“This partnership ensures that U.S. Steel will retain its iconic name and headquarters in Pittsburgh, Pennsylvania, and that it will continue to be mined, melted, and made in America for generations to come,” Nippon and US Steel declared in a statement.

For the acquirer, the deal is expensive and ambitious. It paid an enormous premium for a US company on a long-term downward trajectory; earlier this year, USX stock was trading at $30 a share. But Nippon Steel also promised to invest $11 billion in refurbishing and upgrading U.S. Steel facilities by 2028, including building a new mini-mill—moves it said will create 100,000 new jobs—and import some of its own innovative technologies to its new US operations.

Should all go as the two companies are hoping it does, the deal could be a “game changer” for both, says Tiago Vespoli, senior research analyst at Wood Mackenzie. It simultaneously makes Nippon Steel a more robust competitor globally, he argues, while giving U.S. Steel a solid chance to regain its competitive strength, including against Cleveland Cliffs, the big rival that earlier offered to buy it.

“Nippon Steel is a large, extremely experienced, very well-capitalized operator globally,” notes Kyle Lundin, principal consultant, Metals & Mining at Wood Mackenzie, and it brings to the table its expertise in more energy-efficient methods of steelmaking, including direct reduced iron (DRI) and electric arc furnace (EAF) processes. U.S. Steel offers its Big River Steel facility in Osceola, Arkansas, which produces high-quality electrical steel, suggesting that the two companies complement each other in ways that could make them both more sophisticated producers.

Nippon Steel has very publicly been on a hunt for growth for several years, given that its home market is not growing, and the purchase of U.S. Steel establishes a major presence for it in one of the three largest steel markets in the world by demand—with freedom from worry over Washington’s tariff policy. It’s also a “truly transcontinental deal,” Lundin observes, since U.S. Steel owns one of the largest integrated steel facilities in Central Europe, in Košice, Slovakia. As a global producer, the deal doesn’t make Nippon Steel a lot bigger—it remains the world’s fourth largest—but the company emerges as a more formidable global competitor, especially against the industry giant, ArcelorMittal.

That said, the future for the two companies—and even some details of the deal itself—remain to be seen. “Between the actual structure of the deal, and then just some strategic considerations, there’s quite a lot that’s been filled in around the edges, but still a lot of unknowns as well,” Lundin notes.

Full details about the US government’s much-discussed golden share, which is contained in a national security agreement that President Trump signed days earlier, are still being drip-fed. Reportedly the government will have veto power (“consent rights”) over such matters as closing or idling factories and the transfer of jobs or production outside the US—but no actual financial stake in the company. And the June 18 announcement still referred to the new ownership, puzzlingly, as a “partnership,” despite the fact that the Japanese acquirer now owns all of U.S. Steel’s shares.

The union that represents a large majority of U.S. Steel employees, the United Steelworkers, is taking a wait-and-see stance after having fiercely opposed the deal, but its collective bargaining agreement with the company expires in September 2026. That gives the new management—which reportedly will not include current CEO David Burritt—little more than a year to demonstrate that it can keep its promises of new investment and new jobs.

Perhaps the biggest question mark has to do with the significance of the golden share, as opposed to the details. Depending on the attitude of the administration in power in Washington, the unusual arrangement could be “non-consequential,” Lundin observes, “or it could entirely change the trajectory of how U.S. Steel operates at specific decision points that are crucial to its growth or survival in the future.” Nippon Steel has, in effect, made a multi-billion-dollar bet that “their internal decision-making will be in alignment with whatever the US government thinks at some undetermined point down the line.”

Will the new owner’s strategic plans change? If so, how accommodating will a future administration decide to be? The next chapter in U.S. Steel’s 124-year saga has now begun.

Scene 2 came and went on June 6, when Trump missed what was supposed to be a deadline to approve or reject a deal. Scene 3 is now expected before June 18, the date by which the two companies agreed to complete the deal—unless they decide to extend it.

Whether the final curtain in this cliffhanger drama gets extended yet again is still to be known. Meanwhile, interested parties from steelworkers and their families to U.S. Steel stockholders to Pennsylvania elected officials are pondering an assortment of critical but still up-in-the-air details. And other non-US companies are picking up some cautionary lessons about seeking US acquisitions in the Trump era.

With an executive order in January, outgoing President Joe Biden had blocked the U.S. Steel sale, which would have been one of the largest US acquisitions ever by a Japanese company, on national security grounds. Then in April, in a highly unusual move, Trump ordered the Committee on Foreign Investment in the United States to try again to make a recommendation on a Nippon Steel and U.S. Steel tie-up. CFIUS had failed to agree on a recommendation last fall and kicked the decision up to the Biden White House.

Trump received the committee’s recommendation on May 21, giving him 15 days—until June 6—to decide to overturn Biden’s executive order. He didn’t, although his social media post, and statements made at a rally at U.S. Steel’s nearly 90-year-old Mon Valley Works–Irvin Plant outside Pittsburgh,indicated he was prepared to do so.

Instead, the White House claimed he had only asked CFIUS for guidance, not a recommendation, and that the real deadline is June 18. Biden, in his executive order, had given Nippon Steel and U.S. Steel until then to abandon their deal, which means that to push it through, they must conclude it by that date.

What the president didn’t do was backtrack on his claim that a historic deal was within reach.

U.S. Steel will continue to be “controlled by the USA,” he declared at the rally; “otherwise, I wouldn’t have done the deal,” which he claimed to have brokered. Nippon Steel would plow $14 billion into its new properties, amounting to essentially the entire purchase price, including $2.2 billion to increase steel production in Mons Valley and another $7 billion for modernizing plants in other parts of the country, creating at least 70,000 jobs. Further, there would be no layoffs and the new owner would keep all current blast furnaces in full operation for at least 10 years.

“You’re not going to have to worry about that,” the president assured a community that has depended upon U.S. Steel for generations. “They’re going to be here a lot longer than that.”

Trump’s pronouncement left steelworkers, shareholders, analysts, and even Nippon Steel executives trying to tie up some important loose ends, however. Published reports indicated that the acquisition price of $55 per share that the two companies shook hands on in December 2023 was unchanged, and that the deal would still be a 100% acquisition, as Nippon Steel had always preferred: not an “investment,” as Trump earlier suggested.

But the biggest mystery involves the actual control structure the deal would put in place at U.S. Steel.

