New own­ers plan $250M cap­i­tal blast for Stelco

Bedrock In­dus­tries was turned onto firm by leader of steel­work­ers union

The Hamilton Spectator - - FRONT PAGE - MARK MCNEIL

STELCO’S NEW OWNER is plan­ning to in­vest $250 mil­lion in the com­pany over the next five years and comes to Hamil­ton with the en­dorse­ment of the high­est rank­ing steel­worker union­ist on the con­ti­nent.

Alan Kestenbaum, the chair of the Amer­i­can ven­ture cap­i­tal firm Bedrock In­dus­tries, told The Spec­ta­tor Wed­nes­day he has big plans for the be­lea­guered steel­maker that emerged from cred­i­tor pro­tec­tion last Fri­day.

“We ex­pect to in­vest heav­ily in Stelco be­cause the re­turns are there,” said Kestenbaum, who says his in­vest­ment com­pany has ac­cess to $2 bil­lion in cap­i­tal. “We are not go­ing to be shy about putting our cap­i­tal to work.

“We fig­ure over the next five years a fig­ure of $250 mil­lion would not be un­rea­son­able (for Stelco),” he said.

Amaz­ingly, Bedrock’s $500-mil­lion deal to buy Stelco was an in­vest­ment first sug­gested to Kestenbaum in Oc­to­ber 2015 by Leo Ger­ard, the pres­i­dent of the United Steel­work­ers In­ter­na­tional Union.

Ger­ard — who be­gan his labour ca­reer as a staff rep for the steel­work­ers union ne­go­ti­at­ing con­tracts with Stelco — says he feels Kestenbaum will be a much bet­ter owner than “some of the hedge funds that want to rape it.

“My ex­pe­ri­ence with Alan Kestenbaum has been pos­i­tive and he has ac­quired things not to flip them but to be suc­cess­ful.

“We have had noth­ing but pos­i­tive re­la­tion­ships.”

Gary Howe, pres­i­dent of United Steel­work­ers Lo­cal 1005 rep­re­sent­ing Stelco work­ers in Hamil­ton, said union mem­bers are skep­ti­cal af­ter the years un­der U.S. Steel own­er­ship that saw dras­tic cut­backs in pro­duc­tion, mas­sive layoffs and lock­outs.

“Bedrock knows they will have to put their money where their mouth is. Peo­ple are not just go­ing to take them at their word. Time will tell.”

For his part, Ger­ard said Lo­cal 1005

“We ex­pect to in­vest heav­ily in Stelco be­cause the re­turns are here. We are not go­ing to be shy about putting our cap­i­tal to work.” ALAN KESTENBAUM CHAIR OF BEDROCK IN­DUS­TRIES

mem­bers “have ev­ery right to be sus­pi­cious af­ter what they went through.”

Kestenbaum ran a sil­i­con-al­loy com­pany called Globe Spe­cialty Met­als Inc. — and later Fer­roglobe PLC — and had nu­mer­ous deal­ings with Ger­ard and the steel­work­ers union over the past sev­eral years.

Dur­ing that time, Ger­ard said, he was par­tic­u­larly im­pressed when Kestenbaum re­stored wages a hedge fund owner had pre­vi­ously taken away from work­ers at a plant.

Af­ter Kestenbaum stepped down as ex­ec­u­tive chair of Fer­roglobe in De­cem­ber, he de­voted his at­ten­tion to his newly formed in­vest­ment com­pany, Bedrock, to look for other op­por­tu­ni­ties in met­als sec­tor.

“Alan and I were talk­ing and he said he would like to make some in­vest­ments in some fa­cil­i­ties where the Steel­work­ers are and did I have any sug­ges­tions,” said Ger­ard.

I said, ‘Yeah, I would have a look at Stelco if I was you.’”

Kestenbaum said: “And here we are. Stelco was not on our radar.”

Bedrock of­fi­cials kicked the tires and gen­er­ally liked what they saw.

“The com­pany had too much debt and legacy li­a­bil­i­ties that had a huge im­pact on the com­pany’s bal­ance sheet. But on the other hand, Stelco had the most mod­ern fully in­te­grated mill built in North Amer­ica (in Nan­ti­coke) and a grow­ing rep­u­ta­tion in the auto sec­tor.

“It clearly had good as­sets, but it had a bal­ance sheet and li­a­bil­i­ties that were weigh­ing the com­pany down,” Kestenbaum said.

He said an early fo­cus of at­ten­tion

will be de­vel­op­ing tech­nol­ogy for heat re­cov­ery and elec­tric­ity gen­er­a­tion as well as “trans­porta­tion and lo­gis­tics.”

There are no im­me­di­ate plans to restart steel­mak­ing in Hamil­ton but they are look­ing at ex­pand­ing coat­ing op­er­a­tions and coke-mak­ing in Hamil­ton.

Stelco, then known as U.S. Steel Canada, went into cred­i­tor pro­tec­tion un­der Com­pa­nies’ Cred­i­tors Ar­range­ment Act (CCAA) in Oc­to­ber 2014.

Af­ter months of ne­go­ti­a­tions, Bedrock emerged with a re­struc­tur­ing plan that will see the for­mer Stelco prop­erty turn into a land trust. Stelco will be­come a tenant on a third of the prop­erty and will not be li­able for his­tor­i­cal en­vi­ron­men­tal con­tam­i­na­tion of the prop­erty.

The com­pany 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.

HAMIL­TON SPEC­TA­TOR FILE PHOTO

Bedrock In­dus­tries be­came the new own­ers of Stelco, as seen above on Hamil­ton’s water­front, last Fri­day. Pre­vi­ously known as U.S. Steel Canada, the firm went into cred­i­tor pro­tec­tion in 2014.

Leo Ger­ard: Pointed Kestenbaum to Stelco

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