A junior Canadian steel company is pushing a bid to bring former Hamilton, Ont. steelmaker Stelco back to life and put the company now owned by United States Steel Corp. back into Canadian hands.
Lakeside Steel Inc. (TSXV:LS), led by Hamilton-born and raised Vic Alboini, said Wednesday it has filed for intervenor status in Federal Court hearings into alleged breaches by U.S. Steel (NYSE:X) of job and production commitments it made two years ago in getting government approval for its $1.2-billion takeover of Stelco.
Pittsburgh-based U.S. Steel has said the global recession left it with no choice but to shut down most of its Canadian operations this spring, according to documents filed in court.
The shutdown put about 1,500 former Stelco employees out of work and has devastated the steel-industry reliant industrial community of Hamilton, about 65 kilometres southwest of Toronto.
Ottawa is taking the unprecedented step of suing the American industrial giant to force it to live up to its commitments.
Lakeside already owns Stelco’s steel pipe and tubular assets, which it bought in 2005, a year after Stelco filed for bankruptcy protection from creditors.
It wants to see U.S. Steel forced to sell the former Stelco and is looking to step in as a buyer.
“The Lakeside alternative being proposed to the court would repatriate a former Canadian icon and resume operations immediately at the Hamilton and Nanticoke facilities,” Alboini, chairman and chief executive of Lakeside, stated Wednesday.
“We believe this is a viable business solution to address the difficult reality at U.S. Steel Canada.”
The move is both patriotic, but also good timing for Lakeside since the value of the former Stelco has plummeted as a result of reduced steel production in the global recession.
“I think it’s an opportunity,” said Alboini, whose worked as a summer student at Stelco years ago, and whose father also had a job at the iconic Hamilton-based steelmaker.
“We’ve come through a period of global carnage. Steel demand has fallen dramatically, the share price of steel companies have come way off.”
U.S. Steel paid about $1.2 billion and assumed about $800 million in debt, for Stelco in the fall of 2007. At the time the Hamilton company had annual revenues of about $2.4 billion.
Alboini wasn’t specific on what he thought Stelco was worth today. He said the value depends on the company’s current debt load. He estimates annual revenues are roughly $1 billion today.
If the debt was still $800 million “the equity value has dropped dramatically,” he said.
“We just don’t know what they’ve done,” Alboini said of U.S. Steel.
“But it’s not a big price. I think the price is going to be in the startup and meeting the commitments.”
Alboini is also president and CEO of Toronto-based merchant bank Jaguar Financial Corp. (TSX:JFC), which owns 25 per cent of Lakeside. It also owns 18 per cent of Royal Laser Corp. (TSX:RLC). Alboini said the two companies are looking at “all types of acquisitions” today with an eye to increasing production.
“All we’ve done today is take the first small step,” Alboini said.
“We have a plan in place to try to create a Canadian-owed icon, or to repatriate a Canadian-owned company that has a North American focus.”
Lakeside, based in Welland, Ont., makes steel pipe and tubing for the oil and gas, mining, automotive and commercial and industries.
The company said it believes U.S. Steel is under pressure from American authorities to comply with “Buy American” requirements contained in economic U.S. stimulus initiatives that are intended to drive production and employment within U.S. borders.
Lakeside said that gives U.S. Steel more incentive to keep producing from its American-based mills and leave its Canadian operations idle.
“It is therefore highly unlikely that U.S. Steel will meet its production and employment commitments made to the minister,” Alboini said.
“It is important for Stelco to be owned or controlled by a Canadian company, for the long-term benefit of Stelco’s employees, customers and suppliers.”
As of May, the workforce at U.S. Steel’s Canadian operations had shrunk to only 23 per cent of the more than 3,000 workers the company promised to employ when it took over Stelco, the government said in its court filing.
It also alleges U.S. Steel repeatedly broke production promises, with the amount of steel produced by its Canadian operations representing “a small fraction” of the amount it was required to produce on an annualized basis.
According to the Federal Court application, U.S. Steel made two major promises when it acquired Stelco: that its Canadian steel production between Nov. 1, 2007 and Oct. 31, 2010 would be greater than or equal to 3.95 million tonnes a year, and that it would maintain an average employment level of 3,105 full-time workers at its Canadian operations.
U.S. Steel Canada shut down most of its Canadian operations in southern Ontario this spring, affecting about 1,500 employees at mills in Hamilton and Nanticoke because of weak markets. In addition, U.S. Steel said 810 workers had retired or were planning to.
After the shutdowns, Industry Minister Tony Clement sent a letter to the company, asking it to comply with its 2007 commitments. The government is asking for a court order mandating U.S. Steel to meet its promises or face a $10,000 daily fine.
A ministry spokeswoman declined to comment on the Lakeside move made Wednesday, saying the matter was still before the court.
Since the initial mill shutdowns, the company has recalled 800 workers to its Hamilton mill.
Canada’s big steelmakers – the former Stelco, Dofasco, Algoma Steel and Ipsco – have all been acquired in recent years by foreign companies in a wave of consolidation in the global steel industry.
Steel output has taken a beating from the recession, which has hurt demand for everything from vehicles to household appliances. The World Steel Association said Monday global steel output plunged 21.3 per cent in the first six months of 2009 compared to a year ago.