By Max Allens and Edmund James Melzer *
International Mergers and Acquisitions are exhibiting a growing level of uncertainty
On the last day of his term, former U.S. President Biden blocked the $14.9 billion acquisition of U.S. Steel by Japanese steel giant Nippon Steel, citing national security reasons. With U.S. Steel set to rake in significant funds for modernization and sustainability projects, the move stirred controversy.
Vast Commitments, Empty Result
Nippon Steel vowed to fulfill an array of pledges while undergoing a review by the Committee on Foreign Investment in the United States (CFIUS). These included maintaining jobs, offering leadership roles to Americans, and investing a sizeable $2.7 billion, of which $1 billion was earmarked for Pennsylvania's Mon Valley Works and $300 million for furnace modernization at another site. Furthermore, Nippon Steel guaranteed reduced CO emissions as part of its modernization efforts. However, despite these commitments and no clear security concerns identified, CFIUS barred the takeover.
Questionable Use of National Security
In the global M&A landscape, the unpredictability of investments grows, especially when it involves investments by non-western companies in western firms. This is not a new issue, with the rise of Foreign Direct Investment (FDI) regulations. Yet, the boundaries of this tool are blurring, making it challenging to ascertain its application.
Jumping the Gun?
Steel production isn't designated as critical infrastructure or critical technology, as per the guidelines introduced by the 2022 Executive Order. Concerning the defense sector, U.S. Steel isn't heavily involved, considering their competitors own the plants manufacturing armor plates for naval ships and military vehicles. Japan, a longtime U.S. ally, plays a crucial part in its foreign and security policies, and Nippon Steel's in-house U.S. production arm, Wheeling-Nippon Steel, adds to the company's American integration.
Time to Call the Lawyers
Nippon Steel and U.S. Steel wasted no time in suing the U.S. government following the acquisition ban, as they felt their rights were violated due to political interference. Other lawsuits were also launched against the CEO of a rival steel producer, Cleveland-Cliffs, and the president of the United Steelworkers union, who are accused of collusion to manipulate the decision.
The validity of national security concerns, a supposed pretext, or economic motives driving the decision continues to question minds. Any consequence in the transatlantic economic climate could be far-reaching.
Shades of Politicization Emerge
Back in 2024, the presidential blockade of a Chinese crypto-mining firm seeking to acquire land near a U.S. Air Force base in Wyoming hinted at the growing politicization of economic decisions in the U.S. The U.S. government's emphasis on national security aspects in foreign investments was unmistakable.
Confirming the Trend
The America First Investment Policy National Security Presidential Memorandum (NSPM), introduced in February 2025, backs this assertion. The NSPM outlines plans for stricter control over investments from non-allied countries in specific sectors, while streamlining the CFIUS process for investors in harmony with American security interests.
The Future of CFIUS
The long-awaited implementation of the NSPM changes will reveal how the Trump administration approaches similar transaction proposals. Foreign companies looking to buy or invest in U.S. chunks should brace themselves for an increasingly hard-to-predict CFIUS process. A comprehensive risk analysis and early legal consultation are essential to overcome potential hurdles.
Mind Your Step, Foreign Investors
Before making a play for U.S. affairs, investors must understand the increased complexity in cross-border M&A transactions due to policies such as the tightened investment control in the EU and the foreign subsidy regulation. An in-depth feasibility study, including antitrust aspects and investment control, is crucial. Potential scenarios, procedural courses, and transaction risks should be evaluated. Political hot topics and the interests of various stakeholders, such as customers, employee organizations, competitors, and government agencies, need consideration.
Contractual Coverage
Since foreign status can trigger national security concerns—even in sectors not subject to investment control—it's important to ascertain if the transaction involves an industry essential to American competitiveness. National security concerns may serve as a shield for protectionist measures, so non-security-related aspects must also be scrutinized and considered during the transaction's feasibility analysis. The risks of the transaction being prohibited should be examined closely and allocated in the agreement between the seller and investor. Any promises to governments and side agreements between investors and stakeholders must be reflected too.
