The Stel Salaried Pensioners Organization wishes to thank The Hamilton Spectator for permission to post the following article, written by reporter Naomi Powell. published in the September 1, 2007 edition
Friday morning, Aug. 24:
Rodney Mott was cleaning up the last minute
details of what looked like a simple deal.
After a week of negotiations, U.S. Steel's
preliminary offer for Stelco was nearly complete.
With no other bidders at the table, all that
was left was a board review Sunday night.
The 55-year-old chief executive booked a
flight home to South Carolina. A couple of days to unwind, then back to
Hamilton to close the deal.
His bag was packed, his wife was waiting.
The phone rang.
It was investment bank UBS: Russia's
Severstal was preparing a bid for Stelco.
It wasn't a total surprise. The steel giant
had been examining Stelco for weeks. And in a sector where the competition for
assets is fierce, last-minute plays aren't unusual.
Still, a long week just got longer.
Mott cancelled his flight.
Stelco officially put itself on the block in
June.
Analysts were skeptical. The company had a
net debt of $760 million, its Hamilton operation was outdated and anyone who
bought the firm would have to swallow more than a billion dollars in pension
and health care liabilities.
Still, the North American steel sector had
become prime hunting ground for foreign firms with deep pockets and lofty
ambitions for growth. With Dofasco, Sault Ste. Marie's Algoma Steel and
Regina's Ipsco already in the hands of out-of-country players, Stelco was the
only independent Canadian steelmaker left on the table.
The suitors came calling: Severstal, U.S.
Steel, India's Essar Global and Ukraine's Metinvest.
They toured Stelco's plants, picked through
the books, asked question after question. But none made a move.
By early August, Mott decided to apply a
little pressure. If there was going to be a sale, he let it be known, it was to
be done by the end of the summer.
An industry veteran whose resume includes
years at U.S. Steel, Nucor Steel and Pechiney Steel, the straight-talking Mott
had worked his share of deals. He arrived at Stelco in 2006 with a reputation
as a turnaround man, having revived a collection of rusted out, financially
distressed steel mills known as the International Steel Group. Those plants,
once destined for the scrap heap, eventually sold for $4.5 billion. Mott
personally pocketed $100 million from the deal.
For 10 months after ISG, Mott moved into a
sort of half-hearted retirement. He didn't follow the steel business, didn't
read the industry reports.
By the time Stelco was ready to emerge from
bankruptcy protection, he was bored and restless.
"The best opportunity out there at the
time was Stelco," he has said. "It seemed like a way to do it
again."
In many ways, Stelco was an encore to ISG
and by August he was ready for it to end.
* * *
Essar Global, its hands full with the recent
acquisitions of Minnesota Steel and Algoma Steel, dropped out of the race.
Metinvest followed suit.
Arcelor Mittal, which had been quietly
eyeing the plant, stepped up its research, then disappeared. Severstal grew
quiet.
Meanwhile, e-mails and phone calls started
to bounce between Hamilton and Pittsburgh.
John Connelly, U.S. Steel's slight,
bespectacled vice-president of strategic planning and business investment,
handled the early communications with Mott. With more than 30 years in the
steel business, Connelly was known as a tough negotiator.
By last week, he had deposited a team in the
downtown Toronto law offices of Osler, Hoskin and Harcourt.
Stelco's team, including Mott and chief
financial officer Ken Rutherford, set up shop in the McCarthy Tetrault law
offices across the street.
Lawyers, advisers and Mott himself darted
between the two offices as they hustled to finalize the terms and conditions of
an offer.
Stelco board chair Courtney Pratt, on a
family vacation on British Columbia's Pender Island, woke at 4:30 a.m. to take
conference calls from Toronto.
Sitting at the kitchen table of a rented
cottage, his grandchildren still asleep, Pratt hammered away at the sale of
Canada's last independent steelmaker.
"I've lost lots of sleep over
Stelco," joked Pratt, who led the firm through two troubled years of
bankruptcy protection before handing the reins to Mott. "It was inevitable
this was going to come down to the final strokes while I'm sitting on one of
the Gulf Islands."
By Thursday, the only question was price.
To Mott, the sale of Canada's last
independent steelmaker, looked like a "nice, clean package."
Until that call.
* * *
Deep into Saturday night, the lights blazed
on the first floor of Stelco's head office on Wilcox Street. Mott had called in
a skeleton crew, his executive secretary, his general counsel. They rushed to
gather information for Severstal.
It wasn't the first time U.S. Steel and
Severstal had bumped heads while hunting the same asset. In 2003, the steel
giants battled over Dearborn, Mich.-based Rouge Industries, a fight Severstal
eventually won.
And in 2004, both companies took a serious
look at Stelco while the Hamilton steelmaker was still mired in bankruptcy
protection.
In the race to consolidate the steel sector,
Severstal was a fierce competitor. The firm's top executive, Alexei Mordashov,
had already transformed Severstal from a Soviet state-owned steel mill into an
industry giant, becoming a billionaire in the process.
"We would like to grow in a great
way," the 41-year-old economist told an industry audience in New York this
summer. "A great way."
* * *
By Sunday afternoon, U.S. Steel CEO John P.
Surma had assembled the steel giant's top brass in the executive boardroom on
the 61st of the U.S. Steel Tower in Pittsburgh. Vice-presidents, executive
officers and public relations people milled past a line of windows overlooking
the Monongahela River, where coal barges passed by bound for U.S. Steel's
Clairton Works, 20 miles south of Pittsburgh.
U.S. Steel has tripled in size since 2000,
producing 26.8 million tons of steel at plants in the U.S. and Europe. The purchase
of Stelco would make it the fifth-largest steelmaker on the planet.
A call came in from Canada. Severstal had
come through with a better offer.
The crowd was dispatched from the boardroom
as U.S. Steel's smooth, unflappable CEO asked for the next steps.
Stelco made a proposition: both firms were
asked to put their best and final offers on the table by 9 p.m.
Board meetings, originally scheduled for the
early evening in Pittsburgh and Toronto, were held open as the bidders scurried
to complete their bids.
Pratt, still in shorts and a T-shirt, had
left Pender Island for his Vancouver townhouse. As board chair and head of
Stelco's special advisory committee on the sale, it was his job to recommend a
bid.
With Major shareholders Tricap Management of
Canada (formerly Brascan and part of the Bronfman family empire), Appaloosa
Management of New Jersey and Westface Capital of New York agreeing to sign
irrevocable letters of support (the three companies control 76 per cent) to
sell their shares, the pressure was on.
"Once that's done, they can't change
their minds," Pratt said.
Shortly after 9 p.m., it was clear that bid
belonged to U.S. Steel. The firm will pay $1.1 billion US for Stelco or $38.50
Cdn per share. It will guarantee the company's $1.4 billion in pension and
health care liabilities, chip in an extra $31 million US to the pension
shortfall, retire $760 million in debt and endow a research chair at McMaster
University.
For Pratt, it is the end of nearly three
years of ups and downs with Stelco. The 60-year-old, who does not hold shares
in Stelco, is writing a book about his time at the steelmaker.
"Apart from the fact the company is
sold and it's out of Canada, which I have regrets about, I think this is a
very, very good result for the company and for the employees and a very good
result for Hamilton," he said.
For Mott, who holds more than two million
shares and options in Stelco, the deal includes a $67 million personal
windfall.
Not that he's done much celebrating.
"I don't have anything planned at all
and I don't want to be thinking that way yet."
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