Republican Sen. David McCormick of Pennsylvania told reporters following Trump’s remarks that the company will continue to have an American CEO and an American-majority board of directors and that the US government will hold a “golden share,” meaning it will have the right to approve some of the board members. That in turn “will allow the United States to ensure production levels aren’t cut and things like that,” he said.

No material terms have emerged from the closely guarded Nippon Steel-U.S. Steel talks as to how this mechanism would be set up, however.

A “golden share” generally means a block of shares that lets the party holding them outvote all other shareholders. But such arrangements, while common in Germany and some other parts of Europe, are “not typical” in foreign acquisitions of US companies, notes Antonia Tzinova, leader of the CFIUS and Industrial Security Team at law firm Holland & Knight, and are generally resisted by the acquirer.

If the parties have something other than a classic golden share in mind, they have not disclosed it—and that constitutes an additional mystery. Trump said that he had not yet seen a formal deal, despite his having received a report on it from CFIUS. If a new deal has been agreed to, Tzinova points out, U.S. Steel has a legal obligation to reveal it to its shareholders.

And to the United Steelworkers, which represent U.S. Steel employees, union officials say.

“Neither President Trump nor Senator McCormick have offered any detail concerning the ‘planned partnership’ or the nature of ‘control by the USA’ of U.S. Steel following the closing of a transaction,” a union official said in a memo to the company—even though those details could affect U.S. Steel’s contract with the union.

The two companies have pursued the sale doggedly for a year and a half; as if to underscore the urgency for a Japanese producer of acquiring U.S. operations, Trump announced shortly after his remarks in Mons Valley that Washington would be doubling tariffs on imported steel. But pushing through even a deal that makes economic sense is more difficult in the present era, Tzinova says.

Nothing about Nippon Steel’s initial proposal to buy U.S. Steel was very unusual, she notes, just its timing. Coming when a presidential election cycle was already under way, the deal quickly became a political issue. The lesson for non-US acquirers: avoid announcing a deal during an election year.

But Nippon Steel could have helped its cause, Tzinova adds, if it had lobbied more heavily and reached out more expansively to all the stakeholders involved. Those stakeholders would include the union and its members, local businesses for whom U.S. Steel is an economic anchor, and state governments. United Steelworkers President David McCall noted pointedly after Trump’s remarks that the union, which strongly opposed the sale, had not been included in the two companies’ discussions with the administration.

That’s another lesson non-US investors will have to learn going forward, Tzinova advises.

Brian Coulton: Our previous assessment was that the US would definitely embark on a sharp path of protectionism, but we thought the scale of it and the intensity of it would be something that got us back to where we were in the 1960s. Now, the calculations we’re doing of the effective tariff rate take us back to Edwardian times—120 years ago. It’s gone way beyond our expectations.

The effective tariff rate has been pushed in two directions. The reciprocal rates went down to 10%, and that’s a lot lower than the rates we were looking at in the immediate aftermath of “Liberation Day.” And we’ve had the bigger carve out for electronics. But going against that is the massive escalation in the US-China trade war. When we put those two things together, we still end up with an effective rate pretty close to 25%.

GF: What do you see as the impact on the global economy?

Coulton: We’re looking at a much worse tariff scenario for the rest of the world than we had in March, and significant downgrades to US and Chinese growth, and the knock-on effects that’s going to have.

This feels to us like it could be quite a significant adverse US supply shock, due to the scramble for US firms and consumers to find alternative sources of supply in the near term. If you’ve got bilateral tariff rates over 100%, it’s just got to collapse. And I don’t think supply chains can be redirected that quickly.

Inflation going above 4% in the US seems quite likely to us. That’s going to worry the Federal Reserve in itself, but just as important is what’s been happening to US households’ inflation expectations. We’ve now had two prints of the University of Michigan [Surveys of Consumers] showing medium- to long-term household inflation expectations have gone through the roof—I mean, off the charts. We haven’t seen anything like the recent readings since before the 1990s. That is a pretty serious threat to the Fed’s credibility.

So, while we still think the next move from the Fed is probably going to be a rate cut, I don’t think they’re going to be in any hurry to do that. What was interesting in [Fed chair] Jay Powell’s last speech was that he talked about the risk of a persistent inflationary impact from high tariffs. In that context, we’re going to see the Fed being very cautious about cutting rates, even though there’s widespread agreement now that US growth is going to slow quite sharply.

Against that backdrop, the dollar ought to be appreciating, but one of the interesting features of this crisis has been the weakening of the dollar. This may be a little source of comfort elsewhere; in the emerging-market world, it raises a bit of scope for more monetary-policy flexibility: a loosening as an offset to the growth shock that will come from the US and China. But the bottom line is, nobody really wins from a trade war.

GF: Is there a method to what the Trump administration is doing?

Coulton: There’s so much complexity! We’ve got sector-level tariffs, country tariffs on China, drug-related tariffs—so many different justifications for tariffs. So, it’s quite hard to draw a clear conclusion. The only thing that comes through consistently to me is this import substitution agenda that [Trump trade adviser] Peter Navarro is pushing, which is behind their approach to selling the reciprocal tariffs. But it has nothing to do with the actual data on reciprocal tariffs. It was all about trying to set tariffs at a level that, on the basis of Navarro’s models, would eliminate bilateral trade deficits completely. So, they just want to get rid of the trade deficit: not only the aggregate trade deficit, but each individual trade deficit. It’s about turning the US into a producer-focused economy from a consumer-focused economy.

On that basis, I would say that we’re not going back, under this administration, to anything like the sort of trade arrangements we had before. I think tariffs are going to stay high for a long time.

GF: What countries are especially vulnerable in the current climate?

Coulton: The classic vulnerable ones are those running the largest surpluses with the US, and where their exports to the US are large as a share of GDP. Vietnam, Mexico, and Canada are right at the top of that list. And there’s certainly a number of quite small economies where the Rose Garden tariffs were a real shocker.

But it’s China that’s looking particularly exposed now, because of its quite aggressive retaliation. And so, we’ve ended up with a tariff rate on China that’s just eye-popping.

That said, what does China have to its benefit? It’s a huge, $18 trillion economy. They not only have a diversified domestic economy, but they also sell as much to Europe as they do to the US. Total exports to the US are still under 3% of GDP. So even if it goes to zero, it’s nothing like the sort of shock that you would get in Mexico or Vietnam if the same thing happened. So they do have policy space; if there’s one economy that can take a really nasty US tariff shock on the chin, it’s China.

