Observers in and out of the Steel Industry continue to ask questions regarding the proposed sale. However the lack of quick answers to those questions highlights the complexity of the transaction. Here are a few aspects to dwell upon when trying to determine if the transaction will close:
Previous Joint Venture Between Arcelor Mittal & Nippon at Calvert AL
First in line is the existing joint venture between Arcelor Mittal and Nippon at the Calvert AL location. Apparently there are some provisions in the agreement which dictates action if one partner acquires an interest in another facility which might compete with this new U.S. Steel venture. This comes at a time when the slab production facility completion has been delayed. It is also possible that divestiture might be necessary to lessen Nippon’s US Holdings. The relationship between the parties seems cordial to the outside world, but likely problems are still unresolved.
Environmental Legacy Costs and Facility Closures
Another factor includes the closure of certain US Steel facilities along with their environmental legacy costs. Although not uncommon for the representations, warranties, and indemnifications sections of a purchase agreement are intended to give some comfort to the buyer; it is nonetheless an aspect of the transaction that will likely attract more attention as the process continues. Recent and ongoing multi million dollar EPA fines in Allegheny County are a good example of this environmental minefield. The fate of other locations in Granite City Il may also pose some challenges.
Political Factors Surrounding the Proposal
The last issue to be addressed is the very visible and not so subtle political aspects of the debate. According to current production data the small percentage of steel production affected by this proposed transaction is not likely to pose a real threat to national security. However, it does elevate the passions of both politicians and labor leaders on the subject.
Trump has expressed opposition to the transaction, maintaining his protectionist views including threatening China with tariffs which might make trade in the future more difficult. How to conduct international trade while boycotting the world’s largest steel producer and a needed environmental ally may prove quite challenging.
Biden on the other hand has a complex tightrope to walk straddling his strong pro-union positions (United Steel Workers prefer Cliffs as the acquiring partner) with what may be the best long term financial stability and performance of a Nippon managed company. The optics of this are bad for Biden but Japan is a very strong and important US ally highlighting the complexity of the Asian region involving China, Taiwan, Philippines, Australia and North and South Korea. Most observers believe the Democratic party will, with the possible exception of a few politicians, favor the Nippon transaction if the parties resolve the important open issues.
For those of you who thought this sale would be evaluated based on basic economics and employment ramifications, think again. It may rise or fail on some issues raised in this article or others which have yet to rise to the public view. This is likely to be a very long and complex transaction. All of the above is somewhat speculative in nature. It is, however, food for thought about the challenges of the proposed acquisition.
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