In the world of business and politics, they are overlap and that can be a very good thing for a business. The government through its many boards and agencies can help a company but making it harder for the competition to compete. The business benefits by the increased barriers or access to lower cost of funds, maintains employment in the area and local and national politicians tend to stay elected. It can be a win-win situation for all those concerned.

Sometimes the government has its own agenda, which does not align with the business. In the case of US Steel being acquired by Nippon Steel, the government’s agenda does not align with Nippon Steel. Nippon Steel is owned by Japanese shareholders. The government has a desire to keep US Steel majority owned by US resident shareholders. The bad news is US Steel need a major capital commitment to continuing using its blast furnace steel making facilities. The government has an image of what US Steel was and would like it to rise again without the help of Nippon Steel.

In an article by Aatreyee Dasgupta and Alexandra Alper of Reuters, President Joe Biden made a decision to block the sale of US Steel to Nippon Steel and he has the ability to do it. Part of his rational has a national security issue.

US Steel’s Board of Directors and Nippon Steel still want to merge, and they are seeking a solution through the courts. They have filed a lawsuit saying the President violated the Constitution and made a bag decision using the National Security clause and the process was flawed.

The problem for Nippon Steel, courts generally give great deference to how national security is defined and implemented.

The other problem is also political, President Trump is not necessarily for the merger, but maybe.

From a financial standpoint, US Steel has $1.8 billion in cash, down from $2.9 billion in 2023. Nippon Steel has promised to invest $2.7 billion in US Steel’s Gary, Indiana and the Mon Valley Steel works near Pittsburg, Pennsylvania. Without the investment, US Steel will continue to invest in newer electric Arc furnaces at its Big River plant in Arkansas, rather than the blast furnaces.

Linking to dividend paying stocks, when a merger is announced, both parties have many vested interests in seeing the process through. In the case of US Steel, there was a competing offer from Cleveland-Cliffs at $7 billion, however it was well less than Nippon Steel $15 billion offer as well as the other issues Nippon Steel has said it will do if it succeeds. With all mergers, it is easier to say they will walk away or fold than to continue the battle to the end, because as the process goes forth, the executives who back the merger will certainly be let go if a competitor wins. Seeing who benefits and who loses is a good way to examine a merger. President Trump while at a meeting with the Japanese Prime Minister, said an investment not a takeover will happen.

There are more questions than answers, till the next time – to raising questions.