The pool of suitors for the former Stelco has been cut to two.
Sources confirm the board of directors of U.S. Steel Canada has rejected a bid for the troubled company from Essar Global, the India-based conglomerate that owns Essar Steel Algoma in Sault St. Marie.
USSC spokesperson Trevor Harris said in an email exchange: “We continue to respect the integrity of the process and the (non-disclosure agreements) so won’t discuss the identity or number of participants currently involved in the process.
“However, I can confirm that certain parties previously involved are no longer involved in the sales and investor solicitation process, following a conclusion that they would not be able to complete a qualified bid that could result in a going-concern solution.”
Sources familiar with the Stelco sales process and its bidders say the eliminated company is Essar Global. Its bid was rejected, sources say, because USSC and its advisers were concerned the company lacks the financial wherewithal to complete a purchase.
That’s the same reason given by Algoma and its advisers for bouncing the Indian company from the bidding for the Soo’s largest employer.
The decision leaves only two investment funds in the bidding for Stelco: KPS Capital and Bedrock Industries, both of New York City.
KPS was recently chosen as the preferred bid for Algoma, but its offer is conditional on getting a new collective agreement with the United Steelworkers and the “support” of the Ontario government.
Getting the union’s support hangs on how the hedge funds plan to settle $1.3 billion in pension shortfalls between the companies. To date, KPS has said it will not pick up the deficit but will make annual payments to the Algoma fund and contribute a share of annual profits.
The company has made no statement about its approach to the Stelco fund, but union leaders say they expect a similar attitude here. They have also expressed support for Essar’s bids for both companies because it promised to settle pension shortfalls.
Gary Howe, president of USW Local 1005 in Hamilton, said the union remains devoted to its “holy trinity” of issues — jobs, pensions and health benefits for retirees — and will oppose any bid that doesn’t address those questions.
“We are obviously not very happy with this development and will have strong feelings if that’s what happens,” Howe said. “We don’t think either one of them has any interest in picking up the pensions.”
Sources familiar with the bids, who asked for anonymity because they are not authorized to speak publicly, said both offers are for the entire companies.
Howe said union leaders have met with executives of both hedge funds and neither provided the comfort workers sought.
“KPS talked about putting in a fixed amount and share of profits,” he said. “The man from Bedrock seemed like a serious guy, but he doesn’t see himself putting pensions on the balance sheet.”
Sources also say Essar is not to be counted out yet and may find a way back into the bidding process.
One such effort in Algoma had the union go to court with an unsuccessful motion asking that Algoma be required to consider the Indian company’s bid.
“Essar is still working very closely with the union,” one source said. “By no means is it pens down at Essar yet.
“The union has a trump card here and they’re not going to sign off on any deal until they get close to what they want,” the source added.
McMaster University business professor Marvin Ryder warned it’s still possible U.S. Steel, owner of the former Stelco and its largest secured creditor, could refuse to accept any bid for the Hamilton company and push for its liquidation.
That’s a fact, he said, that should tell union leaders it’s time to compromise.
“I still think a possible decision is ‘no go’ on either of them,” he said.
“The union is looking for a best-of-everything solution, but I’m just not sure the best of everything is on the table.”