A proposed $15 billion acquisition of U.S. Steel (X 0.45%) is reportedly set to be blocked by U.S. lawmakers. Investors reacted to the news by heading for the exits, sending U.S. Steel shares down about 20% for the week as of midday Thursday, according to data provided by S&P Global Market Intelligence.
No deal?
U.S. Steel is the biggest remaining legacy of the nation's Industrial Revolution-era steel industry. The company was put in play last year when Cleveland-Cliffs made an unsolicited offer, culminating with U.S. Steel agreeing to be acquired by Nippon Steel of Japan for $55 per share in cash.
The proposed deal has been a lightning rod since it was announced, and it appears the White House is preparing to block it. The Washington Post reported this week that President Joe Biden is preparing to announce he will formally step in.
The Committee on Foreign Investment in the United States (CFIUS), a U.S. Treasury-led group that can review any takeover attempt of a U.S. company by a foreign entity for potential national security implications, has reportedly concluded that security concerns cannot be mitigated. By law, Biden can block a deal based on CFIUS' final report.
Is U.S. Steel a buy?
Deal advocates had hoped that Japan's status as a key U.S. ally would be enough to mitigate concerns. But this is an election year, and U.S. Steel's highly unionized workforce in the Midwest is on the radars of both major political parties.
Should the deal get blocked, investors would lose out on a quick payout. But U.S. Steel shares are now back to levels where they might be worth consideration even if the company remains independent.
There remains a chance that Cleveland-Cliffs or another U.S.-based buyer will reemerge. Even if not, U.S. Steel has made good investments in modernization, including electric arc furnaces, and should see improved profitability and free cash flow in the years to come as that investment cycle ends.
This is a tough business. But if U.S. Steel shares remain under pressure due to the headlines, it might be a good time for bargain hunters to give the stock a close look.
