Deal done, Stelco begins on new road
‘People are apprehensive’ as American investment firm Bedrock officially takes the reins
“Long and gruelling for everyone” is how union leader Gary Howe describes the nearly three years it has taken to get to Bedrock Industries’ acquisition of Stelco Inc.
While the $500-million deal closed Friday, the hard work is just beginning, says one of Canada’s leading academic experts on the steel industry.
“I don’t think there is going to be some magic bullet,” said Peter Warrian, senior research fellow at the Munk School of Global Affairs at the University of Toronto.
“There is a whole lot of work that has to be done. Everyone has just got to roll up their sleeves.”
He calls the U.S. Steel takeover of Stelco “the outlier” during a time when Canadian steelmakers were bought by foreign companies that improved efficiency, environmental records and products.
“You’ve had 10 lost years and you have to make that up now,” said Warrian, former research director of the United Steelworkers of America and Chief Economist of Ontario.
“The world’s moved on. The real task is
how are you going to deal with the market today and go forward.
“They’ve got some new ideas … They’re committed to reinvesting. They’ll need that to catch up to the marketplace.”
Warrian calls the “unbelievably complicated” acquisition by the American venture capital firm “the best deal under the circumstances.”
“I’m glad it has come together because the clock was running on this,” he said.
“Now we’ll see what happens with the renewed Stelco.”
With the deal closed, Stelco emerged from the protection of the Companies’ Creditors Arrangement Act (CCAA), which it has operated under since being granted an initial stay of proceedings in September 2014.
“People really got their hopes up with U.S. Steel and it was a huge letdown, so people are apprehensive,” says Howe, president of United Steelworkers local 1005.
“But Bedrock says the right things so I think the members are willing to give them a chance.”
The sale preserves 2,200 jobs at Hamilton Works on the shores of Lake Ontario and Lake Erie Works in Nanticoke.
It provides some protection to pensions and benefits for almost 12,000 retirees.
“This is an exciting day for Stelco and for all of those who have worked so hard to position this company for success,” Alan Kestenbaum, chair of Bedrock Industries said in a statement from New York.
“We are well aware of Stelco’s storied history and the special position it holds in the hearts of those in the communities of Hamilton and Nanticoke in which it operates, and across Canada.”
He noted the significance of the deal closing on the eve of Canada Day.
“As Canada prepares to celebrate its 150th anniversary, it is fitting that we are celebrating the rebirth of Stelco, a company that played an integral role in building the nation, starting in 1910 as The Steel Company of Canada,” said Kestenbaum. “We look forward to marking many more milestones in the coming years as we build this Canadian icon together.”
Ontario Finance Minister Charles Sousa said the deal ensures Stelco’s continued operation as a “viable and growing” company.
“Our government’s objective from the outset was to support a process that would lead to sustainable operations for Stelco, while protecting employees, pensions and the lands,” he said in a statement.
He too acknowledged there is a long road ahead.
“With the transaction now complete, the province will continue to work with Bedrock and stakeholders to fulfil the terms of the agreements, including for the future of the Stelco lands, to secure maximum value for pensioners while consulting with the city with respect to ongoing local economic development and goals.”
Bedrock will not have liability for historical contamination at Stelco property because a provincially backstopped land trust called LandCo will take over ownership of the 818 acres on Hamilton’s bayfront.
Stelco will rent one-third of the property while the land trust embarks on a multi-year quest to remediate and develop the parcels to raise money to put toward pension costs and benefits for retirees.
“From a city perspective, the land deal and how we develop that deal is going to be our No. 1 focus,” said Coun. Sam Merulla, chair of the city’s Steel Committee.
“We’ve now engaged in dialogue with the (Hamilton) Port Authority and have support from Bedrock with respect to what our vision is and where we head with the land deal in the future.”
Merulla said up to this point the city’s priority was the protection of the pensioners and saving “well-paying” jobs, which he believes this deal solidifies.
“From a resident’s perspective it’s a good deal,” said Merulla.
“From a pensioner’s perspective it’s a great deal.”
Bedrock will contribute $160 million to $430 million to company pension funds — depending on business results — but that will be all of its commitment toward a $1-billion unfunded liability.
Much of the credit for the deal closing goes to Stelco’s staff, said Michael McQuade, president of Stelco, in a statement.
“I look upon the collective efforts of our employees over the past 33 months with [a] sense of gratitude and humility, as their contributions have led to this successful outcome for our business.”