The White House has come out against Nippon Steel's planned $15 billion acquisition of United States Steel (X 0.45%), and investors are worried about what that means for the deal. Shares of the target are down 15% for the week as of midday Thursday, according to data provided by S&P Global Market Intelligence,
The problem with big deals in election years
U.S. Steel, owner of some of the nation's largest steelmaking facilities, was put in play last year after receiving an unsolicited offer from Cleveland-Cliffs. The process concluded with Japan's Nippon agreeing to pay $55 per share in cash for U.S. Steel, subject to shareholder and regulatory approval.
Given U.S. Steel's legacy and its strongly unionized labor force, regulatory approval always seemed like a big hurdle. This week President Joe Biden said the company should retain American ownership, setting up an election-year battle that could throw the deal into doubt.
"It is important that we maintain strong American steel companies powered by American steel workers," Biden said, according to news reports. "I told our steelworkers I have their backs, and I meant it. U.S. Steel has been an iconic American steel company for more than a century, and it is vital for it to remain an American steel company that is domestically owned and operated."
The statement does not mean the deal is dead, but it certainly highlights the challenges the merger partner faces. The news caused U.S. Steel shares to plunge back to levels close to where they were prior to the deal's December announcement.
Is U.S. Steel stock a buy?
It is hard to imagine Biden walking back that statement. There are scenarios where the deal will be allowed to close as written, but most would take a lot of time to play out. Some sort of concession that might lower the price is also possible, as are the two sides eventually parting ways.
Given the risks, investors should not buy in confident of grabbing that $55 per share cash price.
Should the deal fall through, U.S. Steel would presumably have other options. But all would take a lot of time to play out. For now investors are best watching this story from the sidelines.
