Observations from Japanese M&A Practice

By Masakazu Iwakura & Masanori Bito

Masakazu Iwakura (senior partner) and Masanori Bito (partner) are Japanese attorneys at the law firm TMI Associates, where they lead the M&A practice. They finalized this essay as the transaction itself finalized.

The corporate strategy driving Nippon Steel’s acquisition of U.S. Steel has been to shake off the limits of its home market and grow as a global player. This case highlights important new challenges faced by Japanese acquirers in the US that have not previously received much attention.

As is widely recognized, leading Japanese companies cannot retreat from international expansion. They depend on overseas growth, including overseas M&A, given the shrinking Japanese market and decline in Japan’s population. Japanese companies seeking significant cross-border mergers and acquisitions in today’s increasingly regulated global market must plan and prepare for a wider range of risks and challenges than in the past, including demands for harsher deal terms from transaction partners and an expanded definition of national security that may include political considerations. Several of the new issues and suggestions for dealing with them are discussed below.

One prominent example was U.S. Steel’s demand for a reverse breakup fee (RBF) to ameliorate the risk of a failed transaction. Historically, RBF clauses have been very rare in Japanese M&A practice. One exception was Japan Industrial Partners' 2023 acquisition of Toshiba Corp. Toshiba explicitly demanded an expensive RBF at the outset of the deal to ensure the buyer’s strong commitment to obtaining regulatory clearances, reflecting Toshiba’s emphasis on deal certainty.

Leading Japanese companies cannot retreat from international expansion.

Despite that newsworthy precedent, RBF provisions still remain uncommon in Japanese M&A transactions. Against this backdrop, Nippon Steel’s agreement to a substantial RBF of $565 million was noteworthy, clearly demonstrating its strong commitment to completing the transaction despite regulatory uncertainties.

This acceptance might indicate a growing recognition among Japanese acquirers that clauses such as RBFs may be necessary to compete effectively in cross-border transactions involving non-Japanese targets, particularly in markets like the US, where regulatory scrutiny has intensified. In any event, given the high-profile nature of the Nippon Steel-US 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 US companies, even if the target company is a Japanese entity.

The second new area for concern is the increasingly political nature of acquisitions in the US and elsewhere. Nippon Steel and U.S. Steel likely thought that this transaction would not encounter major regulatory obstacles under US foreign direct investment (FDI) rules, given the friendly nature of the acquisition and the close and long-term alliance between Japan and the US. In fact, it faced acute challenges, including from the Committee on Foreign Investment in the United States (CFIUS).

In early January 2025, President Biden issued a presidential order blocking the acquisition, citing national security concerns. Nippon Steel and US Steel had announced comprehensive voluntary measures to mitigate the security concerns. As these voluntary measures directly addressed the national security considerations, it appeared that there was no justification for blocking the transaction under the relevant legislation and that political influence likely played a role in the decision.

Political resistance persists within the US toward foreign ownership—even by allied nations—in strategically significant industries.

It is generally understood that Biden’s order reflected deeper political dynamics, including sensitivities linked to the just-concluded US 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 US toward foreign ownership—even by allied nations—in strategically significant industries. However, protectionism carries 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, this presidential order may undermine the consistency and predictability of the US 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.

Following the change in the US administration later in January 2025, the picture changed. Members of CFIUS were replaced, executives of Nippon Steel engaged in discussions with senior officials from the Trump administration, and President Trump ordered a re-evaluation of the transaction. These developments were considered exceptional and hardly set a reliable precedent for future investors.

The protracted Nippon Steel-US Steel path to closing on June 18, 2025, underscores the necessity for Japanese companies to strategically prepare for an increasingly complex regulatory environment, incorporating deal terms like RBFs, robust regulatory engagement, and comprehensive stakeholder management strategies. It is possible that in this case Nippon Steel accepted a large RBF because it underestimated the newly heightened risk of transaction failure. In the future, Japanese acquirers will need to carefully consider such risks and negotiate deal terms with the expectation that they could, in fact, be triggered.

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. It is now essential to be prepared to manage CFIUS reviews and other jurisdictions’ national security regulations in addition to the traditional work of obtaining antitrust approvals. Selecting experienced advisors who are familiar with this area is now very critical.

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Suggested citation:

Masakazu Iwakura and Masanori Bito, “Observations from Japanese M&A Practice,” USALI East-West Studies, 3, No. 7, July 8, 2025, https://usali.org/nippon-steel/observations-from-japanese-m-and-a-practice.

The views expressed in USALI Perspectives essays are those of the authors, and do not represent those of USALI or NYU.

This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.