GF: During Trump’s first administration, Beijing adopted a “China Plus One” strategy of tightening ties with other regional economies, which enabled it to export to the US effectively through those markets. Are we likely to see the same gambit this time around?

Coulton: It looks to me as if that’s what [Washington is] trying to avoid, and they said that pretty explicitly in a lot of the documentation. Trump only paused the Rose Garden tariffs for 90 days, and he’s said this is an opportunity to negotiate. I am pretty sure, as part of that negotiation, the US will insist that countries do not allow China to open a load of factories in their backyards, start importing more from China, and then export more to the US.

GF: Is the Trump administration perhaps thinking along the lines that the US has got a stronger economy and will knock the Chinese down a few notches in a trade war? If that’s their intent, is it reasonable?

Coulton: I really can’t see that it would have any success at all in terms of gaining global market share for the US at the expense of China. The Chinese are pretty good at this. Look at the debate in Germany. Not only are the Chinese managing to make the stuff that Germany used to sell to them, but they have moved up the value added chain to such an extent that they are eating Germany’s lunch in third markets. It’s been a fairly subdued three to five years since the pandemic for global trade, but China’s exports have been doing really well. As the domestic property market in China has collapsed, they’ve reverted back to relying on exports to drive growth, and they’ve been quite successful at that. So I think it would be quite brave of the US if they really thought they could take on China and its export machine.

GF: Are we likely to see new alignments in the global trade landscape coming out of this tariff upheaval? Does the rest of the world continue to believe in multilateralism?

Coulton: My expectation is that there will be a bit of a rejuvenation of regionalism: countries outside the US looking to cooperate a bit more to offset the negative impact from what’s going on in the US.

There’s definitely a sense in Europe of, “The US is stepping back from the multilateral system, but we still value it,” and so they’re having conversations with China and Asia as frequently as possible. On the other hand, there is this kind of nervousness that China’s got all this export capacity, and suddenly their biggest market is kind of evaporating because of the tariffs—what are they going to do with all those exports?

So there’s this niggling worry about China dumping into the European market. And that maybe feeds into cooperation, because they want to make sure that doesn’t happen, or if it does, that they get something out of it in terms of more access into China. So it’s even more important for Europe to have these conversations.

But the other relevant point to your question is that, at the end of the day, global trade is about supply meeting demand. And the US has always been—and I think will continue to be—the world’s most important consumer market. That limits the scope for other blocs to trade with each other. You don’t trade for fun. You trade so the supply meets the demand. And if the demand is in the US, cooperation is going to be difficult.

And I think that’s true for a lot of East Asian manufacturing hubs. Ultimately, they’re all part of the global machine. It’s really all about the US consumer. The rest of the world is going to continue to be tied umbilically to the US, one way or another, if it doesn’t want to starve itself. It’s going to be hard to have this complete uncoupling.

GF: To what extent do you reckon this is the new normal? Even if we see the tariff situation easing, has the damage been done? Are we in a more negative long-term situation?

Coulton: For the duration of this administration, I think we are in a different world in terms of global trade; multilateralism doesn’t seem to be something they’re interested in at all. So it’s all about import substitution; building a stronger manufacturing base seems to be an absolute core part of what they are doing. When Trump talks about the “pauses” he’s announced, it’s all about the speed at which this can happen, rather than whether it will happen at all. In 2032, it’s hard to predict. But for this administration, it feels like this is quite a fundamental shift.

Joanne Horton: Yes. We’ve got what we think is a rather exciting model, which we describe in a working paper, that helps forecast in advance the likelihood that a firm will go on to commit accounting fraud.

What’s the likelihood that fraud will take place in the future? There’s lots of motivation, obviously, because a lot of fraud takes place: few cases, but each one is very expensive. In a recent interview, the US Securities and Exchange Commission’s (SEC) enforcement director said they had a record $600 million in penalties in 2024 just for 70 cases. So obviously, the penalties and deterrence for doing it are not doing their role, and we need to find something else that can hopefully prevent this from happening.

But most—well, all—of the research into accounting fraud has focused on detection rather than prevention. We wanted to examine prevention. So, what can we do before the fraud occurs? Can the board of directors, the auditors, or other gatekeepers do something? Can I identify the year the fraud occurred in the account? That’s what all the models currently do.

We’re trying to look at data well before the fraud took place and say, “Would we have red-flagged this firm as likely to be committing fraud in the future?” Our model will not tell you it will happen—it simply says there’s a high risk of it happening in the future, which allows us, hopefully, to take corrective action so the fraud doesn’t take place. We don’t include the fraud at all in our model, so we can accurately identify those who are likely to commit fraud and those who are unlikely to commit fraud at 87.68% of cases on average: 90.58% one year before the fraud takes place, 83% two years, and 75% three years before the fraud takes place.

GF: What does your model tell you about how accounting fraud happens?

Horton: We know the antecedents to fraud: It is never a cliff edge but always a slippery slope. You start off small, and then it starts escalating. If we think about it, a manager—if facing pressure to beat an analyst forecast, or beat last year’s earnings, or wanting a particular bonus—has enough flexibility in the accounting rules to manage those numbers while staying within the rules. So, they change inventory methodology, or they change their assumptions on revenue recognition, and they make it such that they beat these forecasts.

But eventually, they’ll hit the limit, and then the only thing they can do is either come clean or go on to egregious misreporting. Now, we know from the academic literature that three years before the fraud, they tend to beat earnings benchmarks. And there’s a recent paper that says you’re more likely to round up your earnings-per-share number about five years before. However, the problem with this research is that they already know the fraud has taken place.

So, how are we going to track the slippery slope? Ultimately, what the managers are doing is increasing their human intervention in the accounts—legitimately, within the rules, but then that human intervention has to keep escalating because with accruals reversals, you’ve got to cover the reversal, and then you’ve got to increase the amount to beat any forecast. So, human intervention in the accounts escalates.

GF: So how do you capture that human intervention—that higher risk of fraud?

Horton: We use Benford’s law, which is a mathematical frequency model. And what we know from prior literature is that the data in the financial statements and notes will follow Benford’s law on average—if there is no human intervention in the accounts. Now, some human intervention may be legitimate, so it will change the deviation, and some may be illegitimate. So, we have to infer whether the deviations are legitimate or not, and we do that by seeing whether the deviations increase and escalate over time. That shows the slippery slope.

