*Originally distributed on September 3, 2025.

The acquisition of United States Steel Corporation (“U.S. Steel”) by Nippon Steel Corporation (“Nippon Steel”) exemplifies both the complexities and strategic challenges faced by Japanese companies seeking significant cross-border mergers and acquisitions in today’s increasingly regulated global market. In December 2023, Nippon Steel announced an execution of a merger agreement to acquire U.S. Steel for approximately $14,126 million.[1] Despite a general decline of 6.7 percent in Japanese M&A activity in 2023—because of, among other things, shrinking Japanese domestic market, interest rate increases, and geopolitical tensions—the Nippon Steel-U.S. Steel transaction emerged as a noteworthy case of ambitious international consolidation efforts by a major Japanese company.[2]

First, from the perspective of reverse breakup fees (“RBFs”), the proposed transaction attracted wide attention in Japan. Historically, RBF clauses have been very rare in Japanese M&A practice, with only limited precedents, such as Bain Capital’s acquisition of Toshiba Memory Corporation (currently KIOXIA Corporation) and, as more widely recognized, Japan Industrial Partners’ historical acquisition of Toshiba Corporation. In the latter transaction, Toshiba explicitly demanded a RBF to ensure the buyer’s strong commitment to obtaining regulatory clearances, reflecting Toshiba’s emphasis on deal certainty.[3]　However, despite these newsworthy precedents, RBF provisions still remain uncommon in Japanese M&A transactions. In particular, private equity funds often find it challenging to secure acceptance of such clauses from their co-investors, especially when multiple Japanese corporate investors are involved alongside the fund. Against this backdrop, Nippon Steel’s agreement to a substantial RBF of $565 million is noteworthy, clearly demonstrating its strong commitment to completing the transaction despite regulatory uncertainties. It can be said that this acceptance might indicate a growing recognition among Japanese acquirers that RBF clauses may be useful or necessary to compete effectively in cross-border transactions involving non-Japanese targets, particularly in markets like the United States, where regulatory scrutiny has intensified. In any event, given the high-profile nature of the Nippon Steel-U.S. Steel deal, it can be anticipated that there will be increased requests for RBF provisions directed toward Japanese buyers, particularly in transactions involving foreign sellers such as U.S. companies, even if the target company is a Japanese entity.

Given that the acquisition was friendly rather than hostile or unsolicited and considering the close alliance between Japan and the United States, it might have been seen that this transaction would not encounter major regulatory obstacles under U.S. foreign direct investment rules. This transaction, however, faced acute challenges, particularly from the Committee on Foreign Investment in the United States (“CFIUS”). In early January 2025, then President Biden issued a presidential order blocking the acquisition, explicitly citing national security concerns, emphasizing the strategic importance of maintaining the steel industry as an American enterprise, and protecting the resilience of critical supply chains.[4] These considerations directly align with U.S. economic security interests and clearly intersect with national defense, military readiness, and homeland security considerations outlined in the U.S. Foreign Investment Risk Review Modernization Act of 2018 (“FIRRMA”).

However, immediately thereafter, Nippon Steel and U.S. Steel issued a joint statement indicating the comprehensive measures they have proactively taken to mitigate these security concerns, including commitments that: (a) The majority of U.S. Steel’s board would remain U.S. nationals, with three independent directors approved by CFIUS; (b) Nippon Steel would not participate in any trade measures proposed by U. S. Steel; (c) No production capacity or jobs would be moved outside the United States, and capacity reductions would require CFIUS approval for ten years; and (d) Regular compliance reports would be submitted to CFIUS; and (e) CFIUS would have board observer rights.[5] Considering these voluntary measures, which directly addressed the national security concerns, the stated justification for blocking the transaction theoretically and substantially appears quite difficult to reconcile with FIRRMA’s criteria, suggesting that political influences may have played a role in the decision.

It was generally understood that this presidential order reflected deeper political dynamics, including sensitivities linked to the then-upcoming U.S. presidential election and the symbolic status of U.S. Steel as a prominent American corporation. Despite Japan’s established role as a crucial ally of the United States, political resistance persists within the United States toward foreign ownership—even by allied nations—in strategically significant industries. However, such protectionist actions carry the risk of broadly and ambiguously expanding the scope of what constitutes national security, potentially heightening global uncertainty around FDI. Furthermore, by introducing considerable political discretion into the FDI review process, it is reported that this presidential order may have undermined the consistency and predictability of the U.S. regulatory framework for foreign investment. Such intervention could also conflict with the OECD’s principles of capital movement liberalization, to which both the United States and Japan adhere.[6]

