Two investment firms holding 15 per cent of Stelco Inc. common stock served notice yesterday that they will insist shareholders play a major role in the final deal for the steel maker, including potentially demanding that they be allowed to vote on a transaction.
Clearwater Capital Management and Equilibrium Capital Management want to make sure that the board of the legally insolvent firm protects shareholder interests and "ultimately that Stelco's equity holders have an appropriate say, by vote or otherwise, in determining the future course of Stelco."
A vote by shareholders on a deal is virtually unheard of under the Companies' Creditors Arrangement Act (CCAA), but would be typical of the way things have gone in the Stelco situation.
Lawyers say the twists and turns in the Stelco case have created one of the most unusual restructurings yet in Corporate Canada.
"There is no doubt that there is significant equity value in Stelco and that, in such circumstances, equity holders are critical stakeholders whose interests must be fairly respected," Roland Keiper, president of Clearwater, said in a statement yesterday.
"In our view, the value of Stelco's equity in fact materially exceeds the current market capitalization of Stelco," Mr. Keiper added. He refused to elaborate.
Clearwater and Equilibrium together control 15 per cent of Stelco's 101.6 million class A common shares outstanding. Equilibrium owns another $16.3-million worth of convertible debentures, which would represent another 3 per cent of the common shares if they're converted.
The 15.1 million shares were worth about $30-million, based on yesterday's closing price of $2 for the steel maker's class A shares on the TSX. That was a drop of 14 cents from Monday's close of $2.14 and well off the $2.33 high in yesterday's trading.
Clearwater thinks the shares may be worth as much as $4 or $5 each, said a source at another investment firm that has had discussions with Clearwater.
The joint effort by the two investment firms means two key groups involved in the Stelco restructuring have staked out positions that they hope will give them a veto or a major role as the deadline for actual bids approaches.
The United Steelworkers of America (USWA), which represents workers at several Stelco operations, has met with four companies or groups that have identified themselves as potential bidders for the company and is arguing that any buyer will have to reach a deal on a new contract with USWA local 8782 at the company's Lake Erie works. The union's role has been bolstered by a statement by Mr. Justice James Farley of the Ontario Superior Court that the union has an effective veto on a bid for Stelco.
Potential bidders now examining Stelco's books include Algoma Steel Inc. of Sault Ste. Marie, Ont.; United States Steel Corp. of Pittsburgh; OAO Severstal of Russia; Mittal Steel Inc. of London; and a joint bid by mining company Sherritt International Corp. and the Ontario Teachers Pension Plan. Any company or group wanting to make a bid has until Feb. 14 to complete its due diligence examination of Stelco's books.
A winning bid would have to top a $900-million floor bid already agreed to with Deutsche Bank AG.
One lawyer familiar with CCAA restructurings said Stelco's shareholders could be given an opportunity to vote if the company files a plan of arrangement under the Canada Business Corporations Act or the Ontario Business Corporations Act.
Stelco president Courtney Pratt said yesterday that the company takes the views of shareholders seriously, but what their role will be depends in part on what bidders for the company propose.
Mr. Pratt acknowledged yesterday that the company no longer regards the shares as having no value, a position it maintained for several months after CCAA protection was granted on Jan. 29, 2004.
"There's a possibility that there will be value," he said.
Judge Farley ruled a year ago that Stelco was legally insolvent and has upheld that ruling despite profit of $100-million in the second and third quarters last year.
In another unusual twist, the USWA appealed his ruling, arguing that the company was not insolvent when it was granted protection.
But the original ruling was upheld by the Ontario Court of Appeal and the Supreme Court of Canada refused to hear further arguments in the case.
© The Globe and Mail
Only GlobeinvestorGOLD combines the strength of powerful investing tools with the insight of The Globe and Mail.
Discover a wealth of investment information and and exclusive features.
