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US Steel (X -3%) is pulling back today following comments from Vice President Harris at a rally over Labor Day weekend that she does not support the pending takeover of this major steel producer. Recall that in December 2023, US Steel agreed to be acquired by Nippon Steel, Japan's largest steelmaker and one of the world's largest steel manufacturers.

• The $55 per share all-cash deal price was quite attractive to US Steel investors. It represented a 40% premium at the time and far surpassed Cleveland-Cliffs' (CLF) August 2023 offer in the $35 range, which was a combination of cash and stock. It was smart of X to hold out for a better deal. The problem, of course, was whether Pittsburgh-based US Steel could navigate the politics of a foreign company buying such an iconic manufacturing name in a swing state in a US election year.
• That Harris opposes the deal is not surprising. President Biden promised to block the deal in April. Former President Trump and his running mate JD Vance have also spoke out against the deal. The acquisition is not popular in Pennsylvania and is opposed by the Unites Steelworkers union. Despite pledges from Nippon to invest in the facilities and avoid layoffs, there is a lot of skepticism among union employees.
• The acquisition is currently undergoing an antitrust review by the Department of Justice. There is also a national-security review by CFIUS, which can make recommendations. US Steel has not held an earnings call since the deal was announced but did say in its August 1 earnings releases that it continued to make progress on the US regulatory processes with a closing anticipated later this year.
• Also, Nippon weighed in last week when it announced additional project investments to be made at Mon Valley Works and Gary Works to make their blast furnace facilities more productive. These investments are in addition to prior investment promises of $1.4 bln. Nippon said these additional investments will extend the production life of two of US Steel's critical integrated assets.
• It sounds like Nippon wants to ease concerns about closing the plants. If its goal was to shutter these facilities, it would not be spending so much on upgrades. In terms of the timing of closing the deal, Nippon said last week that it expects the transaction to close in 2H24, subject to US regulatory approvals.

When this deal was announced, one of our first thoughts was the bad timing. For a foreign company to buy an iconic US manufacturing company in a swing state during an election year, that was going to be a heavy lift. However, we suspect CLF making an offer for US Steel that summer perhaps spurred Nippon into action, that it could not wait for the perfect time. It is not clear that this deal gets approved and investors are clearly skeptical with shares trading well below the $55 offering price. Perhaps a way for Nippon and US Steel to thread the needle would be a regulatory approval after the election but before the inauguration. The review is supposed to be independent of political influence, but we shall see.