Several months ago, I published a defense of Nippon Steel’s proposed acquisition of U.S. Steel when it was still under review by the Committee on Foreign Investment in the U.S. (CFIUS) late in former President Joe Biden’s term. Since then, CFIUS rendered its decision – it could not reach a consensus regarding any national security threats surrounding the deal – which punted the decision to Biden. He nixed the merger just before Donald Trump returned to the presidency and the jilted lovers fought back. Now the matter is in federal court.

Today President Trump has the ball and like a cagey quarterback running the triple option, he could run in several directions with Nippon Steel-U.S. Steel. While he was similarly opposed to the deal on the campaign trail, on Feb. 7 Japanese Prime Minister Shigeru Ishiba visited the White House to make the case for this merger among other asks of the new president. Trump and Ishiba announced that Nippon Steel now will only invest in U.S. Steel rather than acquire it. Trump said:

“They’re doing it as an investment, no longer a purchase … I didn’t want it purchased, but investment I love.”

Of course, no details were given as to how such a deal would work and if it would be worth it for Nippon.

What would Nippon Steel get from just investing in U.S. Steel? Under its initial merger proposal, Nippon had promised 5,000 construction jobs and $40 million in state and local taxes to its friends in Pennsylvania, which, is a swing state that Republicans will probably need to win the 2028 presidential election. 

In the wings is a proposed hostile takeover of U.S. Steel, the fires of which have been stoked by the activist “investor” Ancora Holdings. While the hedge fund claims that it is not soliciting acquisition proposals from “any other partner (domestic or foreign),” it is clearly in cahoots with Cleveland-Cliffs (Cliffs), another domestic steel company that is a competitor of and failed bidder for U.S. Steel. This is not a feasible Plan B. 

Here is the underhanded way that Cleveland-Cliffs and Ancora Holdings have attacked U.S. Steel and its potential Japanese merger partner. With a less than 1% “stake” in U.S. Steel, Ancora looks to force a proxy vote at the former’s 2025 annual shareholder meeting to oust U.S. Steel’s CEO David Burritt and to replace him by a Cliffs favorite Alan Kestenbaum. Ancora also hopes to stack the deck against U.S. Steel by bringing an entire slate of directors to the board. It appears from reading their biographies that to be considered for these roles you must be an acolyte of Ancora and/or Cliffs. 

While Burritt’s career as U.S. Steel’s chief financial officer and then its CEO has been undistinguished, although this is a tough commodity business that perhaps no one can save, a new management team doing the same thing “better” is unlikely the answer. U.S. Steel, the world’s No. 24 steel producer in 2023, critically needs technology from No. 4 Nippon Steel for its survival. 

If you are keeping score, America’s top producer, Nucor, is ranked only No. 15 in the world. Nucor could be working behind the scenes with Ancora and Cliffs to pounce on U.S. Steel. Cliffs and U.S. Steel, come in at only No. 22 and No. 24, respectively. It is likely that two wrongs would not make a right by combining second-tier American steel producers. Remember, as part of Nippon Steel’s acquisition of U.S. Steel, the Japanese would agree, probably not contractually but still with the highest conviction, to create jobs and add significantly to the tax rolls in Pennsylvania. They have also pledged to invest more than $2.7 billion to modernize aging U.S. Steel facilities, many of which are located in the Keystone State.

I am a 30-year institutional equity analyst and a college professor teaching, among other courses, financial statement analysis, so I know my way around balance sheets and income and cashflow statements. I conclude after delving into Cleveland-Cliffs that it cannot buy U.S. Steel.

Cliffs is too weak financially. Case in point: Last quarter, it lost $465 million and then still had to pay $135 million in interest expense. Cliffs’s operations burned $472 million in cash last period which left it with only $54 million on its balance sheet. The company is losing money hand over fist and burning cash and it is plugging the gaping hole with even more debt (it added another $3.3 billion last quarter to its indebtedness). 

Nippon would have more skin in the game by owning U.S. Steel rather than having only an informal relationship with the latter. As a professional investor, I screen for potential purchases for the shares of companies that have high insider ownership and avoid those that do not.

Here I have cast doubt, serious doubt, on the alternatives to Nippon Steel’s easily funded $55 per share purchase of U.S. Steel. The Cleveland-Cliffs/Ancora essentially hostile takeover, while cloaked in “Make America Great Again,” does not really make financial or operating sense without Nippon’s technology and global industry clout. 

The unfortunate economic reality is that we need Nippon more than it needs us. Without it taking a stake in U.S. Steel, if the Pennsylvania manufacturing icon is left to its own devices, or even if it succumbs to Cliffs, I bet that in the end American facilities will be shuttered and too many in Pennsylvania will lose their jobs and will take their communities down with them.

Paul Meeks is a professor of practice in the Baker School of Business at the Citadel and an institutional equity analyst for more than 30 years.