U.S. Steel Holds Trump's 'Golden Stake'
In an unusual turn of events, the U.S. government has approved the sale of U.S. Steel to Japan's Nippon Steel, but not without embedding a unique set of controls. This arrangement, known as a "golden share," grants the U.S. government perpetual veto power over key decisions, despite the company being majority-owned by a foreign entity.
A golden share is a special type of government-held share that provides veto power over major corporate decisions, even if the government holds only a minimal equity stake. Typically, golden shares have been used in European contexts to prevent foreign takeovers of national companies. However, in the case of Nippon Steel's acquisition of U.S. Steel, the golden share was used to enable a foreign acquisition while maintaining U.S. oversight, a departure from precedent.
The arrangement requires Nippon Steel to make significant investment commitments in the U.S. and allows the U.S. government to block any strategic moves potentially harmful to U.S. national security or economic interests, such as plant closures or job relocations. This introduces governance constraints and political risks that affect operational flexibility and investor confidence, making it a "governance overhang" that can slow decisions and increase uncertainty.
The deal is said to safeguard U.S. national and economic security. However, the U.S. government does not appear to hold an equity stake in U.S. Steel. The concept of a golden share originated in the U.K. in the 1980s, and historically, the Committee on Foreign Investment in the United States (CFIUS) has focused on defense-related transactions. Under both the Trump and Biden administrations, CFIUS has been reviewing a broader category of business transactions, including cybersecurity, AI, biotechnology, and clean energy.
President Trump did not initially express support for the sale, but he will have a say in the operations of the combined company. The U.S. government is getting a big say in the C-suite of U.S. Steel, with specific conditions such as no factory closures or salary reductions without President Trump's approval. The agreement includes President Trump's name, and the White House calls it a symbolic golden share.
The U.S. Steel deal is an unusual arrangement, as it stipulates specific conditions, and it is new to the U.S. Other countries like China, Russia, and Brazil have also used golden shares. Golden shares give certain shares extra powers, and in this case, President Trump or the president controls the golden share.
Sarah Bauerle Danzman, a political economist at Indiana University, has had firsthand experience with the national security agreements that CFIUS negotiates. She notes that what the U.S. government has is kind of extra-special governance rights in U.S. Steel. The arrangement with U.S. Steel is an unusual take on the concept of a golden share, and it is not a typical golden share.
In summary, the unusual element of this golden share is that it enables foreign ownership while embedding U.S. government control over domestic steel operations, a reversal of the share's traditional use as a defense against foreign ownership. The arrangement introduces governance risks, political leverage, and investment commitments, making it a unique case in the world of corporate acquisitions.
- The U.S. government's approval of U.S. Steel's sale to Nippon Steel includes a unique control mechanism called a "golden share," which grants perpetual veto power over key decisions.
- The arrangement between U.S. Steel and Nippon Steel introduces governance constraints, political risks, and potential negative impacts on operational flexibility and investor confidence.
- In this context, the Committee on Foreign Investment in the United States (CFIUS) has been reviewing a wider range of transactions, including technology-based industries like cybersecurity, AI, biotechnology, and clean energy.
- The golden share in the U.S. Steel sale, where President Trump or the president maintains control, redefines traditional expectations of the golden share, which was originally used to protect against foreign ownership.
