By Alexandra Alper, Aatreyee Dasgupta and Yuka Obayashi
WASHINGTON (Reuters) -U.S. President Joe Biden unlawfully blocked Nippon Steel's $14.9 billion bid for U.S. Steel through a sham national security review, the companies alleged in a lawsuit filed on Monday.
The companies want a federal appeals court to overturn Biden's decision to scuttle the deal so they can secure another shot at approval through a fresh national security review unfettered by political influence.
The lawsuit alleges Biden prejudiced the decision of the Committee on Foreign Investment in the U.S. which scrutinizes foreign investments for national security risks, and violated the companies' right to a fair review.
The merger had become highly politicized ahead of the November U.S. presidential election, with Democrat Biden and Republican President-elect Donald Trump pledging to kill it as they wooed voters in the swing state of Pennsylvania where U.S. Steel is headquartered. United Steelworkers union President David McCall opposed the tie-up.
Trump and Biden both asserted the company should remain American-owned even after the Japanese firm offered to move its U.S. headquarters to Pittsburgh, where the U.S. steelmaker is based, and promised to honor all agreements between U.S. Steel and the USW.
Biden sought to kill the deal to "curry favor with the USW leadership in Pennsylvania in his bid for reelection," the companies allege.
"As a result of President Biden's undue influence to advance his political agenda, the Committee on Foreign Investment in the United States failed to conduct a good faith, national security-focused regulatory review process," the companies said in a statement.
A White House spokesperson defended the review, adding, "President Biden will never hesitate to protect the security of this nation, its infrastructure, and the resilience of its supply chains."
The lawsuit, which echoes claims the companies made in a Dec. 17 letter to CFIUS seen by Reuters, shows the companies are making good on their threats of litigation.
"We can't back down after being treated unreasonably. We will fight back thoroughly," Nippon Steel Vice Chair Takahiro Mori told Nikkei on Monday.
Mori said the CFIUS review process lacked integrity as the Japanese company received no written feedback on the proposed national security agreement.
The prospects of the lawsuit, which also names U.S. Attorney General Merrick Garland and Treasury Secretary Janet Yellen, are unclear. Yellen oversees CFIUS. Courts generally give great deference to CFIUS to define national security, experts say.
The Justice Department declined to comment and the Treasury Department did not respond to a request for comment.
Trump said in a post on his social media platform on Monday: "Why would they want to sell U.S. Steel now when Tariffs will make it a much more profitable and valuable company?"
Nippon Steel's partnership with U.S. Steel aligns with Trump's vision of strengthening U.S. manufacturing, Nippon Steel CEO Eiji Hashimoto told reporters on Tuesday in Tokyo.
"If we win the case and CFIUS reopens the review ... we will explain once again that this acquisition is beneficial to the United States," Hashimoto said. "And I am sure we will be able to gain the understanding."
Nippon Steel shares were down 1.5% at 0114 GMT in Tokyo.
CLIFFS, USW ALSO TARGETED
The companies also filed a second lawsuit against rival bidder Cleveland-Cliffs (NYSE:CLF), its CEO Lourenco Goncalves and the USW's McCall "for their illegal and coordinated actions" aimed at preventing the deal.
They argue Cliffs, Goncalves and McCall colluded to allow Cliffs to "monopolize the domestic steel markets" by thwarting any other attempts to buy U.S. Steel.
Goncalves participated in at least nine calls assuring investors that Biden would scuttle the Nippon Steel merger, according to last month's letter to CFIUS, Reuters reported.
Goncalves said in a statement on Monday that "Nippon Steel and U.S. Steel continue to play the blame game in a desperate attempt to distract from their own failures. Today's lawsuits against the U.S. government, the USW, and Cleveland-Cliffs represent a shameless effort to scapegoat others for U.S. Steel's and Nippon Steel's self-inflicted disaster."
McCall said the USW would "vigorously defend against these baseless allegations."
Last week, Biden blocked the proposed purchase on national security concerns, dealing a potentially fatal blow to the contentious plan after a year of review.
U.S. Steel, founded in 1901 by some of the biggest U.S. magnates, including Andrew Carnegie, J.P. Morgan and Charles Schwab (NYSE:SCHW), became intertwined with the industrial recovery following the Great Depression and World War Two.
U.S. Steel shares closed up about 8% on Monday. The company has been under pressure following several quarters of falling revenue and profit, making it an attractive takeover target for rivals looking to expand their U.S. market share.
'MANIPULATED' REVIEW PROCESS
Nippon Steel's December 2023 bid for U.S. Steel faced early challenges.
Biden opposed the deal on March 14, before the CFIUS review began, which the companies claim prejudged the outcome and deprived them of due process.
McCall endorsed Biden a week later.
Biden was later replaced on the 2024 Democratic presidential ticket by Vice President Kamala Harris, who also opposed the deal and was endorsed by the USW.
CFIUS normally approves a deal or recommends the president block it, but in rare cases, it refers them to the president, as it did with the Nippon Steel deal on Dec. 23, setting the stage for Biden's move to block.
Before that, CFIUS staff were barred from negotiating with the companies on a proposed agreement to address the committee's national security concerns, the statement by U.S. Steel and Nippon Steel alleges, a marked deviation from normal practice.
"It is clear that the review process was being manipulated so that its outcome would support President Biden's predetermined decision," the companies said.