A New York hedge fund with plans to merge the former Stelco and Algoma into a new Canadian steel company took a major step toward its goal Friday.
US Steel Canada’s plants in Hamilton and Nanticoke are up for grabs and both bidders plan to operate and invest in the two facilities, according to a report in the Hamilton Spectator.
The newspaper reports that KPS is also hoping to buy EssarAlgoma Steel, which is also under creditor protection, raising the possibility of a merger of the two businesses.
One big hurdle for the two buyers is Stelco’s four pension plans, which are short by US$830 million. There are also debts of US$2.2 billion, including US$118 million in secured claims.
According to the Hamilton Spectator report, US Steel, as the largest secured creditor, can squash any deal that doesn’t maximise its debt recovery.
The Indian Essar Group owns Algoma Steel in Sault Ste Marie but was ruled out of being able to purchase the company for failing to provide proof that it has the financial wherewithal to close the deal. Similarly, however, it could make Essar’s bid for Stelco just as untenable.
KPS, on the other hand, is known for fixing broken companies, holding on to them for two to four years and then selling them on at a huge profit.
The smart money appears to be on KPS, but it is argued that an Essar Group deal would be more favourable in terms of maintaining a future for the steel industry in Hamilton. That said, any deal needs approval from US Steel and some argue that the whole deal could simply come to nothing.