US Steel and Japan's Nippon Steel sued the US government on Monday in a last-ditch effort to revive their attempted merger after President Biden blocked it last week, saying the transaction posed a threat to national security.
The lawsuit, filed in a federal court in Washington, accused Mr. Biden and other senior administration officials of corrupting the review process for political gain and harming steelworkers and the U.S. steel industry by blocking the deal under false pretenses.
Mr Biden decided to block the merger after a government panel charged with reviewing foreign investment failed to reach a decision on whether the deal should go ahead. In a statement on Friday, Mr Biden said he was acting to ensure the United States maintained a strong, domestically managed and operated steel industry. The president had previously pledged to ensure that US Steel would remain American-owned.
The companies are asking the Committee on Foreign Investment in the United States to conduct a new review of the deal.
The companies have also filed a separate lawsuit against Cleveland-Cliffs, a U.S. steel company that previously tried to buy U.S. Steel but was rebuffed, along with Lourenco Goncalves, CEO of Cleveland-Cliffs, and David McCall, international president of the powerful United union. Steelworkers. The lawsuit accused Cleveland-Cliffs and the union's head of illegally conspiring to undermine the proposed deal between US Steel and Nippon Steel.
Mr. McCall said he was reviewing the lawsuit and would “vigorously defend himself against these baseless allegations.”
Mr. Goncalves said in a statement that the lawsuit was “completely without merit” and that Cleveland Cliffs was prepared to fight it.
“Nippon Steel and US Steel continue to play the blame game in a desperate attempt to distract from their own failures,” he said.
The legal actions represented a maneuver by the companies to secure a deal that was mired in election year politics. Presidents have broad authority to determine what constitutes a threat to national security, and no transaction blocked under these powers has ever been overturned in court.
However, Biden's decision to end Nippon's $14 billion bid for US Steel raised questions about whether those powers were being abused, as Japan is a close ally of the United States. In the rare cases where deals were blocked, they usually involved companies with ties to US adversaries such as China.
“Nippon Steel and US Steel are disappointed by such clear and inappropriate exploitation of the country's national security apparatus in an effort to help win elections and repay political favors,” the companies said in a statement Monday. “Nippon Steel and US Steel are entitled to due process and have no choice but to challenge the decision and the process that led to it in court.”
David Burritt, the CEO of US Steel, attacked Mr Biden on Monday, suggesting the president was blocking the deal because he “owed the union boss a favor in exchange for approval.”
“The government has failed us,” Mr. Burritt said in an interview on Fox Business Network on Monday. “They failed because they didn't follow the process, and we're going to correct that.”
The White House on Monday defended Biden's decision, pointing to the threats to the U.S. steel industry that the committee highlighted.
“A committee of national security and trade experts determined that this acquisition would pose risks to U.S. national security,” White House spokeswoman Robyn Patterson said. “President Biden will never hesitate to protect this country's security, its infrastructure and the resilience of its supply chains.”
The lawsuit against the Biden administration was filed in the U.S. Court of Appeals for the District of Columbia Circuit. The lawsuit also names Treasury Secretary Janet L. Yellen, chairman of the Committee on Foreign Investment in the United States, and Merrick Garland, the attorney general.
The companies claim that because Mr. Biden said publicly last March that he did not want the deal to go through, the national security review conducted by the panel, known as CFIUS, was tainted by politics and “was intended to provide a preliminary achieve a certain result'. They also alleged that the panel had failed to engage with the companies when proposing measures to address any national security concerns.
After a year-long review process, the interagency committee — ultimately split over the risks posed by the transaction — left the decision to Mr. Biden, who had said US Steel should remain American-owned and operated.
“It is my solemn responsibility as President to ensure that America, now and well into the future, has a strong, domestically owned and operated steel industry that can continue to fuel our national strengths at home and abroad,” said the Mr Biden in a statement last Friday morning. “And it is a fulfillment of that responsibility to block foreign ownership of this vital American company.”
The committee was established in the 1970s to screen international mergers and acquisitions for national security concerns. Over the years, the definition of national security has broadened, and in many cases the panel's work has been consumed by political considerations, often with a focus on keeping Chinese investments out of America.
According to the Congressional Research Service, eight other foreign transactions have been blocked by presidents since 1990.
The companies are hopeful that a 2012 case involving a Chinese company trying to buy U.S. wind farm projects could provide an opening for more investigation into CFIUS' handling of the steel deal. The Obama administration blocked that deal, but after the company filed a lawsuit, an appeals court agreed that the company, Ralls Corporation, had the right to see certain evidence used to block the transaction and to refute.
The Obama administration and the company ultimately settled the lawsuit.
The legal challenge by US Steel and Nippon is based on different grounds than that case. If successful, this lawsuit would herald sweeping changes in the U.S. government's authority to investigate foreign transactions.
“Based on the initial compliance, the companies appear to be making credible arguments that CFIUS's review of their transaction had procedural anomalies,” said Alexis Early, an attorney at the firm Jenner & Block who advises clients on CFIUS matters.
Ms. Early noted that lawsuits against CFIUS are rare and the litigation could take years. She added that the appearance that the commission was influenced by political forces has already damaged its credibility.
While the Biden administration's move drew praise from the steelworkers union, it drew scorn from many economists and legal experts who warned the president's decision would deter foreign investment.
“What is infuriating is that Biden claimed to stand up for the rule of law and for our international alliances,” said John Kabealo, a Washington lawyer who specializes in cross-border transactions. “He told voters ad nauseam that Trump was xenophobic and self-dealing, and now he is punching one of our most important allies in the face on the slightest pretext.”
Although President-elect Donald J. Trump has previously said he would block Nippon's bid, the companies have remained hopeful he would reconsider that position if given the opportunity to help broker a satisfactory deal.
But on Monday, Mr. Trump made it clear that he still does not want U.S. Steel sold.
“Why would they want to sell US Steel now when the tariffs will make it a much more profitable and valuable company? Mr Trump wrote on social media. “Wouldn't it be great if US Steel, once the largest company in the world, could once again take the lead in the quest for greatness?”
