The Stel Salaried Pensioners Organization wishes to thank The Hamilton Spectator for permission to post the following article published in the August 27, 2007 edition
Purchase of Stelco will beef up U.S. Steel's
presence in auto sector
The Canadian Press, 2007
TORONTO (CP) - With the US$1.1-billion
purchase of Stelco Inc. (TSX:STE), Pittsburgh-based U.S. Steel Corp. will be
acquiring the last of Canada's big independent steel makers - a company that
has struggled in recent years but remains a significant supplier to the North
American automotive industry.
The companies announced early Monday that
the American steel giant, which will become the world's fifth-largest steel
producer if the deal goes through as expected, has agreed to pay C$38.50 a
share, assume US$760 million in debt and up to US$1.5 billion US in pension and
health liabilities.
The company also expects to spend US$100
million to improve Stelco's Hamilton plant and reap about US$100 million in
synergies as a result of the deal.
"The potential synergies are
significant," John Surma, the CEO of U. S. Steel, told analysts in a
conference call Monday. "For U.S. Steel this is a very strategic
transaction."
He added that U.S. Steel does not plan to
reduce Stelco's workforce of about 3,600, which has already survived a
difficult court-supervised restructuring that was completed last year.
"The steelworkers approve of our
transaction and support it," Surma said in the call.
Ken Neuman, national director of the United
Steelworkers union that represents most of Stelco's unionized workers, agreed
that the deal looks good for the company's employees.
"I just came from a meeting with the
CEO and some of the senior executives and I think it was a fairly positive
meeting with regard to what their intention is," Neuman said in an
interview with BNN, a business-oriented cable news channel.
"They're not buying this operation to
downsize it or close facilities or lay off people. They're out there to buy it
and to basically run it to full capacity."
Surma said the Stelco deal will provide more
steel slabs that it can ship to its other U.S. manufacturing facilities with
higher margins.
Gretchen Haggerty, U.S. Steel's chief
financial officer, said recent changes by Stelco to focus on becoming a slab
supplier are "right up our alley."
"It's an attractive acquisition,"
Haggerty told analysts. "We're in a position to make some significant
improvements."
Charles Bradford, an industry analyst with
Bradford Research in New York, said U.S. Steel's acquisition of Stelco would
strengthen its position in the automotive sector.
Bradford noted that the automotive industry
accounted for the largest portion - 38 per cent - of Stelco's business, and
that the combination would raise U.S. Steel's automotive industry shipments to
22 per cent of total business from 18 per cent.
It's also a good fit geographically,
Bradford added, pointing to the close proximity of Stelco's Lake Erie plant in
Nanticoke, Ont., to a U.S. Steel facility in the Detroit area.
But at least one analyst notes the combined
company will be up against stiff price competition.
"You can't make the slab as cheaply in
North America as you can in Brazil," David Tyerman, an analyst with Scotia
Capital, said in an interview, noting China's largest steel maker, Baosteel
Group, just set up shop in Brazil with Companhia Vale do Rio Doce, or CVRD, to
produce steel slabs.
"There have been numerous mills
discussed with the Boasteel-CVRD tie-up being the latest," Tyerman said.
"Also, I note that ThyssenKrupp (of Germany) is planning to build a large
rolling line in the U.S. south to be supplied with slab from a new mill they
are building in Brazil."
The proposed merger is the latest in a
series of steelmaker marriages occurring after several years of solid growth,
high prices and soaring demand from China, India and other rapidly growing
countries.
Other Canadian steelmakers to be purchased
by foreign companies in the past two years include:
-Ipsco Inc., a company that originated in
Regina and continues to operate there as well as in several U.S. states, is
being purchased for US$7.7-billion by SSAB Svenskt Stal AB of Sweden.
-Algoma Steel Inc. of Sault Ste. Marie,
Ont., bought for $1.85 billion in June 2007 by Essar Steel Holdings Ltd. of
India, which has said it plans to invest $500 million to upgrade and expand
operations Algoma's operations.
-Harris Steel Group Inc. of Toronto
purchased for $1.25-billion in March 2007 by Nucor Corp. of the United States.
-Dofasco Inc. of Hamilton acquired
for$5.6-billion in February 2006 by Arcelor SA of Luxembourg, which is in the
process of merging with Mittal Steel of the Netherlands.
The takeover between U.S. Steel and Stelco
is essentially a done deal since it has already gotten the thumbs-up by
shareholders holding more than 76 per cent of Stelco's outstanding shares,
including Tricap Management Limited, Sunrise Partners LP, Appaloosa Management
LP and Stelco CEO Rodney Mott have agreed to support the deal.
The Stelco deal still requires the approval
of the Ontario provincial government and U.S. antitrust regulators.
Shares in Stelco Inc. jumped about 39.7 per
cent on the Toronto stock market Monday after the offer from U.S. Steel Corp.
(NYSE:X) was made public.
Stock in the Hamilton-based company rose
$10.70 to $37.63 on the TSX, a discount to U.S. Steel's offer price. U.S. Steel
shares closed at US$93.01, down 38 cents at the New York Stock Exchange.