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
January 23, 2006 edition
By Naomi Powell
The Hamilton Spectator
(Jan 23, 2006)
The shareholder group -- which includes Toronto's Pollitt
& Co. and AGF Management -- will see their stock extinguished under the
plan, with new equity awarded to creditors and to financial sponsors Tricap
Management, Sunrise Partners and Appaloosa Management.
The shareholders had pointed to the bidding war for Dofasco
as evidence that a pitch for Stelco was unlikely to be far behind. Germany's
ThyssenKrupp AG and Luxembourg-based Arcelor SA are slugging it out for
Dofasco, a next-door neighbour to Stelco on Hamilton harbour. Arcelor is
currently winning that battle with a high bid of $71 per share.
Farley rejected comparisons between the two companies,
stating that "certainly Stelco is not Dofasco. Stelco has been a wobbly
company for a long time." And although shareholder lawyer Peter Jervis
told the court that one of Dofasco's suitors may be interested in Stelco,
Farley dismissed that claim as "wishful thinking".
"No one has shown any real or realistic interest in
Stelco," Farley said in his handwritten decision. "Reading between
the lines and without undue speculation, it would appear that the efforts of
the (equity holders) were politely rebuffed."
The judge also noted several deficiencies in an independent
valuation of Stelco by Navigant Consulting that was commissioned by the
shareholders. He was sympathetic however, toward the shareholder group.
"I understand the pain and disappointment of the
existing shareholders, particularly those who have worked hard and long with
perhaps their life savings tied up in Stelco shares..." he wrote.
Farley's rapid approval of the plan came only hours after
Stelco met a crucial 5 p.m. Friday deadline to submit details of $975 million
in loans. The plan relies on a $375 million bridge loan from Tricap Management
-- a restructuring firm owned by Brookfield Asset Management, formerly Brascan
-- and a $600 million loan from a syndicate of lenders.
Tricap's loan is contingent on it winning court approval for
a proposed corporate reorganization plan. That plan would see Stelco separated
into six subsidiary operations, to be financed and managed independently.
Stelco would exist as a holding company and head office for the subsidiaries.
Workers groups are worried that the plan could put Hamilton Hilton Works in jeopardy
by separating it from the profitable Lake Erie Works in Nanticoke.
The Lake Erie operation is considered one of the most
efficient and profitable mills in North America -- one analysts say would be
easier to sell on its own. Without Lake Erie, the less-competitive Hilton Works
could be more vulnerable to closure or liquidation, the analysts say.
Tricap and Pratt have insisted that such a scenario is what
they have in mind for the new Stelco and that the success of Hilton Works is
crucial to the company's overall success. They will seek court approval of the
reorganization on February 10.
"It's pretty conceptual at this stage so we need to do
a little more work to fill out the details," Pratt said of the
reorganization.
Stelco's unwieldy journey through bankruptcy protection has
been one of the longest and most controversial in Canadian corporate history.
Steel prices soared shortly after Stelco entered protection under the Companies
Creditors' Arrangement Act, putting the company in the awkward situation of
making record profits while legally insolvent. Union leaders accused the
company of using the process to gain concessions from Stelco's 7,000 employees.
Farley reflected on the unusual situation in his judgment.
"The unusual elevation of steel prices in the last two
years has helped Stelco avoid the looming liquidity prices which it anticipated
in its CCAA filing on Jan. 29, 2004," he wrote. "However, even this
financial transfusion has not allowed it to become a healthy company or truly given
it a burgeoning war chest to weather bad times the way that other steel
companies (including some in Canada) have so benefitted. The redness of the
visage of Stelco is not a true indication of health and well-being; rather it
seems that it is rouge to mask a deep pallor."
"It's been a horrific roller coaster ride," said
Hamilton Mayor Larry Di Ianni. "On the other hand, today the rebuilding of
this company begins."
npowell@thespec.com
905-526-4620
The court has opened the door for Stelco to emerge from two
difficult years of bankruptcy protection.
Justice James Farley approved Stelco's hard won
restructuring plan late Friday night and the company announced it Saturday. The
decision will see Stelco emerge from protection as early as March 1. "It's
a really big relief," Stelco CEO Courtney Pratt said in an interview
yesterday. "The plan's been approved. We're on our way out."
Stelco's plan was approved by creditors Dec. 9, but still
needed the judge's blessing before it could be put into action.
"Now the whole focus is on our exit," said Rob
Moffat, spokesperson for Stelco's salaried employees. "This whole process
has been one step forward, two steps back, but we're thrilled about this."
Farley rejected shareholders' request to delay approval for
30 days while they looked for a buyer for the steelmaker.