Nicholas O'Keefe Assesses 'Golden Share' in US Steel Deal

The U.S. government's implementation of a 'golden share' with veto power in the Nippon Steel-U.S. Steel acquisition establishes a precedent that could significantly impede future large cross-border M&A, particularly in national security-sensitive sectors, according to Foley & Lardner LLP partner Nicholas O’Keefe. This new regulatory tool increases deal complexity and risk, potentially making foreign buyers 'very leery' and impacting the pool of buyers for U.S. target companies, prompting sell-side boards to consider contractual provisions that shift this regulatory risk to buyers.

Analysis

The U.S. government's use of a 'golden share' arrangement in the approved Nippon Steel acquisition of U.S. Steel (X) establishes a significant new precedent for regulatory intervention in cross-border M&A. According to legal analysis from Foley & Lardner, this mechanism, which grants the government veto power over business decisions, is poised to act as a deterrent for future large-scale transactions, particularly in sectors that could be designated as a national security risk. While smaller cross-border deals may continue unabated, this development introduces a material risk that could make foreign buyers 'very leery' of pursuing major U.S. assets. Consequently, boards of U.S. target companies are now advised to proactively address this risk by negotiating contract provisions that shift the burden onto the buyer, for instance by forfeiting the buyer's ability to terminate a deal if such a condition is imposed. The primary long-term risk is a potential contraction in the pool of foreign acquirers, which could ultimately impact deal-making and valuations for U.S. companies attractive to international suitors.

Key Decisions for Investors

• Investors involved in merger arbitrage should increase the risk premium assigned to large, cross-border deals in sensitive U.S. sectors to account for potential government intervention via 'golden share' provisions.
• Consider that U.S. companies in strategic industries may face a smaller pool of potential foreign buyers, which could suppress future takeover valuations and limit M&A-driven upside.
• When evaluating announced transactions, closely scrutinize merger agreements for clauses that allocate the risk of regulatory conditions, as these will be a key determinant of deal certainty and a new focus for sell-side boards.