Biden ordered a stop to the US$14.9
billion acquisition, citing national security concerns. The steelmakers
have said they will "take all appropriate action to protect our legal
rights."
In the
past 40 years, there have been only two cases of major Japanese acquisitions of
U.S. companies in the Rust Belt states of the Midwest and Northeast: tire maker
Bridgestone's deal for Firestone and Suntory Holdings' purchase of bourbon
maker Beam.
The reason for this is that manufacturing, particularly the
automobile industry, has shifted its focus to the Sun Belt states of the South
to escape the influence of labor unions.
US
Steel, which has its headquarters and main steelworks in Pennsylvania, is a
symbol of what was left behind. The US steel industry as a whole is a shadow of
its former self. According to US labor statistics, the total number of American
steelworkers is now less than that of manicurists.
The transition from blast furnaces to electric arc furnaces,
which allow for reduced manpower, is a factor in this workforce decline.
Despite being a minority in terms of labor statistics, the
steel industry's political influence remains relatively large due to the
hollowing out of other industries -- a situation unlikely to change in the near
future. It is no coincidence that Pennsylvania is also a swing state in
presidential elections.
Acquisition
success has been said to hinge on four points: timing, valuation, the ability
to predict changes in the business environment, and the buyer's ability to
manage the target.
For the US Steel deal, the time was right for Nippon Steel
to buy, aside from the then-impending US presidential election. But the
business environment and management factors were shaky.
After its losses at the polls in November, the Democratic
Party wants to win back labor union support in preparation for the next presidential
election in four years.
President-elect Donald Trump's Republican Party will be keen
to hold on to union votes. Even if the acquisition somehow goes through, the
combined steelmaker would still face the risk of political interference in
management decisions.
Yet this is not a reason to give up on buying American
companies. A setback like this should be taken in stride as an opportunity to
learn to manage uncertainty.
Nippon
Steel has technology that US Steel's leadership wants, including carbon dioxide-trapping
pipes and lower-emissions hydrogen reduction steelmaking. Given Trump's stated
ambition to revive American manufacturing, all hope for the deal may not be
lost.