Even if there are small but consecutive increases in deviation, they’re having to use human intervention to cover it up; and it’s still increasing relative to what the firm should look like.

The key benefit of Benford’s law is that it doesn’t matter what kind of firm it is—public, private, what accounting policies it follows, what currency it operates in, whether it’s loss-making, whether it’s a growth company, highly leveraged or no leverage at all—makes absolutely no difference. This enables this model to be universal because you can apply it to any company, country, or industry. Once we’ve got a probability from the model, we use that to determine a red flag. And we have to have a red flag twice, so we don’t have anything that’s just random.

GF: What does it take to get that first red flag?

Horton: If they say they made a legitimate change in depreciation, you’ll see an increase in human intervention, but then the deviation shouldn’t escalate.

The model learns from prior fraud as to what it takes: when it gets to a point where, in other cases, there is a higher likelihood. The model creates this hazard ratio, which tells us the likelihood, and then we compare that to what we’d expect in the overall population. If it’s higher than we’d expect in the population, then it’s red-flagged.

GF: And when does the company get a second red flag?

Horton: So what we’ve actually found out, which is interesting, is that it’s very rare—almost impossible—to stop being red-flagged. The model keeps red-flagging you, and then you either go bankrupt or commit fraud. What we haven’t been able to observe is a firm with a red flag that then suddenly stops.

In firms that commit fraud, there’s a culture where you can be overly optimistic about things and rationalize what you’ve done prior. This is why auditors are hopeless at capturing and identifying fraud: because it’s so incremental. The problem for auditors is that if they agree to one change, it’s quite difficult not to agree to a second change, because you’ve rationalized the agreement on the first change.

GF: How do you know to look for fraud in M&A?

Horton: There’s fraud in a lot of places; and the more opaque, the more fraud. You can hide it more easily in M&A, but it’s more about due diligence. So, you are acquiring another company; and we all know that if it’s a hostile takeover, the company is going to make itself look very expensive. So, more human intervention is needed in accounting. And you see that happening over time. And even if it’s not hostile, you’re going to make yourself look good for a takeover.

The other thing we notice is where most of the fraud takes place. It’s not in the parent company, it’s in the subsidiaries. They’re not under the purview of the top brass. They may have different auditors. The parent may be putting a lot of requirements on their subsidiaries to provide a huge return, and if they can’t do it, how do you alleviate the pressure? You manage your numbers.

GF: Do you have an example?

Horton: Here’s one. HP was under pressure to achieve high revenue targets. Their initial response was to increase their human intervention in 2008: They changed their inventory valuation assumption, their revenue recognition assumptions, and a few other things. But in the end, they couldn’t maintain that. So, they ended up, in 2015 and 2016, creating fictitious revenues, valuing the inventory upward, channel stuffing, and many other things. The SEC announced in 2020 that HP had committed fraud. Our model identified the fraud, and we red-flagged HP in the fourth quarter of 2010. So, we already knew at the end of 2010 that they were likely to commit fraud.

A more recent one is [fitness-beverage maker] Celsius. They committed accounting fraud in the second and third quarters of 2021; it was announced in 2025. We red-flagged it in the fourth quarter of 2019.

GF: How are you making your model available?

Horton: We have been offered quite a lot of money to buy the model. But being an academic, I think research is a social good; and therefore, we would just like to build up the model so it’s global and then provide the output to anybody who wants it. So, we would like to allow anyone to download our red flags. The other thing is that we will publish it in detail so our model will be perfectly replicable.

The other thing we’ve noticed in our analysis is that identifying escalating human intervention also exponentially improves bankruptcy risk models, because what do you do before you go bankrupt? You try to delay it, and you will do that through the accounting. So, we think this human intervention measure should be utilized in IPOs and M&As when you’re doing due diligence—all that sort of thing. In that respect, I want it to be a public good.

GF: Would it be possible for fraudsters to use AI to fly under the radar of Benford’s law?

Horton: That is very difficult, because human intervention is human intervention in whatever form it takes. We actually tried to use AI to create a set of accounts that had a huge level of human intervention but followed Benford’s law, and it was practically impossible. Because the trouble is, if you change a few numbers in revenue, it’s going to change a lot of numbers in accounting. It’s going to change your equity, your retained earnings, your profits, your earnings per share, your EBIT, your EBITDA—all these numbers would change. And it’s incredibly difficult. I’m sure someone could spend a lot of time trying to do it, but doing it quarter on quarter on quarter, we believe, is incredibly difficult, because we’ve tried it. But nothing’s impossible.

GF: Who do you foresee using the model besides academics?

Horton: I think auditors, for sure, because they want to know their audit risk, especially if you are taking over from a previous auditor.

I think board members, because it’s their risk as well. I think for due diligence in IPOs and M&A, because you’ll notice a lot of IPOs that commit accounting fraud. So I think short sellers. Regulators could use it, too.

GF: Will there be some technology available using your model?

Horton: I imagine somebody will be capitalizing on that in the future. But we’ve just got money for a postdoc to put this into AI and see what other things we can do. We have used all listed US firms from 1962 till 2020 because that’s when we wrote the paper. We use quarterly data, which we download from Compustat. Anything in the notes, as long as it’s not a repetition of another number.

Since Benford’s law is indifferent about currency or anything else, we’re going to build the model globally: put India in there, China, the UK, Europe, etc. We’re hoping this might actually improve the accuracy because it’ll have more data to learn. But to date, it’s all listed US firms.

GF: What specific changes do you see that might suggest a company is on the slippery slope?

Horton: We look at misreporting: all types of misreporting. We also looked at fraudulent security class actions. And we also look at firms that have made restatements. Nobody said it was a fraud, but nobody said it wasn’t a fraud, either. We can forecast restatements with quite a high level of accuracy.

GF: Are regulators doing anything to anticipate fraud, or are their efforts all retrospective?

Horton: It’s very difficult because the regulator is going in because something has happened. The Public Company Accounting Oversight Board [PCAOB]  looks at companies’ accounts and audit papers and tries to make sure that the accounting is being done correctly. Here in the UK, the Financial Reporting Council looked into audit papers of the FTSE 100 and basically gave them a good health score. So, I think regulators have been trying to do it, but I don’t think they’re as good as they should be.

I think regulation should be about prevention, because the people who win are the people who commit the fraud, and the people who lose—because who pays these fines?—are the shareholders. They price it in. I would have hoped the PCAOB looked at audit reports, but you still have failure.

