After the acquisition of American steel was blocked, Nippon Steel faces growth challenges, but the stock price may rebound in the short term.

After President Biden officially vetoed the $14.9 billion acquisition of United States Steel Corporation (X.US) by Nippon Steel last Friday, Nippon Steel may need to consider adjusting its growth strategy. In December 2023, the fourth largest steel manufacturer in the world, Nippon Steel, announced it would acquire United States Steel Corporation for $14.9 billion in cash, at a price of $55 per share. Nippon Steel hoped to expand its footprint in the United States, strengthen its position as a global powerhouse, and use overseas expansion to address soft domestic demand. This acquisition was also expected to increase the company's global crude steel production capacity to 100 million tons. However, since the announcement, this acquisition plan has faced repeated obstacles and has been opposed by the Biden administration, the United Steelworkers union (USW), and the incoming Trump administration. They all oppose foreign ownership of United States Steel Corporation as the steel produced by the company is a key commodity used for building ships, trains, and infrastructure. The union is also concerned that this deal could lead to job losses. Despite political pressure surrounding the deal, Nippon Steel has been trying to garner support. Nippon Steel has made concessions in terms of employment, investment, and local leadership, but investors have already anticipated the low likelihood of the deal being approved by Biden. This expectation is reflected in the stock price of United States Steel Corporation, which has consistently been well below the acquisition offer. While Biden has stopped the deal, Nippon Steel and United States Steel Corporation have not terminated the agreement. In a joint statement, Nippon Steel and United States Steel Corporation called Biden's decision "unlawful" and said they had no choice but to take all appropriate actions to protect their legal rights. If the deal ultimately falls through, Nippon Steel will pay United States Steel Corporation a $565 million breakup fee. It has been reported that Nippon Steel may file a lawsuit against the US government to question the process behind this decision. Nippon Steel's President Tadashi Imai said on Monday that taking legal action against the US government is one of their "important options." He stated that the review process and decision-making by the US government regarding their acquisition proposal seemed to be mishandled. He added that the company would soon announce retaliatory measures against the US government's decision. Meanwhile, some analysts believe that the failure of the deal could boost Nippon Steel's stock price. Nomura Securities analyst Yuji Matsumoto stated in a report, "Even if the deal falls through, Nippon Steel's profit outlook remains unchanged, with significant growth expected from the next fiscal year starting in April." "In addition, resolving the financing uncertainty related to the acquisition could support a near-term rally in the stock price." Yoshihiko Tabei, Chief Strategist at Naito Securities, said, "Some investors may think that the failure of the acquisition of United States Steel Corporation has eased concerns about Nippon Steel's financial condition, as this deal involved a significant amount of money." Nippon Steel has not finalized a permanent financing plan for this all-cash deal, but has indicated that issuing new shares is a possible option. However, Yoshihiko Tabei also pointed out that uncertainties still exist, as Nippon Steel may face challenges in achieving long-term growth if it does not expand its business in the United States.