By Katya Golubkova
TOKYO (Reuters) -Nippon Steel shares climbed on Thursday after news that the White House was close to announcing President Joe Biden will block the company's $15 billion bid for its peer U.S. Steel.
Sources told Reuters on Wednesday the U.S. action would be based on national security risks, amid growing bipartisan political opposition to the deal which the companies were hoping to close by the end of the year.
Nippon Steel's shares fell more than 1% in early trading in Tokyo, but recovered to trade 0.2% higher by 0408 GMT, outperforming the wider Nikkei index which was down 1%. U.S. Steel shares closed down 17.5%.
In a letter, which has not been previously reported, the Committee on Foreign Investment in the United States (CFIUS) warned the Japanese company on Saturday the deal would damage American steel production and decrease the likelihood that U.S. Steel would continue to aggressively seek trade remedies, people familiar with the matter told Reuters separately.
Japan's three megabanks - Sumitomo Mitsui Financial Group, Mitsubishi UFJ Financial Group and Mizuho Financial Group - planned to lend Nippon Steel a combined $16 billion for the deal.
"While the acquisition of U.S. Steel could be positive in the long term, there is a risk of equity (dilution) if Nippon Steel is to buy the company, and has a negative cue in the short term. Those concerns have been eased after the news," said Seiichi Suzuki, chief equity market analyst at Tokai Tokyo Intelligence Laboratory.
With the takeover, Nippon Steel hoped to bring its global crude steel capacity to 86 million metric tons per year, close to its goal of 100 million, and to add 30 billion-40 billion yen ($209 million-$278 million) to its profit in the January-March quarter of 2025.
To win support from the influential United Steelworkers (USW) union, Nippon Steel has pledged to move its U.S. headquarters to Pittsburgh, where U.S. Steel is based. It has also said it will invest over $2.7 billion in union-represented facilities and ensure that the core senior management as well as a majority of board members at the U.S. company would be U.S. citizens.
"It remains a very complicated situation given the job losses that may arise from plant closures, etc, if the deal doesn't go ahead so my thinking is this is something that could be back on the table once the U.S. (elections) pass in November," said Andrew Jackson, head of Japanese equity strategy at Ortus Advisors in Singapore.
Spokespeople for Nippon Steel and U.S. Steel declined to comment on the CFIUS letter but referred Reuters to prior statements arguing that the deal does not create any national security concerns and would strengthen the U.S. steel industry.
"We fully expect to pursue all possible options under the law to ensure this transaction, which is the best future for Pennsylvania, American steelmaking, and all of our stakeholders, closes," the spokesperson for U.S. Steel added.
($1 = 143.6500 yen)
(Reporting by Katya Golubkova, Junko Fujita and Kevin Buckland in Tokyo; Editing by Stephen Coates and Muralikumar Anantharaman)
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