GF: Why is so much fraud connected with IPOs? Because they don’t do enough due diligence?

Horton: If they have an IPO, they’ll be big firms, and they’ll follow International Financial Reporting Standards or US GAAP. Even if they’re private, they will still be doing so because they’re larger firms.

So, some of it is because they’re overly optimistic. If you’re overly optimistic, you’ll make more changes because you think it’s all going to happen. You are going to make those sales, right? You’ve got to look like you’ve got a future. And then, of course, they have to maintain it, even if things don’t turn out as optimistically as they thought.

GF: If your model becomes widely used, could its presence deter people or companies from committing fraud?

Horton: I hope it would. However, let’s say you’re the CEO, and you think, “Well, let’s see if I can just get away with it.” You’re going to do a cost-benefit analysis of just keeping going. Then I hope the auditors are looking at it and asking questions. Our model might improve auditing since it can provide a list of X red flags across all listed companies in the US.

Interestingly, we also find problems like a lack of an internal control system, which is also a prelude to human intervention. If you’ve been found to have poor internal controls, you’re highly likely to have this increasing human intervention.

The decision has set off a rash of vituperative exchanges between Nippon Steel and Cleveland-Cliffs, whose earlier bid USS pushed aside in favor of the Japanese company’s more generous offer. Nippon Steel has since sued the US government and, separately, Cleveland-Cliffs and the United Steelworkers, saying Biden’s decision was politically motivated and that Cleveland-Cliffs and the union colluded to kill the deal.

Cleveland-Cliffs is fighting back. In a no-holds-barred press conference shortly after Biden’s announcement, Lourenco Goncalves, CEO and chair, said the company is still interested in purchasing USS, reportedly in collaboration with rival Nucor—an “all-American solution”—before lacing into Japan as “evil.”

Adding to the drama, Ancora Holdings, a Cleveland-based asset manager, has acquired a stake in U.S. Steel and nominated a slate of directors and a candidate for CEO who advocate keeping the fabled company independent and improving its profitability. USS has responded that “Ancora’s interests are not aligned with all U.S. Steel shareholders.”

Nippon Steel, for its part, remains committed to the deal. President Donald Trump might have a say as well.

“The Trump administration is not in any way bound by executive orders the previous administration made,” says Robert Friedman, partner at Holland & Knight in Washington, DC. If he wanted to, Friedman says, Trump could rescind Biden’s order, allowing U.S. Steel and Nippon Steel to explore procedural options to persuade the Committee on Foreign Investment in the United States (CFIUS) to revisit its assessment of national security issues. 

Trump vociferously opposed the Nippon-USS tie-up while campaigning. But the new president has been known to change his mind frequently.

Should Nippon Steel pull out and Cleveland-Cliffs press its case once again, the deal would elicit anti-trust concerns. It could give Cleveland-Cliffs a dominant position in integrated American steel production, Kyle Lundin, principal consultant at Wood Mackenzie, points out.

Global Finance: Why did you write this book now? What is it about the current M&A environment that prompted you?

Lev: Three years ago, Feng and I, as keen observers of M&A, saw several troubling things. There was a large, continuous increase in write-offs of goodwill in investment in acquisitions. Write-offs are basically a recognition by management of a partial or total failure of the acquisition, which is a very bad sign, particularly if it’s increasing over time. We also saw, to our surprise, a huge spike in the last 10 to 15 years in conglomerate mergers: mergers of unrelated entities where there are no synergies. And basically, all of them, or most of them would fail, but there is still a large increase in conglomerate mergers. We also saw a large increase in stock prices, which is usually followed by large merger waves.

GF: What methodology did you follow to study mergers, and what were your top-level findings?

Lev: We took a sample of no less than 40,000 acquisitions, a really representative sample over the last 40 years, and applied quite advanced statistics to it. We found some amazing things. One is that the failure rate of acquisitions is 70% to 75%, where those acquisitions don’t increase sales or decrease costs or create shareholder value. You would expect managers who are going to do these extremely expensive, elaborate deals to learn from what they do, and what we found is, there really is not a learning curve, more like an unlearning curve.

And of course, the reason to buy is somehow to revive the business model. But a weak buyer is an invitation to failure. Its stock prices is usually too low to use for acquisition, so it has to raise debt, which is very, very oppressive. And the talent of the target doesn’t like to move to work for buyers’ with lagging operations.

GF: About the loss of talent, can better, more timely communication help prevent this?

Lev: Managers usually provide very extensive information upon the acquisition announcement, and studies have shown that most of this information is highly optimistic. They speak about huge synergies to come and great things to be had from the acquisitions. I would say, if you cut 50% of this—excuse me—bullshit, and you provide a plan, particularly that shows how employees of the target will be integrated into the new company, what new positions are awaiting them, what things they should do, like moving from country to country, reducing the uncertainty and focusing on the new opportunities they will have, perhaps with some financial incentives, more of them may stay.

GF: Is there anything systematic that would-be acquirers can do to anticipate success or failure?

Lev: We introduce a new idea to the M&A literature, an acquisition scorecard. We used our statistical model to identify the 10 most important factors that either positively or negatively affect the consequences of acquisitions, and we weighted them accordingly. Some factors are more important than others, particularly for executives contemplating an acquisition. We provide a very user-friendly tool where you just insert the numbers from the target and from the buyer, and you get a score indicating the likelihood of success.

GF: When is a company well-placed to make an acquisition?

Lev: The ideal buyer would look like a company that is doing reasonably well, not necessarily incredibly well; a company that can use some of its stock for payment, not just cash; a company that will be attractive to employees of the target. So don’t wait until a crisis is at its peak and you incur losses, lose market share, lose customers. That’s a bad time to buy. Look ahead! Look ahead to when your patents are going to expire. Look ahead to your business model, when it’s going to plateau. Look at the competition who are creeping up on you, and then, relatively early, make a decision and buy. Don’t wait until it’s too late.

GF: When it comes to due diligence, what should managers be doing to avoid a rude surprise?

Lev: One important element of successful due diligence is to look at the accounting. I know it’s boring—definitely for the CEO and maybe even the CFO—but a good analysis of the target’s books is essential. In the case of Hewlett-Packard’s buying of Autonomy, a forensic accountant has shown that you could have seen easily that their books were manipulated for 10 years prior. Every quarter it either met or exceeded analysts’ revenue forecasts. This is impossible, I think, even for Amazon. So do even the mundane things seriously: go over the accounting, the contracts, and then, of course, all the human elements. You want to be sure that what you buy is worth the price.

