The Stel Salaried Pensioners Organization wishes to thank The Hamilton Spectator for permission to post the following article

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 11, 2004 edition

Nov. 11, 2004. 01:12 AM

Stelco Spinoff?

Rumours swirl that U.S. Steel is poised to take over if Deutsche Bank offer goes through

By Tara Perkins
The Hamilton Spectator

If Stelco's board accepts Deutsche Bank's financing offer, it will become the benchmark bid for other companies to top, and employees and industry watchers are buzzing with news that U.S. Steel might be one of those companies.

"U.S. Steel wants to expand," said Michael Locker, president of Locker Associates, an adviser to Stelco's union. "They most likely will make a bid for Stelco."

John Armstrong, spokesperson for U.S. Steel, said, "Our position is we're interested in growth opportunities ... if they meet our strategies, which include building shareholders' value. But we really don't talk about specifics, particularly rumours like this."

Late last month, World Steel Dynamics, a major steel information provider, said a good theoretical combination would be U.S. Steel merged with Russia's Severstal, Stelco, China-based Maanshan, Japan-based Kobe and Argentina's Siderar.

A Toronto-based analyst said combining U.S. Steel and Stelco "makes sense." He added U.S. Steel is on the lookout for acquisitions because one of its major competitors, International Steel Group, has just been bought.

Another industry observer said it's "a very real possibility" Deutsche Bank is working for U.S. Steel, and would offload Stelco to the American company once the deal is done.

Four years ago, as adviser for Slovakia's VSZ Steel, Deutsche Bank hammered out a deal for U.S. Steel to acquire VSZ.

And Deutsche Bank helped U.S. Steel with its offer last December for Rouge Steel Co. of Dearborn, Mich., according to The Canadian Press.

U.S. Steel lost that bidding war to Severstal, which has declared interest in Stelco.

Asked about the possibility Deutsche Bank could flip Stelco to a steelmaker, Stelco's chief restructuring officer Hap Stephen said: "No matter what happens, we're going to have a capital process, even if a Deutsche Bank deal or any other deal is put up right now ... others will have the opportunity to overbid or improve. Anybody else, why would they wait (for it to be flipped), why wouldn't they just put in a bid?"

Several proposals to buy or finance Stelco have already been submitted in addition to Deutsche Bank's offer, which is still being negotiated. Confirmed bidders include Severstal, Toronto-based investment firm GMP Capital Corp., and a shareholder group headed by Clearwater Capital and Equilibrium Capital.

A Stelco bondholder said yesterday that management is interested in getting the Deutsche Bank proposal wrapped up because of stock options they'd receive.

Stelco CEO Courtney Pratt said the deals are being evaluated by Stelco's adviser UBS and Stephen. "Management is not engaged in direct discussions around these transactions."

Rolf Gerstenberger, president of United Steelworkers local 1005, said, "It's outrageous that all of this stuff is being decided secretly."

Pratt said that if Deutsche Bank's offer is approved by the board, the proposal "would be very transparent." He said it would become "a benchmark for other organizations to bid against. And it won't be a secret benchmark."

Bill Ferguson, president of local 8782, said, "At the end of the day, the union locals will have the final word" on which bid is successful. He's currently negotiating a new collective agreement for 1,000 Lake Erie workers.

Pratt acknowledged those negotiations are tricky because a buyer or investor could make new demands of the union. Bidders must decide what they think should be done with Stelco's pension deficit.

Pratt wants an agreement with the union by Nov. 18. Stelco customers GM and DaimlerChrysler say they need assurances by then that Lake Erie works will not strike.

Yesterday Brian Chapman of Clearwater Capital said his group's proposal would not require wage concessions. But it would require a guarantee the union won't strike. Chapman thinks Stelco's current pension costs are manageable, but would like the province to help.

tperkins@thespec.com

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