The Stel Salaried Pensioners Organization wishes to thank The Hamilton Spectator for permission to post the following article published in the February 17, 2005 edition

Feb. 17, 2005. 12:55 AM

Analyst favours Severstal bid for Stelco

By Hamilton Spectator Staff
The Hamilton Spectator

Stelco's board of directors will meet tomorrow to consider offers to buy or refinance the steelmaker.

"If you're putting odds on this race, the clear leader based on public information would appear to be Severstal," said Randy Cousins, a steel analyst with BMO Nesbitt Burns.

Severstal is the only steel company interested in buying Stelco, which has been in bankruptcy protection for more than a year. Its bid has the support of the majority of Stelco's unions.

"The guy who is most likely to pay the highest price is the individual who gets a strategic advantage by purchasing the assets, which ... means it's somebody in the steel business," Cousins said.

He said financial players interested in Stelco -- like Deutsche Bank or TD Securities -- would require a large payback quickly for investing their money in the steelmaker.

"The more you pay, the lower your returns," he said.

Court documents say Stelco's board is under no obligation to choose the bid with the highest dollar value.

Stelco has said it will consider numerous criteria, including what's best for its creditors, employees, and for its future.

The board will be examining bids from Deutsche Bank, Sherritt International and Severstal. It is unknown whether TD Securities submitted a final offer.

"Sherritt's agenda is clearly driven by the coke ovens," Cousins said.

In December, Sherritt -- which is partnered with the Ontario Teachers' Pension Plan -- said it wanted to refinance Stelco and buy its utility assets, including its coke batteries. Coke is a key ingredient in steelmaking.

Sherritt would expand coke production and build electricity cogeneration facilities. It would then sell electricity to Stelco.

The strategy makes a lot of sense for Sherritt, he said. "In North America, we are heading into a major coke crisis. Many of the coke oven batteries that are in operation are very very old and either need significant upgrades or will have to be closed."

Severstal, which owns an operation in Dearborn, Mich., is also attracted by the coke.

But, unlike Sherritt, Severstal would buy all of Stelco's assets.

Both companies are competing against Deutsche Bank, which previously had a $900 million offer accepted by the court overseeing the bankruptcy protection process as the minimum bid. That offer would see Stelco's subsidiaries sold, leaving Stelco with its operations in Hamilton and Nanticoke.