Gu: Another area of failure in due diligence is technologyrelated. Nowadays a growing number of non-tech companies are buying tech startups, trying to modernize their business model. The main asset they’re trying to acquire is not a physical asset, it’s not inventory, it’s not even cash. It’s the alleged technology used by the target to penetrate a new type of market. If the buyer does not do a very good job in due diligence to really verify the technology they are trying to acquire, it can turn out to be worthless to the buyer. Later on, we’ll see a huge goodwill write-off showing a completely failed acquisition: very, very embarrassing for the CEO of the buying company.

GF: What are the most important things that a would-be acquirer can do to improve its chances of success?

Lev: First, they should change the incentives; incentives for acquisitions should be given only for successful acquisitions.

When Nippon Steel Corp. announced its $14.9 billion agreement to purchase venerable United States Steel in December, the most eye-catching aspect of the deal was not—as it soon would be—the negative reaction from American politicians and labor activists.

It was the price tag.

Nippon Steel’s $55-a-share, all-cash offer represented a 28% premium over U.S. Steel’s most recent closing price and a hefty 40% premium to the $33-a-share bid by Cleveland-Cliffs in July of last year that U.S. Steel had rejected. Thrown in was a substantial $565 million break-up fee if the deal should founder on the shoals of regulatory and political resistance.

Beyond that, the Japanese giant pledged to invest another $1.4 billion in the company and honor its existing contract with the United Steelworkers, meaning no layoffs and no plant closings. Since then, it has dissolved its joint venture with a subsidiary of China Baowu Steel Group, the world’s largest steelmaker, as part of a global realignment and, perhaps, to allay US policymakers’ fears of Chinese influence.

But 10 months later, the deal is in doubt as politicians from both parties line up against it. “I would block it instantaneously,” said presidential candidate Donald Trump, and his opponent, Vice President Kamala Harris, has opposed it as well. The Committee on Foreign Investment in the United States (CFIUS) is now preparing its recommendation, which is not expected until after the November election.

No final decision will come from the Biden White House until after CFIUS weighs in. And Nippon Steel reportedly is prepared to go to court if the deal is rejected.

But why does Japan’s largest steel company want so badly to buy U.S. Steel? And what would it mean if it can’t seal the deal?

The answer goes back to 2021, when Nippon Steel released a long-term strategic plan that included boosting its global steel production from 66 million to 100 million metric tons annually. It also plans to close five of its 15 blast furnaces and shift production to less-polluting electric arc furnaces while cutting 10,000 jobs. With the savings, it aims to expand globally, minimizing its dependence on a dwindling domestic market, constrained by a mature economy and shrinking population. Steel demand in Japan is already down 40% from its peak in 1990, according to a report this year from the Washington-based Progressive Policy Institute (PPI).

That contrasts with a global iron and steel market that is expected to grow from $1.6 billion in 2022 to $1.93 billion in 2027, according to MarketsandMarkets, a global market research firm. Much of that demand will be in emerging economies, fueled by industrialization, infrastructure development, and growing local construction capabilities.

Nippon Steel is already expanding and upgrading its production facilities in other parts of the world. It now has operations or joint ventures in Brazil, India, Sweden, and Australia; in August, it announced nearly $500 million in new investment in its subsidiaries in Thailand. But the US is also a big part of its master plan, says Yuka Hayashi, a senior fellow at the PPI, because it is still the world’s largest market and is expanding more rapidly than other industrialized economies such as Europe and Japan itself. Add to that the fact that the US is erecting barriers to imports of vital materials like steel, in part to stem dependence on the behemoth Chinese steel producers.

“The US has passed laws to encourage domestic production,” Hayashi notes, including the 2022 Inflation Reduction Act and the 2023 Infrastructure Investment and Jobs Act, and to benefit, “you need to produce products in the US. So, it’s hard for companies to export these products to the US now. And this will be the case whether it’s under Trump or Harris.”

Additionally, in both the US and the developing world, Nippon Steel thinks its internally developed expertise makes it an attractive partner in an industry much of which is still modernizing. “They are one of the leading producers of lightweight, high-strength steel sheets, and there’s a big appetite for that globally,” notes Cicero Machado, senior manager of bulks assets at Wood Mackenzie.

Transferring that advantage to a declining producer like U.S. Steel could revitalize the Pittsburgh-based company, he says. The combined company would instantly have a presence from Japan to Slovakia to the American Midwest producing 86 million tons of steel a year globally, making it the third largest producer worldwide (it is currently the fourth), according to a recent report in the Michigan Journal of Economics, when Nippon Steel’s existing US subsidiaries are factored in. It would also be a formidable competitor globally, Machado adds, with facilities producing coking coal, iron ore, crude steel, and finished steel goods, “covering the entire manufacturing process, all the way up.”

Nippon Steel has already provided a hint of what it might do if Washington says no—and even if it says yes. Just hours after the U.S. Steel deal was announced last December, Nippon Steel President (now CEO) Eiji Hashimoto said that the cash-rich company was open to “any other good opportunity that comes up.”

“I don’t know if they have talked about what they will do” if the deal falters, says Hayashi, “but if they can’t get it, they will look for other countries.” While losing the U.S. Steel tie-up will not make Nippon less competitive, it must still reckon with the demographics of its domestic market, Machado points out. “It’s not playing in their favor,” he says, “so they should be looking for another market they can eventually tap into.”

That would likely not be China, he says, where demand is already declining, the big domestic makers are struggling with overcapacity, and Nippon Steel itself has already signaled it wants less exposure. That leaves other developing markets, some of which, like India, promise “phenomenal” growth if not the stability of the US.

The bigger question will be for other Japanese corporations struggling with the same demographic challenges at home as Nippon Steel. Japan overtook the UK in 2019 as the biggest source of foreign direct investment into the US, Hayashi notes. Since then, a wider variety of companies have been looking for opportunities to make acquisitions there, from food to pharmaceuticals; formerly, automakers were the only major Japanese manufacturers in the US. Should Washington turn Nippon Steel down, it will introduce a big new note of uncertainty not only for the steelmaker but for other Japanese companies.

“FDI would look very risky,” Hayashi warns, “since the US government could suddenly say no to a deal that would have been approved just last year.”

