What's next after Biden blocks Nippon Steel/US Steel deal?

US President Joe Biden blocked Nippon Steel’s proposed $14.9 billion purchase of US Steel citing national security concerns, in a potentially fatal blow to the deal after a year-long review.

Biden, President-elect Donald Trump and an influential labor union opposed the effort by Japan’s top steelmaker to acquire the iconic American firm, which would have created the world’s third-largest steelmaker, according to World Steel Association data.

The path forward is unclear. The companies could sue the U.S. government, another buyer could swoop in for U.S. Steel, or Republicans who favor the deal could urge Trump to find a way to approve it.

Here is what could come next:

THE DEAL ITSELF

The proposed deal has not yet been terminated by the companies even after Biden blocked the deal.

In a joint statement, Nippon and U.S. Steel called Biden’s decision “unlawful,” and Nippon Steel may file a lawsuit against the U.S. government challenging the procedures behind the decision, Japan’s Nikkei business daily reported on Saturday.

David Burritt, U.S. Steel’s chief executive, said on Friday “we intend to fight President Biden’s political corruption.”

Some lawyers, such as Nick Wall, M&A partner at Allen & Overy, have said a legal challenge would be tough.

Nippon Steel argued it made numerous concessions, including offering to move its headquarters to Pittsburgh, to meet the demands of CFIUS, the Committee on Foreign Investment in the United States, the panel that decides on whether foreign purchases of U.S. companies should go forward.

CFIUS was split over a decision and did not make a recommendation on the deal.

“If they go to court most of the decisions by the various CFIUS agencies will be made public,” said Brett Lambert, a former senior Pentagon official under Barack Obama, citing the rare move to forward a split decision to the president.

If the deal does not go through, Nippon Steel would have to pay a $565-million break-up fee.

US STEEL’S FUTURE

Pittsburgh-based U.S. Steel had warned that mills could close and thousands of jobs would be at risk without the deal. U.S. Steel’s profits have dropped for nine straight quarters amid a global industry downturn, but it still sports a forward price-to-earnings ratio of 12.87, more expensive than U.S. peers, according to LSEG data.

The United Steelworkers union, which opposed the deal, has called the company’s warnings baseless, saying Friday that it is clear that U.S. Steel’s recent financial performance shows it “can easily remain a strong and resilient company.”

Other suitors could emerge. U.S.-based Cleveland-Cliffs , which previously bid for the company, could come back with a lower offer. However, its market value is now smaller than that of U.S. Steel.

“One would suspect that Nucor and Cleveland Cliffs will be in discussions with U.S. Steel, but based on presidential messages one would think the U.S. government may come to its aid and invest in its infrastructure,” said Jay Woods, chief global strategist at Freedom Capital Markets.

TRUMP’S POSITION

Trump, who takes office on Jan. 20, has repeatedly vowed to block the sale, a view he shared with Biden.

“I am totally against the once great and powerful U.S. Steel being bought by a foreign company, in this case Nippon Steel of Japan,” he wrote on his Truth Social platform last month. “As president, I will block this deal from happening. Buyer Beware!!!”

Trump’s transition team did not comment on Friday. However, several current and former Republican officeholders on Friday criticized Biden’s decision, saying it would cost investment in the U.S.

US-JAPANESE RELATIONS

Some analysts warned that blocking the deal could sour relations between the United States and Japan, which Biden had worked on improving to counter the threat of China’s economic and military rise.

Japan is the top U.S. investor in the U.S. and its biggest business lobby has raised concerns about political pressure on the deal, a view the White House rejected.

“It would have helped us rebuild our competitiveness and counter China. To do this effectively, we need our friends, particularly Japan,” Wendy Cutler, who served as a senior trade negotiator under former President Barack Obama, wrote on social media platform X.

Trump’s stance on trade could add to that unease when he returns to office, as he has already threatened heavy tariffs on key allies Canada, Mexico and Europe.