Why Nippon Steel’s $15 Billion Takeover of U.S. Steel Is in Peril

When U.S. Steel put itself up for sale in 2023, executives at Nippon Steel in Tokyo saw an opportunity: Buying the American steel maker could help it offset anemic demand in its home country and strengthen its hand in a global business dominated by China.

On Dec. 18, the companies announced that Nippon Steel had agreed to acquire U.S. Steel for $14.9 billion, a 40 percent premium to U.S. Steel’s share price at the time. Analysts praised Nippon Steel as a potential savior of U.S. Steel, a onetime backbone of the American economy that had fallen behind rivals.

But almost immediately, the merger incited a backlash in the United States that has prevented it from being completed.

U.S. politicians from both parties have condemned the prospect that a storied 123-year-old American industrial company would be acquired by a foreign corporation. The timing was also particularly bad for Nippon Steel: The United Steelworkers union, the group that most forcefully opposed the deal, is based in Pennsylvania, a state that could determine the winner of the presidential election in November.

Much of the furor surrounding the deal can be traced back to Nippon Steel’s decision not to consult union leaders while it negotiated with U.S. Steel, according to interviews with some of the key players, including two U.S. and Japanese officials who informally advised Nippon Steel. Both spoke on the condition of anonymity because they were not authorized to speak publicly.

Nippon Steel also initially underestimated the challenges that United Steelworkers opposition would pose to closing the deal, especially in an election year, the two officials said.

Now, eight months later, Nippon Steel is locked in a standoff with a union that represents some of the most politically powerful voters in the United States. The deal’s fate will most likely fall to the next president, and could have implications for not only the structure of the global steel industry but also U.S.-Japanese economic relations.

Nippon Steel has hired lobbyists to amplify its arguments that the merger would be good for both companies and their employees, as well as for the United States and Japan. The United Steelworkers has taken action under its labor contract to contest the acquisition in what experts say is an effort to win concessions for workers.

“It would have been hard to expect how political this deal has become,” said Nick Wall, a Tokyo partner specializing in mergers and acquisitions at the law firm A&O Shearman, which is not involved in the negotiations. The presidential election, he said, “is going to be won or lost in several key states that just so happen to be at the very center of this deal.”

An Awkward Phone Call

The day the merger was announced, said David McCall, the international president of the United Steelworkers, he received a phone call at 6 a.m. from the chief executive of U.S. Steel, David Burritt, who enthusiastically talked him through the details of the deal.

Mr. McCall was taken aback. Months earlier, another company that had bid for U.S. Steel, the American steel producer Cleveland-Cliffs, had talked through its plans with union leaders and asked for their support. Now, Mr. McCall said, he was hearing of the involvement of a Japanese buyer for the first time.

“I didn’t know anything about Nippon or its plans,” Mr. McCall said. “I’m not going to say that it has never happened that I wasn’t told in advance about a deal, but not in this manner, not in this completely dismissive kind of way.”

The union immediately came out against the acquisition, which, it said, violated an agreement it had with U.S. Steel that promised to inform the union in advance of any change in control of the company.

The union also said that a foreign corporation’s purchase of an American steel company would pose threats to national security and that it had identified holes in commitments that Nippon Steel had offered it.

From there, as described by one of the government officials advising on the deal, politicians in the United States began to voice concerns. In January, the month after the merger was announced, former President Donald J. Trump, then already a leading Republican candidate for president, said he would block the deal if elected.

President Biden, who had portrayed himself as the “most pro-union president in history,” signaled his opposition to foreign ownership of U.S. Steel in mid-March. About a week later, the United Steelworkers endorsed Mr. Biden’s bid for re-election.