(TNS) — U.S. Steel said in a risk assessments section of its recent 10-K annual report that union grievances and other disputes could threaten its planned $14.9 billion merger with Nippon Steel, leading to delays or even preventing the deal from going through.
Grievances have already been filed through the United Steelworkers’ labor agreement, the company stated in the yearly filing last week. Additional lawsuits could come from stockholders or others seeking to prevent or delay the merger, the filing said.
”Defending against such claims, even those without merit, could result in substantial costs,” the filing said. “We may not be able to complete the merger on a timely basis, or at all.”
Company officials have stressed that they still expect the merger to close in the second or third quarter of this year; the company is required to outline every potential risk to the merger in the filing, as is standard in all mergers.
The update came as U.S. Steel reported a quarterly net loss of $80 million for the last three months of 2023 — its first unprofitable quarter in three years.
CEO David Burritt did not mention the loss in a 12-minute video to discuss the results. He said the video, posted late Friday, was done in lieu of a traditional earnings call with analysts because of the pending merger with Nippon. Chief Financial Officer Jessica Graziano noted only that fourth quarter net earnings, adjusted for one-time events, were $167 million.
In a separate statement, Burritt said, “We ended the year with another quarter of strong financial and operational performance.”
The fourth quarter net loss appeared to be linked to charges related to the idling of iron and steelmaking operations at Granite City Works in Illinois, which included $123 million in asset impairment charges and $107 million for employee-related costs and other charges, according to the company’s earnings release. Net earnings for the same quarter last year were $174 million.
The company, which is the third-largest steelmaker in the U.S., reported in the filing that net sales were down for the full year, dropping to $18.1 billion from $21 billion the previous year.
U.S. Steel has been subject to intense scrutiny from lawmakers and its union in recent months. In December, the deal with Japanese steelmaker Nippon, which already operates smaller plants in Pennsylvania and West Virginia, triggered a review by the Committee on Foreign Investment in the U.S., an interagency panel led by the Treasury Department. A senior Biden official and a bipartisan group in Congress have called for scrutiny of the planned sale. Last week, former President Donald Trump vowed to block the deal and the USW said it received personal assurances of backing from President Joe Biden.
Although Burritt has said U.S. Steel still expects the Nippon deal to close on schedule, some observers believe a federal review of the foreign takeover could stretch into 2025.
The longer the review lasts, the harder it could be for U.S. Steel to keep employees and make strategic development decisions, the company filing states. The merger process has already brought “significant expenses” including legal and investment banking fees, which U.S. Steel expects to hurt its overall operating results.
Listing such risks, and any other risk associated with a potential merger, is required as part of the 10-K filing.
”If key employees depart and as we face additional uncertainties relating to the merger, our business relationships may be subject to disruption,” the filing said.
The Pittsburgh community is watching to see the impact of the merger, on multiple fronts, including staffing. The Pittsburgh Technology Council announced that it is planning an upskill training event later this month for “former employees of United States Steel.”
The USW said Friday in a statement that U.S. Steel “showed little interest in solving problems” at a meeting to resolve the union’s grievances, which include being left out of the bidding negotiations last fall. U.S. Steel acknowledged that no resolution was reached during the meeting.
”Our USW-represented employees are an integral part of our operations today and in the future, and we look forward to continuing to work together collaboratively,” the company said in a statement to the Post-Gazette. “We are confident the deal will provide increased certainty in the future of American steelmaking.”
About 80% of U.S. Steel’s 22,000 employees in North America and Slovakia are covered by collective bargaining agreements. Nippon has said it will honor all collective bargaining agreements and keep U.S. Steel’s name and corporate headquarters in Pittsburgh.
Friday’s filing also touched on global industry shifts and environmental spending, on the heels of its recent announcement of Pennsylvania’s largest clean air citizen settlement, negotiated over the 2018 fire at Clairton Coke Works.
U.S. Steel agreed to pay a $5 million penalty to local environment and health funds and invest $19.5 million to fix up parts of Clairton as part of that agreement.
In the earnings filing, U.S. Steel said it was spending heavily on environmental remediation, especially to clean up hazardous materials. Clean-up projects are underway at a number of facilities, including some that were already closed or sold.
”We are committed to reducing our emissions and are investigating, creating and implementing innovative, best practice solutions throughout our operations to improve our environmental performance and to manage and reduce energy consumption,” the company said in the filing.
U.S. Steel’s environmental expenditures totaled $345 million in 2023 — about 2% of its total costs and expenses — up from $334 million in 2022, according to the filing.
To further its goal of net-zero emissions by 2050 (as measured by the rate of carbon dioxide equivalents emitted per ton of finished steel shipped), U.S. Steel pointed to the use of electric furnaces at two of its operations — the Fairfield Works in Alabama and at Big River Steel in Arkansas.
The process relies primarily on recycled scrap, rather than iron ore — a less carbon intensive process. U.S. Steel said it is also pursuing “energy efficiency” measures and renewable energy sources.
The filing stated that some environmental regulatory changes — like those pertaining to CO2 emissions — could hurt its integrated facilities.
”If future regulations do not recognize that the integrated steel process involves a series of chemical reactions involving carbon that create carbon dioxide (CO2) emissions without linking these emissions to steel scrap as well, the competitive position of our integrated operations will be adversely impacted compared to mini mills,” the filing states.
U.S. Steel began investing nearly $4 billion in the mini mill segment in 2021, most notably through two massive electric furnace plants in Arkansas. Big River 2, still under construction, is expected to have about 3 million tons per year of steelmaking capability.
U.S. Steel had a raw steel production capability of 22 million tons in 2023. The filing said it continues to face import competition driven by a massive overcapacity of global steel and unfair trading practices.
”U.S. Steel continues to lead efforts to address these challenges that threaten the company, our workers, our stockholders and our country’s national and economic security,” the filing states.
The USW joined Cleveland-Cliffs in January 2023 to lobby on U.S. imports of tin mill products from eight countries — Canada, China, Germany, Korea, Netherlands, Taiwan, Turkey, and the U.K. A final vote on the matter is expected this month from the U.S. International Trade Commission.
U.S. Steel is “actively participating” in negotiations to form a “global sustainable steel arrangement” between the U.S. and the European Union, the filing said. The trade commission held a hearing on the plan last December and plans to issue a report in January 2025.
Global steel production was about 1.89 billion metric tons in 2023, consistent with 2022, according to the World Steel Association, with increased production in the U.S. and Russia, declining production in Europe and static production in China.
Evan Robinson-Johnson: ejohnson@post-gazette.com and @sightsonwheels
