On July 21, Biden became the first sitting US president, since 1968, to drop out of a presidential race. And that fast-tracked his entry into that blighted club all outgoing US presidents detest ─ The Club of Lame Ducks!
Biden’s lame-duck session would have begun in November this year (when the Congress meets after a successor is elected, but before the successor’s term officially begins); that is, if he hadn’t pulled the plug.
But as things stand, Biden has a couple of months ahead of his final congressional session. Nov may not offer much in terms of surprises. True to tradition, like most of his predecessors, Biden may use those final few days in office to pardon turkeys and felons alike; and, while at it, make some judicial nominations as well.
So, it isn’t about Nov, but what Biden could possibly do in Sep and Oct?
For one, Biden could nix Nippon Steel’s bid for US Steel!
The transaction, announced in Dec 2023, is worth about $14.9 billion when including the assumption of debt. At $55.00 per US Steel share, the transaction represented a 40% premium.
That was then.
And before politics seeped into the deal.
US Steel now trades 35% down YTD.
That’s because Biden has the presidential powers to directly block the deal ─ under the 1950 Defence Production Act ─ and it appears that he is relying on the Committee on Foreign Investment in the United States (CFIUS), a body responsible for evaluating the national security implications of foreign investments in U.S. companies, to make the case for the deal to be killed.
Are the reasons cited for killing the deal compelling?
This is where the narrative gets foggy (and dodgy!).
Consider these points:
1. The acquirer is a Japanese firm. And Japan is a strong US ally. (Whatever happened to ‘friendshoring’ – Part 1)
2. The reaction from the White House has been so vehement that one might get the impression that US Steel is a colossus. Not really! US Steel isn’t among the Top 5 producers in the world. It’s not even among the Top 20. US Steel breaks into the global list at 24. (Fun fact? 6 out of the Top 10 are Chinese).
3. Nippon’s play is clear here: (a) fly under the US import tariff radar and (b) bolt US Steel’s 15.75 MT production onto its own 43.66 MT to vault into third place (displacing Ansteel, while still trailing China Baowu and Arcelor).
Clear as day so far.
The narrative gets obscure from hereon.
Especially when viewed through the lens of CFIUS and its ‘fears’. Primarily around lowered supply in the US. And production moving over time to India. (Whatever happened to ‘friendshoring’ – Part 2)
(For those of you who like to think of a ‘direct threat to national defence’ angle here: the Pentagon’s annual steel requirements consume just 3% of total U.S. production)
So, what’s it going to be?
An acquisition that appeared inevitable after US Steel put itself up for sale last year.
Or
An acquisition that got upended only because it surfaced during an election year.
