Trump Adds Doubt To US Steel's Buyout By Foreign Competitor "I Would Block It Instantaneously. Absolutely"

What's good for shareholders of United States Steel Corp. X might not be in the best interest of the United States. At least, that's the argument former President Donald Trump is signaling.

On Dec. 18, U.S. Steel announced the end of a months-long bidding war, culminating with it being acquired by the Japanese steel powerhouse Nippon Steel Corp., for $14.1 billion or $55 per share.

U.S.-based rival to U.S. Steel Cleveland-Cliffs Inc. CLF started off the chain of events when its proposed $7.25 billion bid to buy U.S. Steel was rejected in August.

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While Cleveland-Cliffs eventually raised the price it'd be willing to pay to $54 per share, in the end, it was not enough.

The relatively small $220 million difference in the offers wasn't the main sticking point for U.S. Steel. The conclusion of U.S. Steel's outside advisers was to go with the Nippon Steel offer as they had concerns about the Cleveland-Cliffs deal bringing about antitrust issues by the Department of Justice.

According to a proxy statement filed by US Steel, "A transaction with [Cleveland-Cliffs] would eliminate the sole new competitor in nongrain-oriented steel production in North America as well as eliminate a competitive threat to [Cleveland-Cliffs]'s incumbent position in the U.S., and put up to 95% of iron ore production in the U.S. under the control of a single company."

Meanwhile, a transaction with Nippon was expected to undergo a relatively mild threat from the Committee on Foreign Investment in the United States (CIFUS) under the context of national security.

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Whether the deal closes depends on regulatory approval, making Trump's comments all the more relevant if the national security review cannot be finalized by the election.

In addition to stating he'd work to "instantaneously" block U.S. Steel from being bought by Nippon, Trump went on to state: "We saved the steel industry. Now, U.S. Steel is being bought by Japan. So terrible."

If the Nippon and U.S. Steel deal is blocked, U.S. Steel shareholders should not expect a comfortable back-up offer by Cleveland-Cliffs to remain on the table.

Cleveland-Cliffs CEO Lourenco Goncalves was blunt about that, saying, "That transaction is no longer available, it's no longer a backstop for their failure. If they can't close — I don't know where they are at this point — that offer is gone, that offer no longer exists."

Given that U.S. Steel's stock was trading in the low $20s before the first Cleveland-Cliffs offer was announced, investors should be wary of significant downside risk to the shares of U.S. Steel if the acquisition doesn't close.

However, there's also a significant upside for investors betting that a deal will close, as U.S. Steel is trading at about $46 per share, implying about a 20% upside if the all-cash Nippon offer is successful with regulators.

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