ANATOMY OF A DEAL:
Bedrock expected to buy Stelco for less than $500M; firm also has estimated $300M in cash
The restructuring deal to lift Stelco out of creditor protection is a complicated web of transactions that essentially means Bedrock Industries will get the keys to the place for less than $500 million.
Interestingly, the new owners will be taking over a business with an estimated $300 million in cash, which Stelco has accumulated over the past two and a half years while under creditor protection.
That money will go some distance to mitigate the upfront costs, but a sizeable portion will be chewed up through day-to-day operations and paying for orders of raw materials, says a source involved in putting the deal together. Those unknown costs, and others, make it impossible to pin a bottom-line selling price.
But it will be a far cry from the $1.1 billion that U.S. Steel paid in 2007 to buy Stelco, a much larger company at the time.
“This isn’t a traditional purchase,” said McMaster University business professor Marvin Ryder. “In essence, Bedrock is going to assume ownership of the company by settling all of the claims against it.”
From public documents of the deal, Ryder estimates Bedrock will pay $400 to $450 million. A source in the provincial finance ministry office said he estimated it to be closer to $500 million. Ryder says, if you take into consideration commitments over the next 20 years, the figure becomes closer to $800 million.
Bedrock managed to settle claims against Stelco and remove environmental and pension liability at the same time. It will pay hundreds of millions, but the company becomes the first-ever owner of Stelco to build a protective wall against future obligations to deal with contaminated land (the province is assuming that) or pension obligation shortfalls (according to terms in the overall agreement).
Just as important, says Ryder, is that the company will emerge into the marketplace debt-free and in a very good position to take advantage of a more favourable steel market than it was in 2014.
U.S. Steel Canada, as it was known then, went into court-supervised creditor protection Sept. 16, 2014. On Friday, a Toronto judge endorsed a restructuring plan that will see the American venture capital firm take over the company — now known by its historical name Stelco — on June 30 and leave the protection granted under the Companies’ Creditors Arrangement Act (CCAA).