United States Steel Corporation X are down over 16% since Wednesday morning after the Biden administration expressed intentions to block Nippon Steel Corporation's $14.9-billion acquisition of the American company.
This has been referred to as a national security concern by President Joe Biden, who is reportedly awaiting the results of a Treasury review that would grant him power to execute the restriction.
The Washington, D.C. holdup of the M&A deal is being called politically motivated by one senior Japanese official, who sees it as a way to earn voters in the battleground state of Pennsylvania, where the company is headquartered.
A former member of the Committee on Foreign Investment, which is the council reviewing national security concerns, says the national security concerns are nowhere to be found, and dropping the deal would actually hurt the economy.
Jefferies maintained a Buy rating on U.S. Steel Thursday and dropped its price target from $47 to $41, according to data from Benzinga Pro.
US Steel Deal Not A ‘National Security Risk,’ Says Former White House Economist
The deal would put the Pittsburgh-based steel producer, which is the country's second largest, in the hands of Japan's biggest steelmaker. The acquisition was approved by U.S. Steel shareholders in April.
U.S. Steel CEO David Burritt has said the company could shut down its steel mills and leave Pittsburgh as its home base if the deal is shut down, which would include the loss of U.S. jobs.
While the issue has become largely politicized in the context of the election year, some pundits disagree with the argument that losing U.S. ownership of the company would signify a national security risk.
"Nothing I see in the public domain makes me think this is a national security risk," said Matthew Slaughter, Dartmouth's Tuck School of Business dean, in an interview with CNBC.
Slaughter served on the White House Council of Economic Advisers and was part of CIFUS, the body reviewing national security concerns for the Treasury.
Japan is one of the U.S.'s strongest allies and Nippon Steel has been operating in the country since the 1980s, Slaughter said. Nippon Steel has expressed that it would keep U.S. management on the payroll making key decisions in order to accommodate the deal.
The Japanese steel behemoth has committed to a $2.7-billion investment in U.S. Steel, most of which the company needs to continue its operations and realize further expansions.
"Essential to national security is economic security," said Slaughter, who argues the deal should go through.
It has long been the case that engagement with the global economy through these types of foreign investments "has been a major contributor to the economic strength and dynamism of America," he said.
This dynamism ultimately feeds into the "good jobs that everyone seems to be rightly concerned about,” Slaughter said.
"We've got to find mechanisms other than building more walls, to address those legitimate concerns," he said.
In his view, the Nippon-U.S. Steel deal looks "quite unlikely."
Are Politics Behind Biden's Decision?
Both presidential nominees — Kamala Harris and Donald Trump — have said they believe U.S. Steel should remain U.S.-owned.
The company is headquartered in the battleground state of Pennsylvania, where Harris and Trump are tied in the polls.
The United Steelworkers union has expressed opposition to the deal, Reuters reported in April.
U.S. Steel workers don't necessarily agree. Hundreds of employees rallied at the U.S. Steel Tower in Pittsburgh to support the Nippon Steel transaction, WTAE-TV Pittsburgh reported.
Speaking to reporters in North Carolina on Thursday, Treasury Secretary Janet Yellen said the final decision on foreign acquisitions remains with Biden, and declined further comment, Reuters reports.
Japan's Digital Transformation Minister Taro Kono referred to the blockade as politically motivated.
"I think they're looking for labor union votes ahead of the U.S. presidential race," he said on Thursday.
Kono could soon become Japan's new prime minister as he runs to replace PM Fumio Kishida as his party's leader in elections next month.
The government shouldn't "arbitrarily intervene in a single case," he said, as quoted by The Japan Times.
Investors were warded off by news of the blockade, resulting in a sell-off of U.S. Steel stock.
Analysts at Jefferies continue to see value in the stock. While the price target was reduced to $41, analyst Christopher LeFemina said he expects a premium of almost 40% in the year stemming from today's sell-off.
The VanEck Steel ETF SLX rose 0.2% on Thursday and is down 5% in the last five trading days.
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Image courtesy of U.S. Steel.
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