By Alexandra Alper, Aatreyee Dasgupta and Yuka Obayashi
WASHINGTON (Reuters) – U.S. President Joe Biden illegally blocked Nippon Steel's $14.9 billion deal in U.S. Steel over a national security review, the companies allege in a lawsuit filed on Monday.
The companies are asking a federal appeals court to overturn Biden's decision to scrap the deal so they can secure additional compensation through a new national security review unfettered by political influence.
The lawsuit accuses Biden of undermining the decision of the Committee on Foreign Investment in the US, which examines foreign investment for national security risks, and violated the right of companies to due diligence.
The merger became highly politicized ahead of November's US presidential election, with Democrat Biden and Republican President-elect Donald Trump vowing to kill it as they wooed voters in the swing state of Pennsylvania where US Steel is headquartered. United Steelworkers union president David McCall disputed this.
Trump and Biden both confirmed that the company should remain American-owned even after the Japanese company offered to move its US headquarters to Pittsburgh, where the US steelmaker is based, and promised to honor all agreements between US Steel and USW.
Mr. Biden tried to kill the deal to “seek favor with the USW leadership in Pennsylvania in his bid for re-election,” the companies alleged.
“Due to President Biden's undue influence to advance his political agenda, the Committee on Foreign Investment in the United States has failed to create a credible, national security-focused vetting process,” the companies said in a statement.
A White House spokesman defended the review, adding, “President Biden will never hesitate to protect this nation's security, its infrastructure, and the strength of its supply chains.”
The lawsuit, which agrees with the companies' claims made in a December 17 letter to CFIUS seen by Reuters, shows the companies are making good on their threats to sue.
“We cannot come back after being treated irrationally. We will fight thoroughly,” Nippon Steel Vice Chair Takahiro Mori said on Monday.
Mori said the CFIUS review process is incomplete as the Japanese company has not received a written statement on the proposed national security agreement.
The prospects for the case, which is being called by US Attorney General Merrick Garland and Treasury Secretary Janet Yellen, are unclear. Yellen oversees CFIUS. Courts generally give CFIUS more credit for defining national security, experts say.
The Justice Department declined to comment and the Treasury Department did not respond to a request for comment.
Trump said in a post on his social media platform on Monday: “Why do they want to sell US Steel now when Tariffs are going to make it a profitable and valuable company?”
Nippon Steel's partnership with US Steel is in line with Trump's vision to strengthen US manufacturing, Nippon Steel CEO Eiji Hashimoto told reporters on Tuesday in Tokyo.
“If we win the case and CFIUS reopens the review … we will state again that this acquisition is beneficial to the United States,” Hashimoto said. “And I'm sure we'll be able to find an understanding.”
Nippon Steel shares were down 1.5% at 0114 GMT in Tokyo.
CLIFFS, SW ALSO LOOKING AT YOU
The companies also filed a second lawsuit against the controversial operator Cleveland-Cliffs (NYSE:), its CEO Lourenco Goncalves and USW's McCall “because of their illegal and organized actions” aimed at preventing the agreement.
They argued that Cliffs, Goncalves and McCall had colluded to allow Cliffs to “dominate domestic steel markets” by blocking any other attempts to buy US Steel.
Goncalves participated in at least nine calls assuring investors that Biden would end the Nippon Steel merger, according to a letter last month to CFIUS, Reuters reported.
Goncalves said in a statement on Monday that “Nippon Steel and US Steel continue to play a side game in a desperate attempt to distract from their failure. Today's judgments against the US government, USW, and Cleveland-Cliffs show a shameless effort by some people because of the disaster of US Steel's and Nippon Steel's.”
McCall said USW will “vigorously defend these baseless allegations.”
Last week, Biden blocked the proposed purchase on national security concerns, dealing a potentially fatal blow to the controversial plan after a year of review.
US Steel, founded in 1901 by some of the greatest US tycoons, including Andrew Carnegie, JP Morgan and Charles Schwab (NYSE:), was associated with industrial recovery after the Great Depression and World War II.
Shares of US Steel closed up about 8% on Monday. The company has been under pressure after several quarters of falling revenue and profits, making it an attractive target for competitors looking to increase their US market share.
THE 'PROGRESSIVE' ASSESSMENT PROCEDURE
Nippon Steel's December 2023 bid for US Steel faced early challenges.
Biden vetoed the deal on March 14, before the CFIUS review began, which the companies claimed prejudged the outcome and denied them due process.
McCall endorsed Biden a week later.
Biden was later replaced on the Democratic presidential ticket for 2024 by Vice President Kamala Harris, who opposed the deal and was accepted by the USW.
CFIUS usually approves a deal or advises the president to block it, but in rare cases, it sends them to the president, as it did with the Nippon Steel deal in Dec.
Before that, CFIUS staff were prevented from negotiating with companies about a proposed deal to address the committee's national security concerns, a report by US Steel and Nippon Steel alleged, a marked deviation from routine operations.
“It is clear that the review process was conducted so that the results would support President Biden's decision,” the companies said.