The Trump factor with Stelco owned by Bedrock
Will having U.S. owner be American enough?
“An investment in Stelco has become a higher risk investment because of the Trump factor.” JOE D’CRUZ PROFESSOR, ROTMAN SCHOOL, UNIVERSITY OF TORONTO
OBSTACLES TO THE TAKEOVER of Stelco by Bedrock Industries are falling fast, setting the stage for the American investment company to emerge as the steelmaker’s new owner at the end of next month.
But there is one complication outside the closed-door negotiations that is far from being settled — Donald Trump.
“I think Trump has added some new risks to the equation. With his ‘buy America, hire American’ slogans, he tends to be quite unpredictable in terms of the specific actions he takes,” says Joe D’Cruz, a professor emeritus of strategic management at the Rotman School of Management, University of Toronto.
“An investment in Stelco has become a higher risk investment because of the Trump factor. That means there is more uncertainty about the prospects of Stelco than would otherwise be the case.”
McMaster University business professor Marvin Ryder says a key question over the months ahead will be the extent to which the newly restructured Stelco will be viewed under changing trade rules. Would it be seen as American or Canadian when it comes to selling steel in the U.S.?
After more than two and a half years of creditor protection under the Companies’ Creditors Arrangement Act (CCAA), a restructured Stelco is preparing to return to the marketplace under ownership by Bedrock Industries.
Several months of negotiations have
produced a complicated plan that would, among other things, see Stelco become a tenant on a land trust. Final details are being settled about Bedrock’s obligations with pension contributions.
Last week United Steelworkers Local 8782 (a) and 8782 (b), which represents workers at the Lake Erie plant, reached a tentative agreement while officials from Local 1005 in Hamilton say they have a “framework of an agreement” for their members.
Collective agreements are the last pieces of a massive restructuring plan that would be put to a Toronto judge for approval on June 9. If the plan is approved, the company is expected to emerge from creditor protection by June 30.
But how successful will the new company be in a world of volatile steel prices, protectionism and North American Free Trade Agreement (NAFTA) renegotiations? The marketplace it enters could turn out to be vastly different from the one it exited back in the fall of 2014.
“We can count on a much more aggressive enforcement of trade laws and a strict focus on the rules of national origin,” says University of Toronto steel expert Peter Warrian.
Ryder says that in the recent past, the steelmaker has gone through different personas that would likely give it varying standings in the American market.
“It’s the whole question of providence — what it takes to declare a company American or Canadian could become quite interesting.”
When the steelmaker was a subsidiary of U.S. Steel, Ryder says, the company was in the best position to argue it should be categorized as American and subject to the same or similar rights steel companies in the U.S. But more recently, it cut ties to its American parent and set out as an independent Canadian company, a step in the opposite direction.
“When they renamed themselves Stelco, they were clearly Canadian,” says Ryder.
“Now, with an American owner (Bedrock), they can make a better connection to being American. It’s not as good as being U.S. Steel Canada. But it’s better than being Canadian owned.”
Trump has promised a multiyear, trillion-dollar infrastructure investment which would involve a lot of steel. A Bedrock-owned Stelco would clearly be interested in that.
A spokesperson for Stelco could not be reached for comment to discuss the issue. However, in December — at a flag-raising ceremony to celebrate the company’s return to the name Stelco from its former moniker, U.S. Steel Canada — Michael McQuade, general manager and president of USSC, replied, “That’s a great question. I do not know the answer to that.”
In March of this year, he said, the industry had reason to be “concerned” with the looming renegotiation of NAFTA.
“While I am encouraged by the position taken by our government during these early days of the new U.S. administration, I believe our focus should be on increased collaboration with our largest trading partner,” McQuade said. “We should be working together to encourage growth in manufacturing in both our respective countries.”
“Who knows with Trump,” mused Bill Ferguson, president of the 8782 locals. “Any day something can change with him.”
But Ferguson feels “we’re much better off today than we were while owned by U.S. Steel.
“So far with the discussions I’ve had with Bedrock, it looks like they are serious about moving forward and building a good solid company. But only time can tell.”
Now, with an American owner (Bedrock), they can make a better connection to being American. MCMASTER BUSINESS PROFESSOR MARVIN RYDER