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 September 3, 2005 edition
By Steve
Arnold
The Hamilton Spectator
(Sep 3, 2005)
Stelco's court-appointed monitor is
supporting another extension to the company's bankruptcy protection.
In a report released yesterday, Ernst
and Young vice-president Alex Morrison said "meaningful and productive
discussions have been taking place" between Stelco and its squabbling
stakeholders and should be allowed to continue.
Stelco filed for creditor protection in
January 2004 and its shelter has been extended eight times since then. A ninth
extension, Morrison wrote, will give the company the stability it needs to
hammer out the final details of its restructuring plan.
Superior Court Justice James Farley
will be asked on Wednesday to extend Stelco's protection to Sept. 23. The order
is currently set to expire Sept. 9.
While Farley has warned that Sept. 9 is
"a real and functional deadline," Stelco president Courtney Pratt
said yesterday there is real hope for a settlement to the company's tortured
19-month restructuring.
"I'm encouraged and optimistic
that we will get there," he said. "We have said for a long time that
what was needed to move the ball here is stakeholders willing to be flexible,
to move beyond their entrenched positions.
"No deal has been done yet and
there's still a fair bit of negotiating to be done, but I'm encouraged."
The optimism of Pratt and the monitor
shines despite recent developments in which two controversial directors
suddenly resigned from the board. In a one paragraph news release Wednesday
evening, Roland Keiper and Michael Woollcombe said they were stepping down
because of a "fundamental disagreement over decision-making processes
followed by the board and a recent board decision."
The only details to emerge since then
have been in a company news release Thursday stating their concerns focused on
"effective board oversight of recently prepared forecasts that will be
important in shaping the final plan introduced by the Company."
Bruce Leonard, chairman of the
Insolvency Institute of Canada, explained those forecasts will be predictions
of the company's income, costs and other issues after it leaves court
protection. In most cases those forecasts will be conservative estimates -- the
kind of rosy predictions that don't lead to soaring stock prices.
"They have to come out and be conservative
in their projections, but the market doesn't react well to conservative, it
likes bullish," he said.
That's an issue for Keiper and
Woollcombe, who controlled 20 per cent of Stelco's shares when they were named
to the board in February as representatives of shareholders.
At February's average price of $2.89
Keiper and Woollcombe's stake in the company was worth almost $60 million. At
Friday's close of 69 cents those shares were worth just under $14.1 million.
Stelco's final restructuring plan will
likely be a compromise between the draft it released in July and a proposal
tabled by Tricap Management, an arm of Brascan Corp. The company proposal would
put $200 million into Stelco's $1.3 billion pension deficit while the Tricap
scheme would make a down payment of $500 million. Neither, however, proposes
much for existing shareholders. The Stelco plan offers them an initial stake of
9 per cent of the firm's equity although that would be reduced to 2 per cent by
the sale of rights and warrants and the conversion of some debt into equity.
That's not unusual, Leonard said. He
noted: "Usually nothing good happens to shareholders in a
restructuring." The real purpose of conservative financial projections, he
said, will be to "cool" expectations for Stelco's performance after
it leaves court protection.
"It sounds like Courtney is trying
to reduce people's expectations. It sounds like he's trying to prepare people
for a plan that doesn't meet expectations that are too high."
Pratt appeared to reinforce that point
in the company's Thursday release, stating that as well as balancing competing
demands for a share of the company's wealth, Stelco's restructuring plan must
"take into account market conditions that are increasingly challenging for
our business. These factors include steel demand and prices as well as the
prices of raw materials, natural gas and electricity."
In arguing for a more optimistic
evaluation of Stelco, Keiper would be continuing a pattern he established when
he started buying Stelco shares after the company filed for protection, arguing
publicly that they were undervalued.
Leonard speculated that in resigning
Keiper and Woollcombe were making a strategic move, getting into a position
where they can argue against the company's eventual plan, or back another take
over bid for Stelco.
Keiper's company, Clearwater Capital,
made an early bid for Stelco but later withdrew.
"If they're going to be bidders
then the optics require that they not be members of the board," Leonard
said.
Stelco has already dismissed Keiper and
Woollcombe's complaints as "without foundation." It will, however,
appoint a special committee of directors to review the allegations and ask for
a court officer to oversee that probe.
Poonam Puri, professor of law at York
University's Osgoode Hall, said Stelco's moves signal the stock markets that
the allegations are being taken seriously and being handled in a way that could
forestall later lawsuits.
"If someone does try to litigate
later then the court will look at this committee and its process," she
said. " . . . the company can say those forecasts were appropriately
reached."
sarnold@thespec.com
905-526-3496