Nippon, US Steel respond to Biden’s prohibition against US Steel purchase with lawsuits

Japanese steel company Nippon Steel Corp., its wholly owned subsidiary Nippon Steel North America Inc. (NSNA) and United States Steel Corp. have filed two lawsuits in response to what they describe as “the ongoing illegal interference” with Nippon Steel’s acquisition of U.S. Steel.

The lawsuits follow the Jan. 3 order issued by President Joe Biden, who cites his Constitutional authority as president, including his power under Section 721 of the Defense Production Act of 1950, for his decision to prohibit the transaction, which he says “threatens to impair the national security of the United States.”

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U.S. Steel, Nippon Steel and NSNA filed a petition in the U.S. Court of Appeals for the District of Columbia Circuit on Jan. 6 challenging what they describe as the violation by Biden and the Committee on Foreign Investment in the United States (CFIUS) of the petitioners’ constitutional due process and statutory rights; CFIUS’ failure to review the transaction on national security grounds; and Biden’s subsequent order blocking it for purely political reasons which are irrelevant to, and are to the detriment of, U.S. national security.

The petitioners are asking the court to set aside what they say is “the unlawful” CFIUS review process and Biden’s accompanying order and to instruct CFIUS to conduct a new review of the transaction that is consistent with the petitioners’ due process rights and its statutory obligations.

The companies also have filed a complaint and motion for a preliminary injunction and an expedited hearing in the U.S. District Court for the Western District of Pennsylvania against Cleveland-Cliffs, Cliffs’ President and CEO Lourenco Goncalves and United Steelworkers (USW) President David McCall for engaging in what they describe as “a coordinated series of anticompetitive and racketeering activities illegally designed to prevent any party other than Cliffs from acquiring U. S. Steel as part of an illegal campaign to monopolize critical domestic steel markets.” The complainants are seeking an injunction preventing Cliffs, Goncalves and McCall from engaging in “further collusive and anticompetitive behavior” and to impose substantial monetary damages.

These legal actions are necessary to protect Nippon Steel and U.S. Steel’s right to proceed with their transaction free from illegal and improper political and anticompetitive interference, the companies say. They add that they intend to press ahead with both lawsuits as swiftly as practicable and on an expedited basis.

In a news release announcing their actions, Nippon and U.S. Steel say: “From the outset of the process, both Nippon Steel and U. S. Steel have engaged in good faith with all parties to underscore how the transaction will enhance, not threaten, United States national security, including by revitalizing communities that rely on American steel, bolstering the American steel supply chain and strengthening America’s domestic steel industry against the threat from China. Nippon Steel is the only partner both willing and able to make the necessary investments—including no less than $1 billion to Mon Valley Works [in Pennsylvania] and approximately $300 million to Gary Works [In Indiana] as part of the $2.7 billion committed—to protect and grow U.S. Steel for the benefit of employees, the communities in which it operates and the entire American steel industry.

"Today’s legal actions demonstrate Nippon Steel’s and U.S. Steel’s continued commitment to completing the transaction—despite political interference with the CFIUS process and the racketeering and monopolistic conspiracies of Cleveland-Cliffs and USW President David McCall—for the benefit of all stakeholders, including U.S. Steel’s shareholders, who will receive the agreed-upon $55 per share upon the transaction closing. We remain confident that the Transaction is the best path forward to secure the future of U.S. Steel—and we will vigorously defend our rights to achieve this objective.”

According to the companies, the litigation will establish that Biden ignored the rule of law to gain favor with the USW and support his political agenda; that CFIUS failed to conduct a good faith, national security-focused regulatory review process, depriving Nippon Steel and U.S. Steel of their rightful opportunity for fair consideration of the transaction; and that Cleveland-Cliffs Inc., in collusion with the leadership of the USW, has sought to prevent the transaction from closing and any party other than Cliffs from acquiring U. S. Steel as part of a broader campaign to monopolize the domestic steel markets.

Nippon Steel and U.S. Steel say they are confident that they have strong cases and will rightfully close the transaction.

Cliffs responds

Goncalves has responded to the lawsuits by saying, “As of this morning, Nippon Steel and U.S. Steel continue to play the blame game in a desperate attempt to distract from their own failures. Today’s lawsuits against the U.S. government, the USW, and Cleveland-Cliffs represent a shameless effort to scapegoat others for U.S. Steel’s and Nippon Steel’s self-inflicted disaster. U.S. Steel’s executives did not get their personal payouts. Now that it is clear that they have miserably failed the very shareholders they always say they work for, they are lashing out with petulance as a result. Once again, [a] bad course of action."

He notes that the deal drew "instant bipartisan opposition, including from President Trump, who has vowed multiple times that he would block the deal."

Goncalves adds, "Shortly after the deal was announced, on Dec. 19, 2023, then-Sens. J.D. Vance, Marco Rubio and Josh Hawley requested CFIUS to block the sale of U.S. Steel to Nippon Steel, and rightfully indicated that ‘Trade protections can and should induce foreign investment that expands domestic production and creates American jobs[,] [but] [t]his corporate takeover is out of step with those goals. Allowing foreign companies to buy out American companies and enjoy our trade protections subverts the very purpose for which those protections were put in place.’ Vance, Rubio and Hawley followed up with a letter to President Biden on May 9, 2024, urging President Biden to ‘summon the courage to do the right thing. Declare whether you will exercise your presidential authority to prohibit or suspend the sale of U.S. Steel to Nippon.’

"The final decision by the president of the United States to block the Nippon deal follows a yearlong national security review and underscores the importance of maintaining American control over our country’s critical steelmaking infrastructure," Goncalves continues. "Even more than China, Japan has a decades-long history of steel overcapacity and harmful steel dumping into the United States. The destruction of good-paying, middle-class jobs in the steel industry can be traced back to the unfair trade practices perpetrated by Nippon Steel. The U.S. government has properly recognized that granting increasing influence to Nippon Steel via this acquisition is a direct threat to our economy, workforce, infrastructure and defense, all important elements of national security. Nippon Steel’s overproduction in their home country of Japan is at the root cause of their horrible track record of injurious trade practices in the United States. The risks of not having the deal approved were well-recognized, and even David Burritt sold a chunk of his own personal stock at $50.01 on the day of the announcement, December 18, 2023."

Goncalves calls the lawsuit against himself, Cliffs and the USW's McCall "completely baseless," adding, "We are well-prepared to litigate and look forward to exposing the facts in court.”