Russians eye Stelco takeover
By ERIC REGULY with a report from Greg Keenan
Globe and Mail, Oct 14, 2004

Russia's largest and most ambitious steelmaker has emerged as a potential buyer of Stelco Inc., the insolvent steel company that has put itself on the auction block. Executives of OAO Severstal have held conversations with top Stelco management and made their takeover intentions clear, industry sources said. Severstal, controlled by Alexei Mordashov, Russia's top steel magnate and one of the world's richest men, has been making foreign acquisitions and recently stated its desire to enter the ranks of the world's top five or six steelmakers.

Stelco would not comment on possible bidders. Hap Stephen, Stelco's chief restructuring officer, said only that "we've been approached by various people." Courtney Pratt, Stelco CEO, said he would not confirm or deny approaches by Severstal executives. Mr. Mordashov, Severstal's 38-year-old chairman, is considered one of the global steel industry's most aggressive executives. He is one of the 20 or so Russian oligarchs, some of whom made great fortunes in the Russian industrial-privatization effort of the 1990s. Mr. Mordashov has been critical of attacks on the oligarchs under the government of Russian President Vladimir Putin. Last year, he said "it's not good for the business climate here," referring to the arrest of fellow billionaire Mikhail Khodorkovsky, former CEO of the Yukos oil company.

Hamilton-based Stelco has been in bankruptcy protection since January. Steel prices have since soared, making it all but certain that buyers or investors will be found. Among potential investors is Deutsche Bank AG, one of the biggest owners of Stelco's bonds. It is prepared to support an equity rights offering, as it did for Air Canada. The industry sources said a Severstal bid could happen any time, though the bidding process would have to be sanctioned by the court, which is overseeing Stelco's restructuring under the Companies' Creditors Arrangement Act. The company goes to Ontario Superior Court on Tuesday to seek formal approval for a strategica winning bid would mark the second blockbuster purchase of a Canadian industrial company by overseas names in recent weeks. This month, China Minmetals, a trading arm of the Beijing government, entered exclusive negotiations to buy smelting and mining giant Noranda Inc. for about $7-billion (Canadian). plan that would allow it to exit CCAA some time in the next few months. Options include the outright sale of the entire company and raising fresh capital through an equity sale. Mr. Stephen said formal buyout offers probably would not be made before the court approves the strategic plan, though "there is nothing stopping anyone from lobbing in a real offer at any time."

Severstal's arrival adds a new political and financial dimension to Stelco's overhaul. And Severstal has no investments in Canada but wants to make a splash in North America. In December, it bought a bankrupt U.S. industrial icon, Rouge Industries Inc. of Michigan, for about $285-million (U.S.). Rouge was built by Henry Ford and continues to supply automakers.

In a recent interview with the Financial Times of London, Mr. Mordashov said: "I'd like to see a situation in the steel industry where, within a few years, four to six companies each had a capacity of about 100 million tonnes of steelmaking per year. We would like to be among those companies." Severstal is expected to produce about 12.5 million tonnes this year, making it about three times bigger than Stelco. A source said Stelco would be "pocket change" for Severstal, which last year reported a profit of $597-million on sales of $3.2-billion.

Because it is in bankruptcy protection, Stelco's worth is unknown. A hedge-fund manager estimated the company's value range at $1.6-billion to $1.9-billion, based on its potential to make about $160-million a quarter as steel prices rise.

Mr. Mordashov controls 83 per cent of Severstal's shares. According to Forbes magazine, that gives Mr. Mordashov a net worth of $4.5-billion, putting him at No. 136 among the world's richest people. He became chief financial officer of Severstal (Russian for "north steel") in 1992. Soon after, he and his allies gained control when the company was privatized. He has transformed Severstal, whose predecessor was created under the orders of Josef Stalin in 1940, into one of the most efficient and profitable steelmakers in the world. It is public and is listed on the Russian Trading System.

Canadian steel union likes Russian bid (4,000 Stelco workers back USSR Severstal buying record-breaking profit maker). National Post, Feb 15, 2005. Go to SELLING ROPE TO HANG US

CANADA BUYING USSR'S GAS (Canada/Russia sign gas plan; 1st step in long-term relationship for Petro-Can & Gazprom). Canada.com, Oct 12, 2004

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