(TNS) — An antitrust probe by the Department of Justice of Nippon Steel’s assets in Alabama is adding to the pressure on the Japanese company’s takeover of U.S. Steel.
The DOJ inquiry, according to Politico, appears to be focused on Nippon’s joint stake in a large Calvert, Alabama plant, operated with ArcelorMittal, which competes directly with U.S. Steel to supply metal for the automotive sector. It comes as a separate federal body is investigating the potential national security risks of a foreign takeover.
The DOJ declined to comment. President Biden said last week that U.S. Steel should remain domestically owned.
In response, Nippon promised that it would not cut jobs, close facilities or move production overseas as part of its $14.9 billion takeover of the Pittsburgh steelmaker. Nippon, which owns other steel mills in West Virginia and Pennsylvania, added in a weekend statement that it will move its existing U.S. headquarters from Houston to Pittsburgh as a show of its commitment to the state.
During the bidding process last fall, U.S. Steel’s legal advisors worried that antitrust scrutiny — mostly of a combination with rival bidder Cleveland-Cliffs, but also with Nippon — could delay or derail a potential takeover.
Regulatory documents showed that U.S. Steel requested a “hell or highwater” covenant from Nippon — a clause designed to provide certainty that a buyer will complete the transaction regardless of scrutiny from the DOJ or Federal Trade Commission. Nippon refused to sign the covenant, but agreed to “take certain specific actions if necessary to obtain antitrust approval,” documents showed.
Domestic metal supply has become increasingly consolidated in recent years, leading to concern that any combination of players could lead to price increases. Automakers lobbied against Cliffs’ bid in October.
“There are limited plants in the U.S. that are selling directly head to head to the auto industry, so it is certainly the type of transaction that you would expect the antitrust division to investigate,” said Joel Mitnick, an antitrust attorney with Cadwalader, Wickersham & Taft who has written specifically about hell or high water clauses.
In an interview with the Post-Gazette, he said an antirust review could easily take “over a year.” But if that review hinges on the one Alabama plant, Nippon has a relatively straightforward decision.
“The assumption is that they would sell their 50% stake” to AccelorMittal or another party, he said, adding that the review by the Committee on Foreign Investment review is “far more serious.”
U.S. Steel did not have an immediate comment. Nippon said it stood by last week’s statement, where it pledged to strengthen American supply chains and economic defenses against China.
“No other U.S. steel company on its own can meet this challenge while also meeting antitrust requirements,” Nippon said.
News of the DOJ probe came the same day U.S. Steel reported first quarter guidance, projecting adjusted net earnings of $0.80 to $0.84 per share, which CEO David Burritt said were in line with expectations.
“We remain focused on running our business as we make progress towards closing our transaction with Nippon,” he said.
