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
November 10, 2004 edition
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Nov. 10, 2004. 01:11 AM |
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Russian giant bids for Stelco |
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Company doesn't back $1-billion offer |
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By Tara Perkins |
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An international bidding war has erupted for Stelco. Officials from Russian steel giant Severstal were in Hamilton yesterday to present a bid to buy the entire company in an offer worth more than $1 billion. But they will be competing with at least three other proposals from bondholders and shareholders who want to finance the company. Last night two major shareholders, Clearwater Capital and Equilibrium Capital, announced that they had formed an investor group proposing an offer for shareholders worth up to $125 million. Deutsche Bank, a major bondholder, has proposed a rights offering for creditors which could see bondholders take control of the steelmaker. And GMP Capital Corp., a Toronto investment firm, has also waded into the mix with an offer worth more than $200 million. Stelco, once struggling to survive, now finds itself being courted by companies from around the world. That process could take months. Once a decision is made it will have to be voted on by Stelco's creditors. The final decision must be approved by Justice James Farley who is overseeing the Stelco's bankruptcy protection proceedings. Stelco spokesperson Helen Reeves confirmed that Severstal submitted an offer yesterday. She said the board is actively reviewing the bondholder (Deut-sche Bank) proposal. Severstal officials waged a public relations campaign yesterday to convince the community that its offer is the best, even arranging meetings with local politicians. "We are steelmakers. We are not here for the quick buck," said Thomas Veraszto, deputy director general of the Severstal Group, contrasting his bid with the others. As a wholly owned subsidiary of Severstal, Stelco would rely mostly on local talent, and not "import hundreds of Russians to run this company." Severstal's bid would make Stelco a private firm and take it off the stock market. Veraszto said he would look to Farley to decide the fate of its current shares. Some observers said Severstal's offer does not appear to have the support of Stelco directors. The Russian steelmaker, controlled by billionaire Alexei Mordashov, has not yet been able to see Stelco's numbers or study union contracts. Observers say it could take half a year for Severstal to conduct due diligence. Veraszto said he can't place a value on Stelco until he's seen the books. He's looking forward to speaking with local union presidents for the first time. That meeting is supposed to happen Friday. Severstal's bid includes renegotiating collective agreements. Wayne Fraser, Ontario director of United Steelworkers of America, said that's not on the table. "If they're into concessions, then they might as well stay in Russia because it's not going to happen." The proposals from Deutsche Bank and GMP would see those firms raise money for Stelco on the stock market. Current shareholders are unlikely to receive much, if anything. Roland Keiper, president of Clearwater Capital, said Stelco's bonds have risen significantly since the steelmaker entered bankruptcy protection while the shares have dropped. "It's time for Stelco to recognize the reality of its strong operating performance and outlook and emerge from (protection)." Keiper believes his offer would give shareholders a chance to participate in rising Stelco stock prices once the steelmaker emerges. All of the interest in Stelco comes after the company announced earnings of $100 million over the last two quarters. But Veraszto said Severstal has had its eye on Stelco since it filed for bankruptcy protection nine months ago. Severstal wants to buy Stelco's subsidiaries, including Stelwire, which has operations in Hamilton and Burlington. Stelco had planned to parcel off those operations, trimming the company to just the Hamilton and Lake Erie plants. Stelco said last night that the sale of the subsidiaries will continue. The Russian steelmaker would spend $400 million upgrading Stelco's operations. That money would be used to expand the Lake Erie hot strip mill, install a new pickling (steel-cleaning) line in Hamilton and build electricity co-generation plants in Hamilton and Lake Erie. Severstal would also take on or refinance Stelco's secured debt, pay cash to the unsecured bond and trade creditors, and negotiate collective agreements with employees. The Russian company would not disclose what percentage of creditors' debts would be paid back. Stelco's bonds are worth more than $300 million. Severstal appears to have the cash on hand to pay for the takeover. It had a cash balance of more than $1.2 billion US June 30. Last year Severstal bought its first North American venture, Rouge Industries, in Dearborn, Mich. Local Steelworkers will be studying that deal. Severstal's Russian operations produce about 10 million tons of steel a year. Another 4 million come from the U.S. operations. With Stelco producing about 5 million tons, it would make up a quarter of the company's steel production. But the Severstal Group, with about 130,000 employees, makes more than steel. The company is also in the automotive, transport and raw material industries. It even has a Russian hockey team. Another bondholder said his group is still backing the Deutsche Bank deal. Rumours circulated last week that Deutsche Bank plans to sell Stelco to another steelmaker after the rights offering is complete. One Stelco bondholder from another investment firm acknowledged the possibility, saying, "We're in the business to make money. Lets not fool ourselves." tperkins@thespec.com 905-526-4620 |