Exclusive-Rival’s chief executive has spread doubt over Nippon Steel deal prospects on Wall Street, Reuters documents claim

Author: Alexandra Alper

WASHINGTON (Reuters) – While Nippon Steel has faced skepticism from the Biden administration over its doomed $14.9 billion bid for U.S. Steel, it has also battled headwinds from an unlikely source: the CEO of a rival bidder for the company who has repeatedly cast doubt on business prospects for investors.

Lourenco Goncalves, chief executive of steelmaker Cleveland-Cliffs (NYSE: ), which made an unsuccessful $7 billion bid for US Steel in August 2023, took part in at least nine calls assuring investors that President Joe Biden would block the Nippon Steel merger several months before he did. so on Friday, according to summaries of investor calls included in a Dec. 17 letter from lawyers for Nippon Steel and US Steel to the Committee on Foreign Investment in the US (CFIUS), two participants in the calls confirmed to Reuters.

“I can’t force US Steel to sell it to me, but I can work my magic to make a deal I don’t agree with not to close,” he told investors on a March 13 call hosted by JP Morgan, the letter quoted Goncalves as saying.

“It’s not closing, and Biden hasn’t spoken yet. He will.”

The next day, Biden announced his opposition to the merger.

CFIUS, which reviews foreign investment in the US for national security risks, could not reach a consensus on whether to greenlight the Nippon Steel transaction and referred the matter to Biden in late December, setting the stage for his block on Friday.

Goncalves declined to comment, and a representative for Cleveland-Cliffs did not respond to a request for comment. Nippon Steel and the Treasury Department, which runs CFIUS, also declined to comment. US Steel said the company would continue to fight for the deal in response to questions for this story. The White House said neither Goncalves nor his comments played a role in Biden’s decision to scrap the deal. It said on Friday that the proposed purchase was a national security concern.

JP Morgan declined to comment, but a note to clients in a March 2024 industry conference summary referred to the Goncalves event, saying “management reiterated its expectation that the deal will not close.” A participant in the call confirmed Goncalves’ prediction that Biden would soon set his sights on a deal.

While Goncalves made similar comments about the deal to analysts during three earnings calls this year, his private remarks during 2024 about the deal process show the extent of his efforts to cast doubt on Nippon’s bid for US Steel. His comments sometimes preceded a drop in US Steel’s share price, Nippon Steel and US Steel told CFIUS.

Cleveland-Cliffs previously expressed interest in another bid.

The steelmaker, run for more than a decade by Brazilian-born Goncalves, made an unsolicited bid for US Steel with the backing of the United Steelworkers union, arguing that together the companies would “create a cheaper, more innovative and stronger domestic supplier.”

But US Steel has expressed concern that antitrust regulators risk cutting ties with Cleveland-Cliffs because it would consolidate steel supplies to US carmakers and put up to 95% of US iron ore production under one company’s control. US Steel’s board of directors rejected the offer.

Nippon Steel’s December all-cash offer was valued at twice the price of Cleveland-Cliffs, and Nippon later promised to revitalize US Steel’s aging plants with investment from an allied nation.

But the offer became politicized, with both Biden and Republican President-elect Donald Trump vowing to scrap the deal as they wooed voters in the swing state of Pennsylvania, where US Steel is headquartered.

Both Trump and Biden argued that the company should remain American-owned after USW President David McCall voiced his opposition to the merger.

Biden’s objections led to “impermissible undue influence” by the White House on the national security-related CFIUS review, the companies said in a letter obtained by Reuters last month that also included summaries of investor conversations with Goncalves.

Goncalves previously disputed that CFIUS was considering the merits of the deal.

In a March 15 conversation with a major investor in US Steel, confirmed by one of the participants in the call, he said: “(There is no process here). This will not be a process. CFIUS is just a cover for the president to undo the deal. CFIUS is a bunch of bureaucrats, second and third level, inside the cabinet…That means the president can do whatever he wants.”