by Naomi Powell
The Hamilton Spectator
(Apr 17, 2007)
What does Algoma have that Stelco doesn't? With Canadian steelmakers being snapped up, investors are left wondering if Stelco will be next.
"I don't think the Algoma sale has fundamentally changed the landscape, but it has confirmed Canada as a battlefield in the global acquisition war," said Joe D'Cruz, a business professor at the University of Toronto.
"And clearly it will put Stelco in the gunsights of acquirers."
Other observers were more skeptical. Stelco hasn't drawn any suitors despite being open to offers for a while, one Toronto analyst noted. "People know it's on the block. It's no secret."
The steel story so far
Global steelmakers have been swallowing smaller players at a rapid clip in an effort to get a foothold in the North American market and to gain more power at the bargaining table when dealing with customers and suppliers. Stelco was examined by several potential buyers, including Russia's Severstal and Pittsburgh-based U.S. Steel, while still under bankruptcy protection. The steel story so far
* Strong facilities. Stelco's Lake Erie works is considered one of the better steelmaking plants in North America.
* Location. Stelco is situated close to major automotive customers in southern Ontario.
* Size. With an annual production of four-million tonnes, Stelco is nearly twice the size of Algoma. That makes it an attractive North American launch pad for a foreign player.
* Scarcity. The pool of North American plants available to acquisition-hungry steel firms is shrinking. At the very least, that could drive up Stelco's selling price.
* Weak facilities. Stelco's Hamilton Steel operations are outdated and in need of costly upgrades. The company announced plans to close the plant's hot strip mill earlier this month.
* Profitability. Though it has shaved its workforce and upgraded some of its operations in a bid to become a low-cost producer, Stelco has yet to turn a profit since emerging from bankruptcy protection last year.
* Debt. While Algoma boasts a debt-free balance sheet, Stelco carries a net debt of $738 million that makes it considerably less attractive, analysts say.