Century-old global mining-and-metals conglomerate Anglo American plc has been on a roller coaster since the end of May, when it dramatically cut off merger talks with rival BHP and instead announced a sweeping restructure of its portfolio.

Many analysts greeted the plan with skepticism. UBS downgraded London-based Anglo American from Buy to Neutral, citing the restructuring scenario and the hurdles to getting it done by the end of 2025, as management has pledged to do, and the German private bank Berenberg affirmed a Sell rating. In the two months following the announcements, Anglo’s stock price fell 18%.

The auguries worsened at the end of June, when a fire caused the shutdown of Anglo’s Grosvenor coal mine in Australia. New York-based investment bank Jefferies attributed 30% of the value of Anglo’s steelmaking coal business to the Grosvenor mine; its coal operations are one of the assets the company plans to sell as part of the restructuring. Production is not expected to resume until next year.

“Anglo’s main problem this reporting period will be with the coal operations and how it will sell a burning coal mine,” quipped Ian Woodley, portfolio manager at Old Mutual.

Three weeks later, Anglo released its latest results, and the bad news seemed to pile up further. The company took a $1.6 billion impairment based on its decision to slow the development of Woodsmith, its promising venture into organic fertilizer production in the UK. The decision, which was intended to help Anglo focus on its restructuring, swung the company from a net profit of $1.26 billion in the first half of 2023 to a $672 million loss in the first half of this year. 

“Anglo’s valuation upside no longer looks compelling on a standalone basis,” JP Morgan’s equity research team concluded, suggesting it may still be a takeover target.

The restructuring itself is a complicated affair. Aside from selling off its coal operations and executing various cost-control measures, Anglo aims to demerge Anglo American Platinum (Amplats), put its nickel mining operations on mothballs for possible divestment, and divest or demerge its fabled DeBeers diamond unit, which will move Anglo out of the diamond business for the first time in almost 100 years. The end-product, chair Duncan Wandblad forecasts, will be a leaner, more linear company, laser-focused on copper and iron ore production, which are expected to benefit from the shift to green energy, and last year accounted for 70%-plus of Anglo’s EBIDTA. 

Should the plan succeed, Anglo will be “a higher quality company,” says Morningstar equity analyst Jon Mills, “as it will be less leveraged to changes in commodity prices, led by its high-quality, low-cost, long-life copper mines, including 60%-owned Quellaveco in Peru and 44%-owned Collahausi in Chile.”

Despite the difficulties, such as regulatory approvals needed in South Africa and Botswana, Amplats having to renegotiate supplier contracts and funding lines, and De Beers struggling with a downturn in the diamond market, some analysts think Anglo can pull it off.

“The plan is viable,” says Dawid Heyl, portfolio manager at Ninety-One, a large Anglo shareholder, “and while the execution risk is real, they’ve given themselves a good amount of time to get it done.” Anglo’s stock price is still trading well above the levels it reached before BHP’s bid emerged in April, he notes, “so the market is giving them the benefit of the doubt.”

Anglo reported a modest first step in its restructuring in late July, when it finalized an agreement to sell two royalties to Taurus Funds Management for $195 million: an iron ore royalty owned by De Beers related to an Australian iron project, and a gold and copper royalty related to a project in northern Chile.

“The main risks,” says Mills, “are that it takes longer than intended, and that Anglo accepts bids for its assets that are lower than they should be as it tries to meet its target completion date while minimizing the risk of BHP returning or other suitors emerging.”

But Radoslaw Beker, director at Fitch Ratings, argues that the prices Anglo expects to reap from the assorted divestments and demergers are not overly optimistic: “If the market environment remains stable through the next year, we don’t see problems in getting their numbers. Based on the company’s announcement, and the justification for it, we think it’s achievable.”

Should it succeed, Anglo’s huge restructuring will cap a long-term trend in the mining-and-metals industry away from the diversified model that has been the company’s hallmark for more than a century.

“A diversified model was an advantage at one point,” Heyl notes, “but today, you don’t get rewarded for that, which is why Anglo has been trading at a deeper discount than other miners.”

Wanblad’s vision for the company “shows a real focus on metals, longer term,” says Beker, “and this is the trend that miners want to go in.”

The announcements in June by Japan’s three megabanks that they will sell $5.4 billion of their strategic cross-shareholdings over three years mark a milestone in the decades-long effort to remodel Japanese corporate governance along more investor-friendly lines.

Mitsubishi UFJ Financial Group said it plans to sell $2.2 billion of cross-shareholdings by the end of March 2027, Mizuho Financial Group expects to sell $1.9 billion over the next three years, and Sumitomo Mitsui Financial Group expects to divest more than $1.3 billion by March 2025. Significantly, Mizuho CEO Masahiro Kihara said the bank will either pass on the proceeds from its sales of equity holdings to investors as dividends or invest them in growth-directed activities, and Sumitomo Mitsui aims to reduce the market value of its equity holdings to less than 20% of the value of its consolidated net assets.

The megabanks’ announcement represent a milestone because Japanese banks have been one of the heaviest holders of strategic shares, dating from the decades following World War II, and among the most reluctant to wind them down says Haonan Wu, manager of engagement, EOS at Federated Hermes, a provider of stewardship services to investors on elections, obligations, and standards.

As such, the big banks’ pledges suggest that Japanese business is taking the need for change seriously, Wu says. “We’ve been discussing this for a number of years, holding meetings with the banks’ board of directors.”

The three big banks are not the only major Japanese companies pledging to reduce cross-shareholdings, which are strategic stakes that companies hold in their closest business partners, including suppliers and corporate customers. In May, some 70% of the companies listed in the Tokyo Stock Exchange’s (TSE) Prime market of large, global stocks said they would be selling off cross-shareholdings. And efforts by regulators to encourage the phase-out go back at least 20 years; average holdings of strategic shares by companies in the TOPIX 500 index dropped from 13.5% of new assets in 2015 to 8.4% in 2023. But the pace has been slower than this suggests; as of last year, 320 companies or 64% of the TOPIX still had more than 10% of their net asset value tied up in strategic shareholdings.

Traditionally, cross-shareholdings were seen to cement close, long-term relationships with counterparties as well as to assure management of a reliably loyal block of voting shares. However, a growing chorus of investors—especially those based overseas—have criticized the practice as an inefficient use of capital as well as a questionable corporate governance practice, since companies’ independent directors often represent strategic partners.

