U.S. Steel Canada seeks protection extension
United Steelworkers leaders want bidding process reopened so India-based Essar Global can make a new offer
U.S. Steel Canada’s court-appointed overseers want another three weeks to find a potential buyer for the company.
In a new court filing the advisers struggling to restructure the company under creditor protection also ask for that shield to be extended to Nov. 30, saying they expect it will be the end of the year before everything needed to revive the company can be done.
The new motion was filed a day after a leading bidder with plans to merge the former Stelco and Algoma suddenly dropped out of the process.
In an affidavit supporting the shield extension, chief restructuring officer Bill Aziz said the team working to reshape U.S. Steel Canada retains “a strong preference for a successful going-concern transfer of the entire business,” but reaching that target will take longer than planned.
Sources say KPS pulled out of the process after failing to reach an agreement with the provincial government over funding of $1.3 billion in pension fund shortfalls at both steel companies. That hurdle also led to the elimination of Essar Global, the India-based conglomerate that also wanted to merge U.S. Steel Canada and Algoma.
Official documents filed in U.S. Steel Canada’s restructuring have been extremely light on details of the sale and investment solicitation process, including how many suitors remain.
In an update to employees this week company president Mike McQuade went a small step further in saying the sales process “is continuing as multiple bidders continue their discussions with key stakeholders.”
Sources have said a New York investment fund called Bedrock Industries remains interested in the company while a mysterious German firm continues to circle, looking for a way into the bidding process. There has been no information at all on bidders interested only in parts of the package, such as its 7,400 acres of land in Hamilton and Nanticoke.
Despite being cut from the auctions in both Hamilton and Sault Ste. Marie, Essar Global continues to have the support of United Steelworkers leaders who said Friday they want the bidding process reopened so the India-based company can make a new offer.
Essar was eliminated from the earlier processes after failing to convince auctioneers it had the financial wherewithal to close a transaction.
It remains the union’s preferred bidder, however, after paying homage to the worker’s “holy trinity” of jobs, pension funding and retiree health benefits.
Tony DePaulo, assistant to the union’s Ontario director, said Friday letting Essar back into the process remains the best outcome in their view and promised the union they will look at all options to make that happen.
Another reason the union backs an Essar bid is it is the only bidder to have said it plans to operate the steel mills. The union fears a purely financial bidder, such as Bedrock, is only interested in holding the companies long enough to slash costs and flip the mills to another buyer.
Analysts say it’s still possible to restructure both the former Stelco and Algoma, but the right conditions won’t last forever.
McMaster University business professor Marvin Ryder goes a step further and warns liquidation of Stelco “is now the most likely outcome” for the company.
“In Hamilton, the choice is becoming quite clear,” he said. “The company has been given until the end of December to become profitable. If it isn’t, and there’s no buyer in sight, then the judge will have no choice but to liquidate.”
Veteran analyst Chuck Bradford said a merged Stelco-Algoma has a chance of surviving in the current environment where steel prices are rising, but it would struggle if prices fall without the right managers — leaders who are in short supply in the steel industry.
“It should be doable if the right people are there,” he said. “The bones are certainly there so there should be a way of doing it.”
University of Toronto steel expert Peter Warrian said he expects Essar will be allowed back into the bidding process while Bedrock Industries will move into the top position for the company.
U.S. Steel Canada’s protection extension request is to be heard July 27, the day before the current order expires.
In a related development, Coun. Sam Merulla will ask council to back a motion supporting a United Steelworkers call for a public inquiry into Canada’s financial restructuring laws and the way they have been used by U.S. Steel to mount “continued attacks” on pensioners.