U.S. Steel’s Existence Is Dangerously Threatened By Biden And Trump

Never turn down capital when it’s offered to you. The previous axiom is easily as old as business.

The wise refuse what’s precious precisely because they know well that tomorrow is another century. To see why, look back to February of 2020.

At the time, unemployment was at all-time lows and stock markets were at all-time highs. The picture of tranquility? Not so fast.

By March of 2020 tens of millions of Americans were suddenly out of work, and stocks were in freefall. Something about the U.S. political class choosing economic desperation borne of command-and-control as a virus mitigation strategy.

Please think about the past and future in contemplating U.S. Steel’s situation. Tokyo-based Nippon Steel has offered to purchase the Pennsylvania-based steelmaker for over $14 billion. If the number seems low given U.S. Steel’s glorious history, that’s the point. Focus on it.

It’s the low number that very much recommends Nippon Steel’s purchase. The Japanese steelmaker thinks it can impressively increase U.S. Steel’s valuation, which is why Nippon is offering to buy it in the first place.

Getting more specific, Nippon Steel is seeking the opportunity to direct billions worth of capital toward U.S. Steel with an eye on vastly improving it. That’s the purpose of investment.

The problem is politics. President Biden continues to give the impression that he’ll block Nippon’s acquisition, and President-elect Trump is no better on the matter. Biden’s naivete on the matter can perhaps be excused, but not Trump’s.

To see why, it’s useful to return to the opening lines of this opinion piece. Never turn down capital.

That Biden would be oblivious to this truth isn’t surprising when it’s remembered that he’s spent his career in the public sector. That’s meant that Biden has never feared missing a meal or a paycheck. His incomings were assured given his longtime employer’s (government) taxable access to the incomings of every American.

Trump’s situation has been different. He’s lived the reality of capital markets drying up. So, for that matter, has his “first buddy” in Elon Musk. Musk’s business career has been largely defined by desperate searches for capital meant to keep his businesses alive.

In the case of U.S. Steel, its present valuation indicates that capital in pursuit of relatively prosaic steel is rather limited. Put another way, if Nippon Steel’s purchase is blocked there’s little evidence that another white American knight awaits to do for U.S. Steel what Nippon intends to.

To which some will say that’s ok, the economy is good, a buyer will eventually appear. Not so fast, once again.

Tomorrow is yet again another century. While the number of serious bidders eager to buy and improve U.S. Steel presently amounts to one, it would be wholly naïve for Biden or Trump to presume that Nippon’s patience has no endpoint. Things change, investment opportunities change, and most important of all the economy can and will change.

Which is why President Biden or President-elect Trump need to get out of the way right away, and allow this transaction to happen. For them to do otherwise, and worst of all, for them to block the deal, would be for Biden and/or Trump to put U.S. Steel in the most precarious of situations.

As March/February of 2020 hopefully remind us, the economy can change rather quickly, and with it the willingness of those with capital to put it to work. If politics gets in the way of Nippon’s acquisition of U.S. Steel now, it’s quite possible Nippon won’t be a buyer in a future that may look nothing like the present.