The Stel Salaried Pensioners Organization wishes to
thank The Hamilton Spectator for permission to post the following article by
Reporter Naomi Powell published in the September 28, 2005 edition
By Naomi
Powell
The Hamilton Spectator
(Sep 28, 2005)
The battle over who will control
Stelco's board of directors is heating up, with several sides demanding a say
in who leads the company out of bankruptcy protection.
Stelco has yet to announce how it will
name the company's next set of directors, but spokesperson Helen Reeves
acknowledged several of its stakeholders would like input.
The current board would be terminated
as soon as the company launches a restructuring plan, with new directors named
for a term of one year.
"We plan to consult with all of
our stakeholders on the issue," Reeves said.
Stelco's restructuring proposal calls
for the government of Ontario to have approval rights on all directors in
exchange for its $100 million contribution to Stelco's $1.3 billion pension
debt. "That's very unusual," said Stephanie Ben-Ishai, a law
professor at the University of Toronto with special interest in insolvency and
governance issues. "Usually management proposes a slate of directors and
the shareholders vote on it. It's not often the government gets involved."
The province isn't the only one wanting
to influence the makeup of the board. Stelco's bondholders have expressed
interest and although Stelco won't release details of a $450 million financing
deal with Tricap Management until Friday, Ben-Ishai said it is highly likely
the bid includes a request for some control over the board.
Matt Heckler, a bondholder whose
Connecticut-based Wexford Capital Opportunities Fund controls $26 million of
Stelco debt, has called the provincial veto "simply unreasonable and
inappropriate." Stelco's plan calls for all existing shares to be wiped
out, with 100 per cent of new equity to be awarded to the company's unsecured creditors,
effectively making them owners of the company.
In an affadavit filed with the court
last week, Heckler argues that "as the owners of new Stelco, the existing
unsecured creditors should be the ones selecting the new board of Stelco."
Richard McLaren, a business professor
at the University of Western Ontario, said Heckler may have a point.
"The government would never have
been able to get this power in a normal business situation. They can only do it
because this is a restructuring. Under corporate law, it's the shareholders who
choose the new directors."
Although the province's approach is
unorthodox, McLaren said it was "understandable" given the hefty
contribution it is making. Ontario has offered its loan at an annual rate of 1
per cent. It has agreed to forgive $75 million of the loan if Stelco settles
the shortfall within 10 years. The loan gives the province rights to buy up to
8 per cent of Stelco stock.
Chris Bart, head of the Directors
College at McMaster University's DeGroote School of Business, said the province
was likely making sure "the next board doesn't blow it the way the
previous ones did.
"This company got into trouble
because of the decisions made by its board. The people who have paid the price
for this bad governance are the shareholders.
"They should take this situation
as a warning to take their power over the board seriously."
npowell@thespec.com
905-526-4620