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TORONTO (CP) - America's largest integrated steelmaker is ready to
compete with a Russian rival as the bidding war intensifies for Canada's
largest producer of steel, Stelco Inc., industry sources said Wednesday.
A day after an offer for Hamilton-based Stelco was made public by
Russia's OAO Severstal, industry insiders said that U.S. Steel Corp. is
one of several international players that have made expressions of
interest in Stelco.
While it could take several weeks before any offer is endorsed,
Stelco's board is currently focusing on a $200-million share rights
offering backed by Deutsche Bank that would see creditors buy a chunk of
the steelmaker, while others are free to make alternate bids.
But sources in Toronto said Deutsche Bank may be acting on behalf of
U.S. Steel, with the German bank looking to gain control of Stelco and
then flip it to the Pittsburgh-based steel producer, a legendary company
in the U.S. industry.
Deutsche Bank helped U.S. Steel with its offer last December for Rouge
Steel Co. of Dearborn, Mich. U.S. Steel ultimately lost out in that
bidding war to Severstal.
A U.S. Steel spokesman acknowledged his cash-rich company is in an
acquisition mode but would not confirm whether it is interested in
Stelco, Canada's largest steel producer by volume of shipments.
We're interested in acquisitions that are accretive and build value
for our shareholders, John Armstrong, U.S. Steel's public affairs manager
of operations, said from Pittsburgh. But we don't discuss potential
acquisition targets until it's appropriate to do so.
There's plenty of interest in Stelco, which has been operating under
bankruptcy protection since Jan. 29 but has earned $100 million in
profits in the last two quarters. Many international steel giants are
looking to expand their global footprints in a sector observers say will
be dominated by just a handful of companies by the end of the decade.
In May 2003, U.S. Steel closed its acquisition of bankrupt Ohio-based
National Steel.
U.S. Steel is among many North American steel producers enjoying
strong demand and high prices. Last month, it reported a $354-million US
profit for its third quarter and had more than $1 billion US in cash
reserves.
The 103-year-old company (NYSE:X) had its origins in the dealings of
some of the most legendary businessmen in the U.S., including Andrew
Carnegie, J.P. Morgan, and Charles Schwab at the turn of the last
century. In its first full year of operation, the company made two thirds
of all the steel produced in the United States.
If U.S. Steel is acting with Deutsche Bank, it would appear to have a
leg up on Severstal. Stelco and the German bank negotiated closely for
more than a week before the bondholder's proposal was presented.
However, Stelco CEO Courtney Pratt said in an interview Wednesday that
despite recent Deutsche Bank talks, the steelmaker has no preferred
outcome in the process.
It could take several weeks before formal bids are available to the
board. Under a court-approved process, companies have until Jan. 31 to
complete their due diligence before submitting binding bids.
We won't be saying we are supporting any deal as the 'final' deal for
some time, Pratt said, noting that any bidder is invited to sign
non-disclosure agreements to examine Stelco's books before making a firm
proposal.
We may be in a position to say we have come to an agreement with the
Deutsche Bank group, but as a basis on which we can move forward and
invite others into the capital-raising process.
He said it was way too early to say if Stelco's board could end up
preferring Severstal's offer. He said Stelco was aware there was interest
but weren't sitting back and waiting for something from Severstal before
the Russian company announced Tuesday it was making an offer.
Thomas Veraszto, deputy general director for the Severstal group of
companies, met with Hamilton Mayor Larry Di Ianni and other local
politicians on Wednesday.
Ian Blair, who has been handling publicity for Severstal in Canada,
said Severstal had expected Stelco's board would consider Deutsche Bank's
offer first since it was first past the post in getting into the board's
hands. But the Russian firm expects its bid will be given thorough
consideration and its executives plan a return trip to Canada next week.
Veraszto held no talks with the United Steelworkers, however, and it's
the union that could ultimately prove the most important player in the
bidding process. Any buyer would need to work out a deal with the
steelworkers' union and the Ontario government on how to cover a
$1.25-billion pension plan shortfall.
A Nov. 18 deadline imposed by General Motors and DaimlerChrysler
requires Stelco to prove its financial restructuring is on track for the
automakers to remain Stelco clients next year. GM has already said it
will look elsewhere for its steel in the first quarter.
The deadline does not require Stelco's board to endorse a bid by then,
Pratt said.
A week later, on Nov. 25, minority shareholder group Pollitt Co. will
argue in court that Stelco's profits and the interest it has drawn from
potential suitors prove it should not be in bankruptcy protection, a
process which normally leaves shares worthless.
Another group of shareholders - Clearwater Capital Management Inc. and
Equilibrium Capital Management Inc. - announced late Tuesday a proposal
to raise $125 million in a shareholder rights offering. Debenture holders
would receive payment of all accrued and unpaid interest on their
holdings.
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