Stelco bid­der KPS drops out over pen­sion fund­ing

Source says hedge fund couldn’t reach terms with prov­ince

The Hamilton Spectator - - BUSINESS - STEVE ARNOLD sarnold@thes­pec.com 905-526-3496 | @arnol­datTheSpec

An Amer­i­can hedge fund that planned to merge Stelco and Al­goma into a new Cana­dian steel firm has pulled out of the bid­ding.

A source fa­mil­iar with the sit­u­a­tion said KPS Cap­i­tal Part­ners, of New York, dropped its bids for both com­pa­nies over its “in­abil­ity to come to an agree­ment with the prov­ince.”

On­tario has been closely mon­i­tor­ing the re­struc­tur­ing of both Al­goma and Stelco be­cause of con­cerns over the state of their un­der­funded pen­sion plans.

KPS had been cho­sen as the top bid­der in the Al­goma sales process and was said to be a lead­ing bid­der for Stelco as well.

The ac­tion came as union­ized work­ers and re­tirees of the for­mer Stelco met in Hamil­ton to call for a fed­eral pub­lic in­quiry into the cor­po­rate re­struc­tur­ing law they say fails to pro­tect work­ers and pen­sion­ers.

The in­quiry call is be­ing led by the United Steel­work­ers lo­cals that speak for work­ers at the Hamil­ton and Nan­ti­coke plants of U.S. Steel Canada, the for­mer Stelco.

Gary Howe, pres­i­dent of Hamil­ton’s Lo­cal 1005, said a law that al­lows health ben­e­fits to be taken from re­tirees while the cor­po­ra­tion sits on a huge cash re­serve has to be changed.

“Right now it’s all about greed. Greed drives this process. It’s all about money,” he said.

Bill Fer­gu­son, pres­i­dent of the Lake Erie Works lo­cal, said the ba­sic flaw in the Com­pa­nies’ Cred­i­tors Ar­range­ments Act is shown by a court de­ci­sion mak­ing U.S. Steel, of Pitts­burgh, the largest se­cured cred­i­tor in Stelco’s re­struc­tur­ing while pen­sion­ers are left at the back of the line to be paid.

“We’re an un­se­cured cred­i­tor in the eyes of the law, right now,” he said. “The court has to rec­og­nize that we are the se­cured cred­i­tors be­cause we put our lives into that mill.”

The debt de­ci­sion is cur­rently un­der ap­peal.

Hamil­ton East-Stoney Creek New Demo­crat MPP Paul Miller will draft the in­quiry pe­ti­tion and present it to the fed­eral gov­ern­ment with the help of lo­cal Lib­eral MPs Bob Bratina and Filom­ena Tassi, and NDP mem­bers Scott Du­vall and David Christo­pher­son.

“The cur­rent law favours the cor­po­ra­tions and the lawyers. The lawyers are re­ally ben­e­fit­ing from this, mak­ing small fortunes for them­selves,” Miller said. “The law should pro­tect the work­ers who put their hearts and souls and sweat into these mills.”

“The way it is now, (re­struc­tur­ing) is like the Wild West, the rules are be­ing made up as we go along,” said Hamil­ton Moun­tain MP Du­vall.

U.S. Steel Canada has said it is spend­ing $3.5 mil­lion a month of pro­fes­sional fees for its re­struc­tur­ing. That’s a to­tal of $77 mil­lion since fil­ing for pro­tec­tion in Septem­ber 2014.

In a terse news re­lease on Thurs­day, Al­goma said the re­main­ing lenders in the con­sor­tium KPS had once led “have in­di­cated that they re­main com­mit­ted to a go­ing-con­cern out­come for Al­goma and all of its stake­hold­ers, and to clos­ing the trans­ac­tion con­tem­plated by the As­set Pur­chase Agree­ment as soon as pos­si­ble.”

One vo­cal stake­holder is the United Steel­work­ers. The union’s sup­port is re­quired for a suc­cess­ful bid and lead­ers have made it clear their price is jobs, pen­sion fund­ing and health ben­e­fits for re­tirees.

In its own news re­lease, the union called the KPS pull­out “the lat­est twist in a mis­man­aged Sale and In­vest­ment Solic­i­ta­tion Process” that had al­ready elim­i­nated the one bid­der that met the union’s re­quire­ments in favour of the hedge fund bid that re­fused pen­sion top­ups in favour of re­turns for debt hold­ers.

“The USW un­der­stands KPS could have brought a lot to the ta­ble,” said Marty War­ren, the union’s On­tario di­rec­tor. “But what they bring comes at a very steep price for the work­ers. It is hard for a lo­cal union to rec­om­mend to its mem­bers that they pay such a high price when there are other se­ri­ous bid­ders out there who ap­pear to be of­fer­ing ma­te­ri­ally bet­ter terms.”

The union’s pre­ferred bid­der is Es­sar Global, of In­dia. It has promised to fully fund pen­sion plans, re­store em­ployee health ben­e­fits and pre­serve jobs. It was elim­i­nated by the debt holder-led process over con­cerns it lacked the fi­nan­cial re­sources to com­plete a deal.

Es­sar is also said to have been elim­i­nated from the Stelco bid­ding process for the same rea­son.

The union said it will bring a mo­tion to court to have the bid­ding process re­opened.

“There is still a lot of in­ter­est out there and a lot of good­will among a num­ber of stake­hold­ers to get to a deal that has a rea­son­able pos­si­bil­ity of clos­ing. The Steel­work­ers are cer­tainly will­ing to be in­volved,” War­ren said.

In Hamil­ton, Howe echoed the po­si­tion Es­sar re­mains the best bid for Stelco.

“The best bid­der is a steel com­pany and they are talk­ing about the things that mat­ter to us, like mak­ing steel in Hamil­ton,” he said. The Al­goma and Stelco pen­sion plans have a com­bined deficit of more than $1.2 bil­lion.

The cur­rent law favours the cor­po­ra­tions and the lawyers. HAMIL­TON EAST-STONEY CREEK MPP PAUL MILLER

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