Save Time and Fill Out Questionnaires
Questionnaires about geographical activities and revenues can help gauge the likelihood and risks of the CFIUS process and organize the pre-review procedure. All involved parties should attempt to complete these questionnaires.
Set the Terms, Clearly
Transaction documentation must be tailored to meet the specific transaction's requirements and include provisions for closure conditions, cancellation rights, break fees, and cooperation obligations in the event of unwinding.
Tightening the Screws Elsewhere
Besides CFIUS in the U.S., other global regulatory regimes, such as the EU's tightened investment control and foreign subsidy regulation, contribute to the increased complexity of cross-border M&A transactions. Donald Trump's imposition of tariffs on steel and aluminum imports into the U.S. in 2025 only reinforces the path already set under the Biden administration.
*) Dr. Max All is Counsel in the Corporate/M&A practice in the Munich office of Clifford Chance, Dr. Edmund James Melzer is an Associate in the Competition Law practice group in the Düsseldorf office of the firm.
Bonus Info:
The evolution and implications of CFIUS reflect the dynamic interplay between national security concerns and foreign investment policies in the U.S. Over time, CFIUS has grown in significance as it scrutinizes foreign investments, particularly those with national security implications.
Evolution of CFIUS
Background
CFIUS is an interagency committee led by the U.S. Department of the Treasury, tasked with reviewing foreign investments in U.S. businesses to assess potential national security risks. Its role has expanded significantly since inception, with recent updates focusing on addressing emerging threats to U.S. security.
Key Developments
- Expansion of Review Factors: In 2022, President Biden issued Executive Order 14083, broadened the factors CFIUS considers during reviews to include the resilience of U.S. critical supply chains, technological leadership, aggregate industry investment trends, cybersecurity risks, and risks to sensitive U.S. data[2].
- America First Investment Policy (AFIP): Launched by President Trump in 2025, AFIP concentrates on maintaining an open investment environment while prioritizing investments from U.S. allies and partners. It also aims to simplify the CFIUS review process for trusted investors[1][4].
Fast-Track Pilot Program
On May 8, 2025, the U.S. Department of the Treasury announced a fast-track CFIUS review process to expedite investments from allied and partner countries, in line with the America First Investment Policy. The initiative seeks to remove regulatory barriers for trusted investors while upholding national security safeguards[1][3][5].
Implications of CFIUS Process
National Security Concerns
- Risk Assessment: CFIUS assesses investments based on factors such as domestic production needed for national defense, control of domestic industries by foreign citizens, and effects on U.S. critical infrastructure and technologies[2].
- Chinese Investments: The U.S. remains cautious about Chinese investments, particularly those involving technology and critical infrastructure, due to concerns about national security and economic influence[4].
Economic Implications
- Investment Environment: The fast-track pilot program is expected to attract more investment from U.S. allies, stimulating the U.S. investment environment and fostering economic growth[1][5].
- Regulatory Challenges: Despite efforts to streamline the process for allies, CFIUS's stringent review process may deter some foreign investments from countries of concern[4].
Global Perspectives
- Bilateral Agreements: Recent developments, like trade agreements with countries such as the U.K. and Gulf nations, highlight the U.S.'s strategic approach to foreign investment, focusing on strengthening alliances while safeguarding national interests[1].
- In the global M&A landscape, the unpredictability of investments, especially those by non-western companies in western firms, has grown, particularly with the involvement of foreign direct investment (FDI) regulations.
- Steel production, unlike critical infrastructure or critical technology, is not designated as essential for national security purposes, as per the guidelines introduced by the 2022 Executive Order.
- Despite no clear security concerns identified, the Committee on Foreign Investment in the United States (CFIUS) barred the takeover of U.S. Steel by Japanese steel giant Nippon Steel, raising questions about the use of national security as a pretext for economic motives in investment decisions.
