While no longer “news,” here are some quick points re: President Biden’s prohibition of Nippon Steel’s acquisition of U.S. Steel following a CFIUS referral of the deal to him, which occurred after a full year of hand-wringing (the Order—with corrected caption—is here).
Reaction to this decision—by the CFIUS bar, national security experts, and other informed observers—overwhelmingly views it as a bad result in every respect. (Had sustained and pronounced criticism from these corners come sooner, could it have had an impact?).
According to the WaPo on Sunday, even the president’s senior-most advisors made an 11th-hour push favoring the deal. Perhaps these leaks are an attempt to be on the right side of history once the dust settles.
Other notable points from the WaPo:
– According to 7 (!) officials, Biden “overrode the advice of numerous top aides, ending a long-running debate that had divided the president’s inner circle”
– It “tees up a potentially protracted legal battle over whether politics influenced a security review that is supposed to be left to experts”
– Over a half-dozen senior officials—(7 are listed by name … were they the 7 sources?)—opposed blocking the deal, with some noting in part that Japan “tops the list of foreign country investment in the United States”
– Secretary Yellen, the CFIUS Chair, “voiced concern that a flat rejection of the bid *without any clear evidence of national security risk* could harm the apolitical reputation” of CFIUS (my emphasis)
– Prime Minister Ishiba “sent a letter to Biden in November asking him to approve the deal” which “was never made public …”
– Ultimately, “‘the argument came down to politics and legacy.’”
The WSJ wrote a blistering editorial over the weekend regarding the “corruption of CFIUS,” in part noting:
– “the raw political favoritism” will “harm the U.S. reputation as a destination for capital”
– “perhaps more damaging” than U.S. Steel’s dire future is “the ugly public politicization of what is supposed to be the apolitical CFIUS review of investments for national security concerns”
– the president redefined “national security to include economic nationalism” introducing “many new gates for political interference” where CFIUS is “another political lever” … and causing foreign capital to be “more cautious in investing in the U.S.”
– the president “stuck a finger in the eye of an ally critical to containing China’s economic and military ambitions in the Pacific”
The firms jointly responded to the president’s decision; their disappointment very clear:
– the decision was “a clear violation of due process and the law governing CFIUS. Instead of abiding by the law, the process was manipulated” for politics
– Biden’s statement and Order “do not present any credible evidence of a national security issue, making clear that this was a political decision.”
– the parties “are left with no choice but to take all appropriate action to protect our legal rights”
With little delay, today the parties commenced litigation, both against the U.S. Government for violations of due process, and against third parties for allegedly unlawfully colluding to interfere with and prevent the transaction (https://lnkd.in/gTQXCvqE).
Between the litigation and the late 2024 table-setting for a potential investigation (see copy attached in my replies to this post) by a congressional committee, more shoes are sure to drop. (While congressional oversight can face issues of constitutional privilege preventing access to some documents and information, there would be no such impediment to compelling private parties to produce relevant documents and communications.)
Relatedly, today Reuters reported (https://lnkd.in/g89tVcPF) that “Lourenco Goncalves, CEO of steelmaker Cleveland-Cliffs . . . participated in at least nine calls assuring investors that President Joe Biden would scuttle the Nippon Steel merger months before he did so on Friday.”
I’ll just close with quoting my own opinion piece from April of last year:
“a presidential prohibition would signal that national security is whatever the president says it is, making Cfius a secretive, arbitrary and capricious tool for the party in power. If that happens, global investors would be right to wonder whether America is open for business, while special interests would have gained a new lever of power and lobbyists a new cash cow. American allies would have another reason to worry about how special their relations with the U.S. really are. And the legitimacy of a vital national-security tool would be compromised.”
Not ideal “legacy” building. Buckle up; doubtful the story’s over.