New owners plan $250M capital blast for Stelco
Bedrock Industries was turned onto firm by leader of steelworkers union
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.
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