President Biden is preparing to soon block an attempt by Japan’s Nippon Steel to buy U.S. Steel on national security grounds, according to three people familiar with the matter, likely sinking a merger that became entangled in election-year politics in the United States.
A decision to block the takeover would come after months of wrangling among lawmakers, business leaders and labor officials over whether a corporate acquisition by a company based in Japan — a key U.S. ally — could pose a threat to national security. A move by Mr. Biden to block the deal on those grounds could roil relations between the two nations at a moment when the United States has been trying to deepen ties with Japan amid China’s growing influence in East Asia.
For months, the Committee on Foreign Investment in the United States, or CFIUS, has been scrutinizing the deal over potential risks. There has been mounting speculation that the Biden administration could intervene before the November election.
A White House official told The New York Times that CFIUS “hasn’t transmitted a recommendation to the president, and that’s the next step in this process.”
CFIUS is made up of members of the State, Defense, Justice, Commerce, Energy and Homeland Security Departments, and is led by the Treasury secretary, Janet L. Yellen.
The committee sent a letter to U.S. Steel in recent weeks saying that it had found national security concerns with the transaction, one of the people familiar with the situation said.
The $15 billion deal, announced in December, has attracted scrutiny from lawmakers across the political spectrum. President Biden said in the spring that U.S. Steel should remain American-owned, and former President Donald J. Trump, the Republican presidential nominee, has also said he would block the sale.
On Monday, Vice President Kamala Harris, the Democratic presidential nominee, said the industrial icon should remain American-owned.
Senators from Ohio and Pennsylvania, where U.S. Steel has large factories, have also objected to the takeover. In part, they have questioned the prospect of a critical U.S. steel producer being sold to a foreign owner and warned that a foreign owner could be more likely to move U.S. Steel jobs and production overseas. The United Steelworkers union had vigorously opposed the deal, and its prospects were seen as a pivotal issue in Pennsylvania, a key swing state in the presidential election.
Shares of U.S. Steel dropped about 20 percent on Wednesday after The Washington Post and The Financial Times initially reported the expected move.
A spokesman for Nippon Steel declined to comment.
A spokesman for U.S. Steel said that the company had not received any updates or executive orders related to the CFIUS process and that it saw no national security issues with the transaction. He added that the company planned to continue to pursue all legal options to ensure that the transaction closed.
Employees of U.S. Steel who were in favor of the deal held a rally at its headquarters on Wednesday.
“Today’s rally is about displaying support for the transaction with Nippon Steel,” David B. Burritt, the company’s chief executive, said in a statement. “We want elected leaders and other key decision makers to recognize the benefits of the deal as well as the unavoidable consequences if the deal fails.”
If the agreement were blocked, it would mark the conclusion of protracted fight between U.S. Steel and the steelworkers union, which has raised concerns about the status of existing pension agreements and expressed doubts about Nippon’s promises to preserve jobs and invest in manufacturing facilities.
Last year, U.S. Steel rejected a $7.3 billion bid made by Cleveland-Cliffs, an Ohio-based steel manufacturer that had the support of the union. The company said in April that it remained interested in buying U.S. Steel if the Nippon deal faltered.
It is not clear that blocking the deal would necessarily benefit Pennsylvania, where U.S. Steel employs about 4,000 workers. The company has warned that if the deal with Nippon does not close, the company could have to cut jobs and move its headquarters from Pittsburgh.
Senator John Fetterman, a Pennsylvania Democrat who has opposed the merger, criticized U.S. Steel executives on Wednesday for threatening potential cuts to union jobs if the deal fell through.
“As I’ve always said, I will follow and stand with the United Steelworkers against the shameless executives looking for a golden parachute,” Mr. Fetterman said in a statement.
If the Biden administration blocked the transaction, it could also have broader ramifications for foreign investment.
Legal experts who specialize in international mergers and acquisitions said a decision to block the deal would appear overtly political and could damage America’s reputation for having open markets.
“The U.S. will lose all standing to argue that F.D.I. screening regimes around the world should not be politicized,” said John Kabealo, a Washington-based lawyer who specializes in cross-border transactions, referring to foreign direct investment.
The decision could also be a blow to American relations with Japan, a close ally and economic partner.
“It is far from clear how this deal could pose a national security threat,” said Nancy McLernon, chief executive of the Global Business Alliance, a lobbying group that promotes open investment in the United States. “The circus around this transaction is particularly concerning, given the importance of the U.S. relationship with Japan.”
Although objections to the deal became a rare instance of bipartisan agreement between Republicans and Democrats, some prominent former Trump administration officials were pushing for the deal to go forward.
Mike Pompeo, who served as Mr. Trump’s secretary of state, has been advising Nippon. Wilbur Ross, Mr. Trump’s former commerce secretary, has argued that blocking the deal was election-year “xenophobia.”
“As to the substance of it, I don’t see a national security issue,” Mr. Ross, who made a fortune buying, restructuring and selling off struggling American steel makers, said in a recent interview. “I’m not Trump’s spokesperson on the steel deal — I disagree that it was a problem in the national interest.”
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