. “And I'm sure we'll be able to get along.”
Nippon Steel shares fell 1.5 percent by 0114 GMT in Tokyo.
Rapids, USW are also targeted
The companies also filed a second lawsuit against rival bidder Cleveland-Cliffs (NYSE:) and its CEO Lourenco Goncalves and USW's McCall “for their unlawful and coordinated actions” aimed at blocking the deal.
They argue that Cliffs, Goncalves, and McCall colluded to allow Cliffs to “monopolize the domestic steel markets” by thwarting any further attempts to purchase US Steel.
Reuters reported that Goncalves participated in at least nine calls to reassure investors that Biden would thwart the Nippon Steel merger, according to a letter last month to the Committee on Foreign Investment in the United States.
“Nippon Steel and US Steel continue to play the blame game in a desperate attempt to divert attention from their failures,” Goncalves said in a statement on Monday. “Today’s lawsuits against the US government, US Steel, and Cleveland Cliffs represent a shameless effort to try to suppress these failures.” . Scapegoat others for the disaster that US Steel's and Nippon Steel have inflicted on themselves.
McCall said the USW “will vigorously defend against these baseless allegations.”
Last week, Biden blocked the proposed purchase over national security concerns, dealing a potentially fatal blow to the controversial plan after a year of review.
US Steel, founded in 1901 by some of America's biggest magnates, including Andrew Carnegie, J.P. Morgan, and Charles Schwab (NYSE:), became entangled with the industrial recovery following the Great Depression and World War II.
US Steel shares closed up about 8% on Monday. The company has been under pressure after several quarters of declining revenues and profits, making it an attractive takeover target for competitors looking to expand their share of the US market.
A “gamified” review process.
Nippon Steel's December 2023 bid to buy US Steel faced early challenges.
Biden opposed the deal on March 14, before the start of the Committee on Foreign Investment in the United States review, which the companies claim prejudged the outcome and denied them due process.
McCaul endorsed Biden a week later.
Biden was later replaced on the 2024 Democratic presidential ticket by Vice President Kamala Harris, who also opposed the deal and the USW endorsed it.
CFIUS usually approves a deal or recommends that the president block it, but in rare cases, it refers it to the president, as it did with the Nippon Steel deal on December 23, paving the way for Biden's move to block it.
Prior to that, CFIUS staff were prohibited from negotiating with companies on a proposed agreement to address the committee's national security concerns, the statement from US Steel and Nippon Steel alleges, a marked deviation from normal practice.
“The review process was clearly manipulated so that its findings supported President Biden’s predetermined decision,” the companies said.
