Decision On U.S. Steel Acquisition Delayed By 90 Days

(MENAFN- ValueWalk) Shares of United States Steel (NYSE:X) gapped higher on Wednesday morning after the Biden administration pushed its decision on Japan-based Nippon Steel's (OTCMKTS:NPSCY) takeover bid for U.S. Steel out by 90 days.

This will delay the approval or rejection of the Acquisition past the November 5 U.S. election, thereby offering a ray of hope for U.S. Steel shareholders supporting the acquisition - but it certainly doesn't guarantee any particular outcome.

It's an unusual situation in which a delay in a government decision on a
proposed buyout
is widely viewed as a positive development. Some investors hope to see Nippon Steel, a gigantic steelmaker, take over U.S. Steel and combine the two companies' resources in the near future.

On the other hand, American political candidates on both sides of the aisle aren't quite as enthusiastic about a foreign firm taking control of an important U.S. steelmaking company.

Consequently, even if the Biden administration won't immediately nix Nippon Steel's buyout bid for U.S. Steel, there's no assurance of a favorable outcome for hopeful U.S. Steel stock buyers.

On Tuesday, U.S. Steel CEO David Burritt expressed optimism that Nippon Steel's $14.9 billion acquisition bid for U.S. Steel would“close on its merits.” Burritt declared,“We're very confident it's going to go through.”

Political news watchers might not be as confident as Burritt, though. Trump has promised to block the Nippon Steel-U.S. Steel takeover if he's elected in November, while Kamala Harris has stated that she wants U.S. Steel to remain“American-owned and operated.”

The political implications of a potential Nippon Steel-U.S. Steel deal run deep during this election year. Candidates and voters might view a possible foreign takeover of U.S. Steel as a national security issue. Plus, U.S. Steel is based in Pennsylvania, an important swing state in the current presidential race.

The original deadline for the Committee on Foreign Investment in the United States (CFIUS), currently part of the Biden administration, to decide on the Nippon Steel-U.S. Steel deal was September 23.

However, a new development means that CFIUS will delay this decision beyond the November 5 presidential election date. This might boost Burritt's optimism in the short term, but it doesn't guarantee a favorable outcome for any stakeholder.

Now, CFIUS is allowing Nippon Steel and U.S. Steel an additional 90 days to refile the deal application. Consequently, it appears that the Biden administration won't nix the takeover before the November 5 election.

“Extending the timeline takes some pressure off the parties and, importantly, pushes the decision past the election in November,” observed Nick Klein, a CFIUS attorney with DLA Piper.

This offers the hope that maybe the next president, whether it's Harris or Trump, will dial down the tough election rhetoric and political posturing and allow the Nippon Steel-U.S. Steel deal post-election.

But again, there's no guarantee that this will actually happen. Moreover, local union workers would likely need to approve the terms of a Nippon Steel-U.S. Steel deal before it's fully approved.

“Regardless of the CFIUS review, Nippon Steel still must reach an agreement with the United Steelworkers... Without that, it's very hard to see this deal happening,” explained Eurasia Group analyst David Boling.

Nevertheless, U.S. Steel stock rallied on Wednesday in high hopes that the complex web of interested parties would allow a Japanese steel giant to take over U.S. Steel.

For now, however, the certainty of future outcomes is lacking even as optimism surges and U.S. Steel stock traders might choose caution over haste until further events unfold.

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