Digging into Bedrock, Stelco’s new suitor
WITH A COMPANY name Bedrock, you’d think the venture capital firm had been around for a long time — just like the really hard stone deep in the ground.
But Bedrock Industries — which is poised to take over Stelco — was formed only 14 months ago, on Feb. 18, 2016, in Miami, Fla.
And the private company’s only major piece of business is negotiating the ongoing Stelco deal, an acquisition that would pull the steelmaker out of creditor protection — a place it has been stuck in for more than two-and-a-half years.
But what kind of owner would Bedrock be?
Local 1005 fears the company will soon flip Stelco to another owner.
But Mayor Fred Eisenberger says he believes Bedrock plans to invest heavily and stay around.
Many are saying it sounds like déjà vu. The last time Stelco came out of
bankruptcy protection in 2006, the company was gobbled up by Tricap Management, Sunrise Partners and Appaloosa Management.
The next year, the company was sold to U.S. Steel, ending up back in creditor protection in the fall of 2014.
One difference this time, says McMaster business professor Marvin Ryder, is the investment companies from 2006 had a track record while Bedrock does not.
Should this cause worry in Hamilton?
“Not necessarily, because it would appear the principals involved have a history of setting up companies to do different things,” says Ryder.
There appear to be five principals of the company, he says, with two main players being founder and chair Alan Kestenbaum and managing partner and board member David Cheney.
Information is sparse because Bedrock is a private company and not subjected to the same disclosure rules as publicly-traded firms. The Spectator tried to speak to an official from Bedrock, but calls were not returned.
According to financial reporting company Bloomberg, Kestenbaum was executive chair of Ferroglobe PLC and left at the end of last year, receiving more than $21 million in severance.
The Bedrock website says he has more than 25 years of experience in the “metals and mining production, trading, distribution and finance business.”
He founded Globe Specialty Metals, a silicon metal and specialty alloy producer, and Marco International, a metals trader and investor.
“He has extensive investing and operating experience in the natural resources sectors as well as a successful track record in turnarounds and restructurings,” his bio says.
Cheney has been spending weekdays in Hamilton doing preparation work at Stelco and taking part in meetings with union and city officials.
Cheney has worked as an investment banker in the metals and mining sector, according to the Bedrock website.
He previously was employed at J.P. Morgan, Deutsche Bank and Wells Fargo Securities. “Mr. Cheney has extensive advisory, capital markets and restructuring expertise.”
Ryder says: “I have never really thought they wanted to get into the steelmaking business. I think they want to buy a distressed company, fix it up and run it for a few years, gambling the steel industry will rebound.
“It is a gamble. But historically, primary metals go through peaks and valleys, so timing is everything.”
Eisenberger has met with company officials and is optimistic.
“I think this company may very well be formed for the very purpose to pursue this. But not withstanding, I think they have put forward a pretty long-term vision in terms of what they want to do here and Nanticoke.
“I don’t have any fundamental concerns over what they are proposing to do. They say they are going to continue steelmaking capacity here.”
Gary Howe, the president of United Steelworkers 1005, says: “I don’t know if it is going to be good or not. They are money guys. They are real nickel and dimers.
“The problem is when they flip the company, the next guy that buys it will leverage the place to the hilt. And what happens if it goes into bankruptcy down the road, and the pensions are off the balance sheet?”
Thursday, the deal in progress is expected to cross a milestone with meetings in Toronto for salaried workers and salaried pensioners as well as unsecured creditors who will vote on the Bedrock plan.
Representatives for the salaried groups have already agreed with the proposal so the vote is largely symbolic.
In the case of the creditors, the lion’s share of the company’s unsecured debt — $1.9 billion — is actually owed to U.S. Steel, so that vote is expected to support the deal as well.
I don’t have any fundamental concerns over what they are proposing to do. MAYOR FRED EISENBERGER