Institutional Shareholders Services (ISS) and Glass Lewis, the two big US proxy advisors, have been vocal on the issue. And in May, the Asian Corporate Governance Association—which includes Black Rock, Fidelity, and Federated Hermes—published an open letter calling on Japanese companies to “accelerate the further reduction of these shareholdings, which we believe in principle should be zero for most companies.”

In past years, such admonitions might have had less impact, but times appear to be changing. With the Japanese economy sluggish, Wu points out, the TSE has become concerned about the low price-to-book ratios of its listed companies, including banks; half of Prime members traded below book last year. The bourse now requires companies trading at less than a one-to-one price-to-book ratio to disclose their policies and initiatives for improvement and advised them to focus more on capital efficiency: for example, by reducing cross-shareholdings.

Japanese companies appear to be responding. Jun Frank, global head of governance and compensation at ISS-Corporate, notes that share buybacks—traditionally not a common practice—are up.

“Japanese companies historically have held onto cash rather than doing buybacks or paying out dividends,” he says, “so a lot of companies have a large stockpile of cash on their books. Now they’re thinking more strategically about how to allocate capital.”

Additionally, with Japanese stocks outperforming the Standard & Poor’s 500 for more than a year—the Nikkei index reached its highest level in 33 years in May—now would seem like a good time for companies there to unwind their strategic portfolios. Japanese investment firm Keystone Partners announced in March that it was setting up a $636 million fund to buy divested cross-shareholdings.

There’s no knowing for sure how far divestment will go; in March, Japan’s Financial Services Agency noted that some companies, which are now required to list their top 60 strategic shareholdings, may be engaged in “shareholding washing”: getting around the rule by claiming to own them only for trading purposes.

But if divestments do accelerate, Frank foresees a profound change in how Japan’s traditionally insular corporate boards behave. Fewer cross-shareholdings will “increasingly lead to greater board independence,” he says, the odds that activist shareholders can make themselves heard will improve, and “that will encourage companies to be more efficient in how they allocate their capital.”

At a bilateral investment conference in Cairo on July 1, European Commission President Ursula von der Leyen announced that European companies were signing deals for more than $43 billion with Egyptian companies “ranging from hydrogen to water management, from construction to chemicals, from shipping to aviation and to automotive.” 

“Egypt really is enjoying a moment,” observes David Lubin, a senior research fellow at Chatham House in London and a seasoned global economic observer. That could well be an understatement.

Shortly before, GV Investments, Egypt’s sovereign investment fund, signed four agreements worth $40 billion with European developers to produce green ammonia, a renewable form of fertilizer that joins hydrogen extracted from water and nitrogen obtained from air. The deal potentially makes Egypt a big player in the renewable energy market.

Those announcements followed a partnership agreement that GV Investments signed in May with Chinese automobile manufacturer FAW to produce FAW’s low-cost electric sedan, the Bestune E05 model, locally for the Egyptian market. A month earlier, the EU announced that it would provide $1.1 billion in short-term financial aid to support the Egyptian economy, one leg of a $5.4 billion assistance package through 2027 that still needs to be approved by EU members. A month earlier, Egyptian President Abd el-Fattah el-Sisi’s government signed an expanded $8 billion loan deal with the International Monetary Fund.

And that followed close on the heels of the biggest deal of all: a $35 billion mega-investment by ADQ, Abu Dhabi’s sovereign wealth fund, to develop a stretch of Egypt’s Red Sea coast for tourism, real estate development, and other projects. Some of that commitment has already been fulfilled, Lubin notes, and is now bolstering the books of the Central Bank of Egypt and some of the Nile nation’s commercial banks.

ADQ’s investment represents a major vote of confidence in the el-Sisi government’s efforts to reform and open up Egypt’s creaky economy, and was likely a catalyst for the deals that followed, Lubin says. “Success builds on success,” he says, “and if Egypt can attract what amounts to just under 10% of its GDP from the United Arab Emirates, it minimizes the risk of a debt default, replenishes the central bank’s position, and gives confidence to other investors.”

What stands out about the July 1 deals, however, is the range of industries they represent.

Egypt has long been regarded as a narrow economy concentrated in just three sectors: energy, agriculture, and tourism. The Gulf and EU governments have plenty of reasons to want to help stabilize Egypt, with its 111 million people and strategic location with the war between Israel and Hamas flaring on one side and the Mediterranean, the pivot point of Europe’s migrant crisis, on the other. But what’s in it for European water management, automotive, and chemicals companies, among others?

“At the moment, these are just investment pledges,” notes Robert Mogielnicki, senior research scholar at the Arab Gulf States Institute in Washington, DC. “The proof will be which of these pledges materializes, and that depends on whether Egypt makes concrete progress on the economic front.”

That’s a tall order. Egypt shoulders a debt burden equal to more than 95% of its GDP, more than one in four Egyptians lives in poverty, and economic growth is stubbornly slow. But Lubin notes that Egypt, with its enormous market and strategic location, is a relatively inexpensive investment today compared to Europe.

“It helps that the Egyptian pound is exceptionally cheap,” he says. “Trade-weighted, it’s as cheap as it’s ever been.” That helps motivate foreign direct investors outside the three industries that traditionally have anchored the economy. The long-term assistance package from the EU, meanwhile, tells European companies that their governments are committed to making Egypt’s economic modernization a success, Mogielnicki notes.

Conditions for foreign investment could improve, too, if the government follows through on its commitments to the IMF. These have three pillars, Lubin says: switching to a flexible exchange rate and establishing a credible inflation target, tightening fiscal policy, and creating a level playing field, in part by reducing the army’s outsized presence in the economy. 

So, what could go wrong?

Given the magnitude of the EU companies’ pledges—and those from China and the UAE—they could meet with pushback from “entrenched domestic business interests” anxious not to be muscled out or reduced to accepting crumbs, Mogielnicki cautions. Those would include elements of the army, which is Sisi’s base of power.

A more immediate concern will be whether the government can fulfill its end of the IMF deal. The central bank has a long philosophical commitment to maintaining a stable currency, contrary to the IMF’s demand, Lubin points out. Setting and sticking to a credible inflation target will be difficult. And creating a more welcoming market environment for outsiders will be politically tricky if not impossible.

Time will tell which of the EU companies’ deals comes to fruition, and how they will affect Egypt’s economy and the people who make it up. Clearly, however, each element of the larger progress that is pulling together to modernize one of the world’s oldest societies—EU and IMF subsidies and loans, economic policy reform, and FDI—will have to work for all of them to succeed.