The Stel Salaried Pensioners Organization wishes to thank The Hamilton Spectator for permission to post the following article by Reporter Tara Perkins published in the December 13, 2004 edition
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Dec. 13, 2004. 12:42 AM |
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Russian steelmaker hopes it has an
edge |
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By Tara Perkins |
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Severstal may not have a home ice advantage in the battle for Stelco, but it's making up for it with a high-powered team that has been working to pave the Russian firm's path into Hamilton. During the past months, Severstal has been hiring top lawyers, investment bankers, public relations specialists and government lobbyists. The team has been assembled and now it's ramping up a campaign to convince Hamiltonians, politicians and Stelco's stakeholders that Severstal has the answer to the company's well-publicized problems. Cherepovets-based Severstal is a steel giant, controlled by Alexei Mordashov, one of the world's richest men. He has ambitions for the steelmaker to become one of a handful of steel conglomerates as the industry consolidates. He plans to expand Severstal's operations -- currently three times the size of Stelco's -- by buying up steelmakers across the globe. Severstal has signed an agreement that allows it to take a peek at Stelco's books in order to put together an offer. At the same time, Severstal is preparing for another faceoff against U.S. Steel. The two industry giants battled last year for control of Dearborn-based Rouge Industries. Severstal won that battle. And it did so with a head start. Severstal became the stalking horse bid for Rouge despite opposition from U.S. Steel. Severstal's $215 million US offer was accepted as the base for other bidders to beat. Before U.S. Steel had a chance to submit its bid, Severstal announced that it had already negotiated a collective agreement with the union at Rouge. In January, just as Severstal was finishing up its Rouge acquisition and Stelco was filing for bankruptcy protection, Severstal told the Hamilton steelmaker of its interest. Stelco lawyers say early offers from Severstal were worth only a fraction of a $900 million stalking horse deal the company has now negotiated with Deutsche Bank. Although Severstal lost its chance to become Stelco's stalking horse bid, it's still working on the head start advantage. U.S. Steel spokesperson John Armstrong said recently his company hasn't really decided whether it's interested in Stelco. Compare that to Severstal, which has been telling Stelco's employees, major customers, key politicians and the media of its interest. Armstrong says the rival steelmakers just have "different approaches." Ian Blair, a spokesperson for Severstal, has said that to come out on top, a bidder must win over all the stakeholders. The firm is just starting its due diligence, but promises its bid will be worth more than $1 billion and says it will go further than Deutsche Bank in appeasing Stelco's stakeholders, including the union. The union is unhappy with the Deutsche Bank bid because it will see Stelco's subsidiaries sold off and doesn't address Stelco's pension deficit. Severstal and the United Steelworkers are both optimistic they could work together. And Severstal has been talking to politicians at all three levels of government. The company hired John Capobianco and Jeff Smith, of Hill & Knowlton Canada, to lobby the provincial and federal governments. Hill & Knowlton is one of the world's top public relations firms and has worked to sell the public on everything from the Gulf War to tobacco. In Canada, its clients include Bell Canada and Petro-Canada. On the advisory side, Severstal has hired New York-based Miller Mathis & Co., an investment bank that worked for Rouge when it was being bought by Severstal. Severstal has also scooped up a high-profile Hamilton-born lawyer who works for the same law firm as the province's steel adviser, Jim Arnett. Lawyer Daniel Dowdall of Fraser Milner Casgrain LLP won a laugh from a courtroom packed with steelworkers when he said his first breath had a bit of Stelco in it. Dowdall is a leader among Toronto's restructuring lawyers and past president of the insolvency law section of the Ontario Bar Association. Severstal was born in the 1940s, when the Soviet Union hammered out a steel-making strategy for the country's northwestern region. In the 1990s, Mordashov, who was Severstal's CFO, worked with colleagues at a newly formed company called Severstal-Invest which bought Severstal's steel and sold it at a higher price. With that money, they bought up shares from Severstal workers and took control. "We never had any high- placed patrons in the government and never had any links to criminal elements," Mordashov told The Wall Street Journal this summer. "We had to keep control of the company by our own efforts." Now Mordashov, not yet 40, has a bullet-proof boardroom. Besides growth ambitions, Anna Meyendorff, an economist at the Institute for Social Research at the University of Michigan, said Severstal may be hedging itself against future trade wars by getting hold of North American assets now. It's "possible that Severstal is pre-emptively buying North American operations in anticipation of future trade barriers. If Severstal owns a Canadian steel company, then trade barriers intended to keep foreign steel out of Canada or make foreign steel more expensive than domestic steel, would not have an adverse effect on its sales." Severstal was one of numerous international steel companies that hurt Stelco's sales in the early 1990s by dumping steel into this market. tperkins@thespec.com 905-526-4620 |