U.S. Steel, Nippon Steel Challenge Biden’s Move to Kill $14.1 Billion Deal

In one lawsuit the companies asked the D.C. Circuit Court of Appeals to set aside the decision, claiming that election-year politics subverted a national-security review process. Also named in the suit were the Committee on Foreign Investment in the U.S., Treasury Secretary Janet Yellen and Attorney General Merrick Garland.

Cfius is a federal interagency panel charged with probing foreign investments in U.S. companies for national-security risks. The companies want the appeals court to order a new national-security review of the deal.

In a separate suit filed in Pittsburgh federal court, the companies accused Cleveland-Cliffs CLF 4.21%increase; green up pointing triangle, its Chief Executive Lourenco Goncalves and United Steelworkers President Dave McCall of racketeering and anticompetitive activities to keep Nippon Steel from completing the sale. Cliffs attempted to acquire U.S. Steel in 2023 with the union’s backing, but was outbid by Nippon Steel, which clinched a deal in December of that year.

“The president and Cfius corrupted and compromised a critical mechanism for the protection of America’s national security in order to serve the president’s personal political agenda,” Nippon Steel and U.S. Steel said in their complaint.

A White House spokeswoman said Biden’s decision was based on national security and trade experts’ determination that the deal would create risks to the U.S. “President Biden will never hesitate to protect the security of this nation, its infrastructure and the resilience of its supply chains,” she said. The Treasury Department, lead agency for Cfius, declined to comment.

McCall said the United Steelworkers union is reviewing the complaint and will “vigorously defend against these baseless allegations.”

Cleveland-Cliffs said it is prepared to fight the lawsuit. “U.S. Steel made their bed when they rejected an all-American solution and insisted on pursuing a doomed-to-fail sale to Nippon Steel,” said Goncalves, the Cliffs CEO. 

U.S. Steel shares closed 8.1% higher on Monday, as steel stocks rallied and U.S. stock indexes were little changed. Nippon Steel shares slipped 0.8% in Japanese trading.

Court challenges to the Cfius review process and president’s authority over foreign business deals have been sparse over the years.

Ralls Corp., a Chinese-owned company, nearly a decade ago sued after Cfius identified national-security risks to the company’s purchase of wind-farm projects near a U.S. Navy weapons training base in Oregon. A federal appeals court ruled that the company’s due-process rights were violated by the Cfius review, but the court didn’t overturn then-President Barack Obama’s order that Ralls had to sell the wind farms. The company and the government eventually reached a settlement that allowed Ralls to sell the wind farms.

The lawsuits come as U.S. Steel and Nippon Steel have been ordered to terminate their deal, which would have been the largest in the American steel industry in years. U.S. Steel has warned that it might move its Pittsburgh headquarters and close some of its older steel mills if it didn’t find a buyer for the company.

Biden’s decision to block the sale of an old-line maker of commodity materials like U.S. Steel is rare for a president, particularly when the buyer is a Japanese company. U.S. Steel makes sheet steel, primarily for the automotive, appliance and construction industries. 

“Japan is a longstanding ally of the United States, and Cfius has routinely permitted Japanese investments into similar U.S.-based manufacturing companies over the past decade. None was blocked for any reason,” the companies said in their lawsuit against the government.

Biden signaled in March that he was opposed to foreign ownership of U.S. Steel, a position that the steelworkers union had made repeatedly in letters to members and public statements.

The suit filed in D.C. appeals court accused Biden and his advisers of pledging to union leaders to block the deal, and subverting the national-security review process. The union endorsed Biden for re-election and later Vice President Kamala Harris, who also indicated she opposed the deal.

President-elect Donald Trump also opposed the deal publicly over the past year. He has pledged to impose tariffs on imported goods, and raising tariffs on imported steel would give domestic producers more leverage to raise their prices. 

On Monday, Trump posted on Truth Social: “Why would they want to sell U.S. Steel now when Tariffs will make it a much more profitable and valuable company?”

The companies in the lawsuit accused Cfius of not engaging in talks, also saying the security concerns presented about the transaction were “riddled with factual inaccuracies and parroted key talking points from [United Steelworkers] leadership.”

The companies said three drafts of a national-security agreement were submitted to Cfius to address concerns about the deal. Those included commitments for nearly $3 billion of investments in U.S. Steel’s plants, guarantees to produce steel in the U.S. and a proposal to grant Cfius approval over independent members of a board that would oversee U.S. Steel’s operation. The committee never responded to any of the proposals, according to the companies.

Biden went against his top national-security aides in deciding to block the deal. National-security adviser Jake Sullivan and Secretary of State Antony Blinken were among the foreign-policy-minded aides pushing for options that could keep the deal alive, not wanting to damage a crucial relationship with an East Asia ally, according to the officials.

The companies want the appeals court to order a new national-security review. At the same time, they are pursuing injunctions against McCall and Goncalves to halt what Nippon Steel and U.S. Steel described as a coordinated effort to disparage the deal and engage in anticompetitive activities to aid the Cliffs acquisition of U.S. Steel.

The complaint accused Goncalves and McCall of engaging in a “no-holds-barred campaign to undermine U.S. Steel’s competitive vitality” and “ultimately enable Cliffs to acquire U.S. Steel under distressed circumstances.”

Write to Bob Tita at robert.tita@wsj.com