The Stel Salaried
Pensioners Organization wishes to thank The Hamilton Spectator for permission
to post the following article by Reporter Steve Arnold published in the May 4,
2005 edition
By Steve Arnold
The Hamilton Spectator
(May
4, 2005)
One of
Stelco Inc.'s rejected suitors is making another run at the troubled steel
giant.
A
partnership of Sherritt International and the Ontario Teachers' Pension Plan
wants to revive its $1.8-billion plan to refinance the Hamilton steel giant.
In
court documents filed yesterday, Island Energy Partnership, a joint venture
between the mining company and one of Canada's largest pension plans, asked for
court permission to file and publicize "substantially the same" plan
Stelco rejected in March.
The
steelmaker turned down that and other offers, saying none met the company's
objectives.
It said
no to a substantially lower refinancing offer from Brascan Corporation last
month before agreeing to review it just before a court hearing.
There's
nothing to suggest that Stelco has changed its position on the Sherritt
proposal. And it's not clear if the company will entertain it.
Stelco
spokesman Helen Reeves said the company hadn't reviewed Sherritt's court
documents and declined to comment further.
Sherritt's
renewed interest in Stelco brings to three the number of bids offering to
refinance the company. Tricap Management Ltd., the restructuring unit of
Brascan Corporation, has offered a $1.35-billion rescue package that includes
$500 million toward Stelco's pension deficit. The company's bondholders have
also submitted a plan to the board of directors, but no details have been made
public.
In
court documents, Sherritt argues its plan "is superior to the proposal
contained in the Tricap Letter of Intent and better protects the interests of
Stelco and its stakeholders." But under the confidentiality agreement
Sherritt signed last year it can't illustrate the differences. Its legal motion
asks for permission to file its plan and to discuss the details with Stelco's
stakeholders.
Sherritt
vice-president for investor relations Deanna Horton said she couldn't discuss
anything in the offer because of the confidentiality agreement.
Guy
Bentinck, Sherritt's senior vice-president and chief financial officer, argued in
an affidavit that his company's plan "would provide Stelco and its
employees with a more stable foundation for growth and would make Stelco a
revitalized organization with a focused strategic plan and a stronger financial
position than is possible under any other alternative. It would provide Stelco
with the required capital to emerge from CCAA as a Canadian public company with
a strong balance sheet and sound operating fundamentals."
While
the prospect of a brewing bidding war for Stelco was welcome news to some of
the people who depend on the company, others wondered what Sherritt intends for
Stelco.
Sherritt,
directly and through its subsidiaries, produces thermal coal, nickel and
cobalt. It has interests in oil and gas exploration, development and production
and electricity generation. When its offer was tabled during Stelco's first
capital-raising process, Sherritt representatives admitted they were more
interested in Stelco as an energy producer than as a steel maker.
That
left some critics wondering how much of the $1.8-billion refinancing was new
money to solve Stelco's pension and cost-of-production problems and how much
was intended to buy existing assets such as the coke ovens.
For
Mike Locker, New York-based financial adviser to the United Steelworkers of
America, that's not much to worry about -- the heat from steel making is the
key to producing the energy the partnership hopes to sell.
"Sherritt
isn't primarily interested in the steelmaking operations, but you can't do the
energy without the steel mill running," he said.
"This
could amount to a very good offer," Locker added. "They have a track
record of doing creative things with assets, including employees."
Rob
Moffatt, spokesman for the salaried employee's association, said another offer
to revive the company shows there's still value in Stelco.
"It's
very good news that companies are interested because it speaks to the strengths
that we still have," he said. "It's always a good thing when an
interested party comes forward. It puts pressure on the company to do the right
thing."
Union
leader Bill Ferguson was cautious about the offer -- he said he's willing to
talk to any potential investor but wanted more detail before endorsing the
proposal.
"This
came right out of the blue and we don't know what they're really
offering," he said.
Key
elements of the Sherritt-Teachers' plan unveiled last year include:
*
Acquisition of noncore utilities assets such as coke batteries,
materials-handling facilities and boilers;
*
Commitment to expand Lake Erie's coke battery by 500,000 tonnes and construct
new co-generation facilities at Lake Erie and Hamilton;
*
Underwriting of an equity rights issue to existing shareholders and
subscription for new equity, a portion of which will be made available to the
union, employees, and creditors;
* Fixed
and revolving debt facilities.
Yesterday
Sherritt reported first quarter profits of $35.5 million on revenue of $255.3
million, down from $46.1 million on $258.5 million last year. The lower
earnings were blamed on lower cobalt prices and higher income taxes.
sarnold@thespec.com
905-526-3496