Cleveland-Cliffs CEO’s Actions Cast Long Shadow on Nippon Steel’s Failed U.S. Steel Acquisition
The collapse of Nippon Steel’s $14.9 billion bid for U.S. Steel wasn’t solely due to President Biden’s intervention. A new report reveals that Lourenco Goncalves, CEO of Cleveland-Cliffs, a rival bidder, actively worked behind the scenes to undermine the deal, engaging in a series of investor calls where he predicted – and arguably influenced – the deal’s demise. His actions raise serious questions about the interplay between corporate maneuvering, political influence, and national security reviews in major acquisitions.
Key Takeaways: The Inside Story of a Failed Merger
- Cleveland-Cliffs CEO Lourenco Goncalves repeatedly and publicly predicted the failure of Nippon Steel’s bid for U.S. Steel to investors.
- Goncalves’ statements allegedly influenced investor sentiment and potentially impacted U.S. Steel’s share price.
- President Biden’s ultimate rejection of the merger, citing national security concerns, followed Goncalves’ repeated assertions that the deal would fail.
- The White House denies Goncalves’ comments influenced Biden’s decision.
- This situation highlights the complex relationship between corporate strategy, political pressure, and the Committee on Foreign Investment in the U.S. (CFIUS) review process.
Goncalves’ Campaign to Kill the Deal
According to a December 17th letter from lawyers for Nippon Steel and U.S. Steel to CFIUS, and corroborated by multiple sources, Goncalves participated in at least nine investor calls throughout 2024. In these calls, he consistently voiced his belief that the Nippon Steel-U.S. Steel merger would not succeed and that **President Biden would ultimately block the deal**. His predictions weren’t simply informed opinions; they were forceful assertions presented as highly probable outcomes.
Impactful Investor Calls
A particularly revealing quote from a March 13th call hosted by JP Morgan underscores Goncalves’ confidence: “I can’t force U.S. Steel to sell to me, but I can work my magic to make a deal that I don’t agree with not to close,” he reportedly said. “It’s not closing, and Biden hasn’t spoken yet. He will.” Remarkably, the next day, Biden indeed announced his opposition to the merger.
While Goncalves’ comments on earnings calls were somewhat similar, the private investor calls highlight a concerted effort to influence market perception and possibly diminish the value of U.S. Steel’s stock in anticipation of a potentially resubmitted lower-value offer by Cleveland-Cliffs. This intentional use of his public profile and corporate position to exert influence on the process is unprecedented in such a high-stakes acquisition.
CFIUS, National Security, and Political Pressure
The Committee on Foreign Investment in the U.S. (CFIUS) is tasked with reviewing foreign investments for potential national security risks. In this case, CFIUS couldn’t reach a consensus, ultimately referring the decision to President Biden. This referral itself highlights the inherent complexities and sensitivities associated with such high-profile acquisitions with significant national security implications.
The Allegation of Undue Influence
Nippon Steel and U.S. Steel argued in a letter obtained by Reuters that Biden’s objections stemmed from “impermissible undue influence” from the White House on CFIUS’s review. This raises concerns about whether the President’s decision was solely based on national security considerations or if other factors, such as political pressure or corporate lobbying, played a role. The involvement of the President-elect Donald Trump also adds a further layer of complexity, as his similar earlier pronouncements to reject the deal are evidence of cross-party political views on the merger.
The White House, however, categorically denies that Goncalves’ comments or actions had any bearing on Biden’s decision.
The official statement emphasizes that the decision to block the merger was based solely on national security concerns.
The Competing Bids and the Future of U.S. Steel
Cleveland-Cliffs’ initial $7 billion unsolicited bid for U.S. Steel, supported by the United Steelworkers union, was rejected by U.S. Steel’s board. Concerns included antitrust risks as the merger would consolidate much of the country’s iron ore production. This points to the extremely competitive landscape in the steel and mining sectors and demonstrates that the Nippon Steel-U.S. Steel merger was far from a foregone conclusion.
Nippon Steel’s subsequent offer, twice the value of Cleveland-Cliffs’ bid, appeared more attractive financially. Nippon also pledged significant investment to modernize U.S. Steel’s facilities. However, this was overshadowed by the growing worries about national security implications and apparent corporate manoeuvring.
Goncalves’ Continued Interest
Despite the failed bid, Cleveland-Cliffs has indicated a continued interest in acquiring U.S. Steel. It is unclear whether this interest is based solely on business strategy or if it signals an intention to try again to achieve dominance in the sector.
Conclusion: Unanswered Questions and Future Implications
The unraveling of Nippon Steel’s bid for U.S. Steel presents a case study in the intersection of corporate ambition, political influence, national security calculations, and the intricacies of international mergers and acquisitions. The allegations of undue influence and Goncalves’ active role in shaping investor sentiment raise significant questions about transparency and fairness in such processes.
The extent of Goncalves’ involvement and the weight it carried in the ultimate decision require further investigation. Ultimately, the fallout from this failed merger serves as a reminder of the potential consequences when business strategies become intertwined with political considerations and national security reviews. The incident leaves many unanswered questions about the role and conduct of corporate actors in merger negotiations involving national security implications. How the regulators and policymakers respond to this incident will be key to ensuring equitable access for international investors and avoiding similar scenarios in the future.
