Lakeside aims to return Stelco to Canadian ownership
August 22, 2009
Naomi Powell
The Hamilton Spectator
WELLAND
http://www.thespec.com/News/Local/article/622819
Vic Alboini stepped up to the wooden podium of the local community centre, microphone in hand.
Before him, 150 employees of Lakeside Steel were settling in, many just off an eight-hour shift, to hear what the new owner had to say.
Alboini pointed to the heavens and referenced his late father, an Italian immigrant who landed one of his first jobs in the steel mills of Hamilton's Stelco.
Now was a time of opportunity, he told the workers. They could help shape Lakeside's future. One day, he mused, Lakeside might even acquire Stelco. Inside the red-brick building, the workers laughed.
It was June 2006. Alboini had just invested in Lakeside, a steel-pipe and tube factory on the outskirts of Welland. Less than a year earlier, the firm had been known as Stelpipe, a subsidiary of the very same Canadian steel giant Alboini was now talking about buying: Stelco.
Three years later, Alboini and Lakeside are acting on the idea.
On Aug. 31, the Federal Court of Canada will hear Lakeside's request for intervener status in the Canadian government's lawsuit against U.S. Steel, a case that accuses the Pittsburgh steelmaker of violating promises it made when it bought Stelco in 2007. U.S. Steel shut down its Canadian operations in March because of slumping steel demand.
Lakeside wants the court to force U.S. Steel to sell Stelco and has put itself forward as a potential buyer.
Alboini, a lawyer turned investment banker, and Lakeside CEO Ron Bedard say the move is both practical and patriotic.
Lakeside's ownership of Stelco would be a chance to "repatriate a Canadian icon," they say, and also shore up steel supplies for Lakeside and Royal Laser, a manufacturer owned in part by Alboini's Jaguar Financial.
"Our objective is to create a North American icon but housed in Canada, operated in Canada," said Alboini.
"There's no reason why a Canadian firm can't participate along those lines."
All the same, the idea is once again raising eyebrows.
On the surface, at least, the proposed combination amounts to a mouse swallowing an elephant. Lakeside's workforce is less than one-fifth the size of Stelco's; its facilities are capable of producing only 5 per cent of what Stelco churns out annually.
In other words, the company is too small to act on its own. Though he's declined to identify them, Alboini said Lakeside has lined up a pair of institutional investors, each large enough on its own to "write a cheque for the full amount of the purchase price."
But that price would have to be right, he said, and certainly less than the $1.2 billion U.S. Steel shelled out for Stelco.
"Stelco could be worth zero or $300 million, we don't know," he said.
Then there are the legal obstacles.
U.S. Steel has declined to comment on Lakeside's move and has not shown any interest in selling its Canadian assets.
For Lakeside to get a shot at Stelco, the court would have to order U.S. Steel to put the steelmaker on the auction block.
The Canadian government has never taken a foreign investor to court for breaching purchase commitments, never mind forcing one to sell its assets.
As it stands, Industry Minister Tony Clement has only asked the court to order U.S. Steel to re-open the plants or face daily fines $10,000.
"It would be a very draconian step to order a sale," said Michael Hart, a professor in the Norman Paterson School for International Affairs at Carleton University. "And the courts are not likely to choose an extreme remedy when a lesser one is available. "
Even Alboini isn't sure the takeover will succeed.
"Look, we may not end up with Stelco, we may only be the catalyst for someone else to come in and overpay or jump in front of the line," he said. "If that happens, it's still a good cause."
Alboini grew up on Edgemont Street in Hamilton's east end, where he attended Bishop Ryan Catholic Secondary School. He earned his law degree at the University of Toronto and worked for several years at the law firm McCarthy & McCarthy (now McCarthy Tetrault) before going into investment banking.
Though his Hamilton roots have played a role in his Stelco bid, they aren't the only thing driving it, he said.
His role, he said "is to initiate and co-ordinate what I consider to be a very important debate on public policy and how we treat foreign companies."
Lakeside Steel sits just outside downtown Welland, a city of 50,000 residents that once looked to manufacturing as its lifeblood. In its heyday, one-fifth of the population earned their living in the city's factories.
"They were our whole world," said Dolores Fabiano, executive director of Welland-Pelham Chamber of Commerce. "Today, at best, there might be 2,500 manufacturing jobs."
One by one, they packed up and left: Union Carbide, Atlas Steel, and more recently John Deere -- a closure that stripped 800 jobs out of Welland last September.
Lakeside, a campus of industrial buildings on Dain Avenue, is one of the few manufacturers left. And for a city now used to watching firms head for the exit, it's doing something rare: it's growing.
By this fall, Lakeside will have finished construction on a new facility used to thread pipe. Stelco shut down the operation years ago and sold off the equipment, opting to have their pipe threaded in Texas instead.
For Ron Bedard, a Stelco veteran who joined Lakeside in February 2008, it made more sense to bring the operation home than to spend an estimated $5 million a year shipping pipe. He hopes to add another finishing facility soon, one that could bring another 60 jobs back from Texas.
"If we were a multinational, I don't know that I'd be looking at repatriating those jobs to Welland," he said. "But we're not a multinational -- we're Canadian, and it makes sense to have those jobs here in Ontario where if we have issues we can reach out and deal with them. They're jobs in the communities that we live in. And ultimately they feed other jobs."
Bedard grew up in a mining family in Sudbury. His father spent 30 years underground with Inco, and his grandfather spent 40 years at Falconbridge.
Bedard now lives in Townsend, a small residential community just a few kilometres from Stelco's Lake Erie plant. He spent 10 years at Stelco, eventually running the primary steelmaking operations in Hamilton.
If Lakeside were to win Stelco, he said, it would immediately restart production. But could Lakeside immediately meet the production commitments U.S. Steel made when it bought Stelco? According to court documents, the Pittsburgh-based steelmaker promised to produce 4.35 million tons a year and employ an average of 3,100 workers.
"We believe we'd have to grow to meet those commitments, but certainly we'd start in earnest in returning the facilities to full employment and full productivity," he said.
Lakeside has already had discussions with the United Steelworkers union at Stelco's Lake Erie plant, where workers have been locked out since Aug. 4 due to a labour dispute.
"We're cautiously optimistic, and we're anxious to learn more," said Tony De Paulo, area co-ordinator for the union.
Union leaders at Stelco's Hamilton plant have declined to comment on the bid.
In the steel industry, where "bigger is better" has long been the driving philosophy, Bedard is backing a different business model. Rather than build a steel giant, he wants to establish a vertically integrated Canadian conglomerate -- a company that includes not just steel producers, but steel users.
Though Stelco is the ideal target, Bedard said Lakeside will pursue other steel mills if that purchase doesn't work out.
The idea, he said, is not to buy and sell for quick profit, but to build a Canadian champion, one acquisition at a time.
Royal Laser and Lakeside combined with a set of additional acquisitions would provide enough demand to keep the Lake Erie facility running. Royal Laser manufactures metal products and also owns Toronto-based steel service centre Venture Steel. Lakeside produces steel pipe and tubing for the automotive, mining and oil and gas industries.
"We're a small player, and we'd be a small player with Stelco, so there's challenges related to procurement and raw materials and whatnot," said Bedard. "But there are other small players out there still doing well in the industry."
He points to AK Steel, one of the few U.S. steelmakers not swept up by bigger players during the steel industry's consolidation binge.
"If we were an American company, people around us wouldn't think anything of this," he said.
"There are American companies who buy their competition and grow every day."
Prev
Hybrid Mode