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 June
28, 2006 edition
By Naomi Powell
The Hamilton Spectator
(Jun 28, 2006)
The massive merger of Arcelor SA and Mittal is expected to
send mid-sized steel companies on a shopping spree, making it more likely that
Stelco will be snapped up by a larger player.
A combined Arcelor-Mittal would create an industry giant
able to churn out 120 million tonnes annually. That's enough to dwarf a cluster
of the titan's nearest rivals, which each produce around 20 to 30 million tonnes
of steel per year.
These mid-sized firms won't want to wither in the shadow of
a giant for long, analysts say.
"I think the pressure is on to create what I'll call
global champions," said Randy Cousins, a steel analyst with BMO Nesbitt
Burns in Toronto.
"You'll see a mad scramble among the mid-sized
comp-anies to bulk up, to increase their girth."
The first stage of the firestorm will likely see mid-sized
producers merge with one another in an attempt to catch up with the
Arcelor-Mittal combin-ation, added Cousins.
Russia's Severstal, Germany's ThyssenKrupp and Japan's
Nippon Steel are just a few of the big-name companies seen as ripe for a
merger.
While too small to be a main course Stelco, which produces 4
million tonnes of steel each year, could become dessert for a larger buyer.
Newly minted Stelco CEO Rodney Mott has already said the
steelmaker must join the wave of consolidation reshaping the steel industry.
"ThyssenKrupp is looking to coming into North
America," said Mott during Stelco's annual general meeting last week.
"Severstal is looking to grow their presence in North
America. The Asian companies will probably come to North America. So there's
lots of opportunities for consolidation."
Stelco's focus on steel for the profitable automotive and
appliance markets make it an attractive target, said Mike Willemse, an analyst
with CIBC World Markets in Toronto.
And Stelco's recently forged labour agreement with its
unionized workers in Hamilton has likely lessened concerns about historically
poor labour-management relations at the steelmaker.
The company also produces enough iron ore through its mining
assets to cover 90 per cent of its needs.
"Stelco makes relatively few products," Willemse
added. "So its easy for an potential (buyer) to see where it will fit in
its overall operations."
But the company is still recovering from two years of
bankruptcy protection and could require major capital investment to be made
compet-itive, he cautioned.
Dofasco Inc, which sits next door to Stelco, has already
been swept up in the consolidation craze by Luxembourg's Arcelor SA. In light
of the proposed merger, Arcelor is debating with Mittal Steel over whether to
keep Dofasco or flip it to ThyssenKrupp.
Severstal's proposal to buy part of Arcelor was bumped aside
on Sunday after Arcelor's board accepted a $33 billion takeover from Mittal
Steel.
The Russian firm made a bid for Stelco while it was in
bankruptcy protection, but was rejected as a suitor. If the Severstal offer for
Arcelor is thwarted in favour of the proposed merger, the Russian steelmaker
may take a look at Stelco again, Willemse said.
Shareholders will vote on the proposal Friday.
"If they can't merge with Arcelor, I think they'll be
looking for a partner," Willemse said.
"It could be a merger with ThyssenKrupp or it could be
a smaller mill that would give them greater access to North America."
Mott's aggressive plans for Stelco could also include the
steelmaker becoming a consolidator in its own right.
"I also believe there's some good opportunities within
North America to consolidate what I call some of the leftover plants," he
said last week. "Companies like Stelco fit into that. Some of them could
be merged together."
The highly fragmented nature of the industry has weakened
steelmakers' positions at the bargaining table, particularly when it comes to
negotiating prices with highly consolidated raw materials suppliers and
automakers.
By banding together, steel-makers hope to wield more muscle
with these suppliers and customers.
"There is a chance the smaller regional steelmakers
could join together," said Stephen Pope, head of equity research at Cantor
Fitzgerald in London.
But in the rapidly consolid-ating global steel sector, Pope
said, "they will need to be fleet of foot."
npowell@thespec.com
905-526-4620