In contrast, in November 2024, Donald Trump was re-elected to the Presidency, and following his inauguration in January 2025 considerations surrounding the proposed acquisition began to change. As widely noticed, this culminated in June 2025, when President Trump issued an Executive Order reversing former President Biden’s blocking the acquisition but conditioned approval of the transaction subject to the execution of, and the continued compliance with, a national security agreement with the U.S. government[7] and, subsequently, the issuance by U.S. Steel of a “a golden share” to the U.S. government. That month, the transaction finally was consummated. Under this golden share arrangement, the U.S. government holds the right to appoint one independent director of U.S. Steel, and certain actions, including “material acquisitions of competing businesses in the U.S.,” require the consent of the President or his designee.[8] In July 2025, a majority of U.S. Steel’s directors were U.S. nationals. To address U.S. antitrust concerns relating to the transaction, Nippon Steel announced the transfer of all shares of its wholly owned subsidiary, NS Kote, Inc. (a holding company that, prior to the closing of the acquisition, held all of its equity of a joint venture with ArcelorMittal S.A. called AM/NS Calvert LLC, an equity method investee of Nippon Steel in the United States) to its joint venture counterparty. This transfer will result in recognition in Nippon Steel’s consolidated financial statements of a business restructuring loss of JPY 230 billion in the first quarter of the fiscal year ending March 2026.[9]

In conclusion, the Nippon Steel-U.S. Steel transaction underscores the necessity for Japanese companies to strategically prepare for an increasingly complex regulatory environment, incorporating mechanisms like RBFs, robust regulatory engagement, and comprehensive stakeholder management strategies that may include innovative structuring similar to the introduction of a feature like a “golden share” or taking proactive ancillary transactions (even at a loss) to avoid antirust issues. At the same time, this case highlights emerging challenges associated with politically influenced investment reviews and the global repercussions that could result from such interventions, such that parties may need to carefully plan for an extended time in order to execute on their transaction. It is essential to manage CFIUS reviews and other jurisdictions’ national security regulations, in addition to obtaining antitrust approvals. Selecting experienced legal and financial advisors is critical, as is having professionals who can flexibly handle unexpected developments—qualities important not only in M&A transactions but also in other significant business transactions.

*****

[1] Press Release, Nippon Steel, Acquisition of United States Steel Corporation (December 18, 2023), https://www.nipponsteel.com/common/secure/en/ir/library/pdf/20231218_100.pdf

[2] Review of M&A Activity in 2023 (Trends in M&A Transactions Involving Japanese Companies from January to December 2023), MARR Online No. 352 (January 4, 2024), https://www.marr.jp/menu/ma_statistics/ma_markettrend/entry/48851

[3] Masakazu Iwakura et al., JAPANESE UPDATE – Japan’s Largest M&A Transaction in 2023: The Acquisition of Toshiba Corporation, XBMA (February 23 2024), https://xbma.org/japanese-update-japans-largest-ma-transaction-in-2023-the-acquisition-of-toshiba-corporation/

[4] Statement from President Joe Biden, White House (January 03, 2025),  https://bidenwhitehouse.archives.gov/briefing-room/statements-releases/2025/01/03/statement-from-president-joe-biden-13/

[5] Press Release, Nippon Steel, Nippon Steel Corporation and U. S. Steel Condemn U.S. Government’s Unlawful Decision to Block Proposed Acquisition of U. S. Steel – Companies will take all appropriate action to protect their legal rights – (January 3, 2025), https://www.nipponsteel.com/en/news/20250103_100.html

[6] Rikako Watai, Nippon Steel’s Proposed Acquisition of U.S. Steel and U.S. Foreign Direct Investment Regulations, MARR Online No. 365 (February 12, 2025), https://www.marr.jp/menu/ma_practices/ma_propractice/entry/57305

[7] Statement from President Donald J. Trump, White House (June 13, 2025), https://www.whitehouse.gov/presidential-actions/2025/06/regarding-the-proposed-acquisition-of-the-united-states-steel-corporation-by-nippon-steel-corporation/

[8] Press Release, Nippon Steel, Nippon Steel Corporation and U. S. Steel Finalize Historic Partnership (June 18, 2025), https://www.nipponsteel.com/common/secure/en/news/20250618_100.pdf

[9] Press Release, Nippon Steel, Announcement Regarding the Recognition of Business Restructuring Loss (June 19, 2025), https://www.nipponsteel.com/common/secure/en/news/20250619_100.pdf