U.S. Steel Corp., Pittsburgh, has shelled out
more than $3 billion to acquire two steel producers operating
in different markets.
Its plans for Lone Star Technologies Inc.,
Dallas, are clear, given that company's presence in the booming
energy market. The $2.1-billion Lone Star purchase was closed
in June. Its plans for Stelco Inc., Hamilton, Ontario, are
somewhat less clear. The $1.1-billion deal to acquire Stelco
was reached in late August.
Stelco emerged from protection under the
Companies Creditors' Arrangement Act (CCAA), the Canadian
equivalent of U.S. Chapter 11 bankruptcy protection, in April
2006. Shortly thereafter, Rodney Mott, new chief executive
officer, launched a complete restructuring followed by a
comprehensive strategic review of the entire company.
The idea was to make Stelco part of a larger
operation. Mott had seen first-hand the inclusion of Dofasco
Inc., Hamilton, in the merger of Mittal Steel Co. NV and
Arcelor SA. He also was aware that nearby Algoma Steel Inc.,
Sault Ste. Marie, Ontario, was beginning its own strategic
review and courting potential buyers. When Algoma was acquired
by India's Essar Global Ltd. earlier this year, Stelco was left
as Canada's only independent integrated steelmaker. Mott turned
what some might have viewed as a disadvantage in his favor.
"There are those who thought they were in bad
shape as the only independent," one industry analyst said. "It
turned out not to be the case. With global consolidation and
the interest of foreign buyers in the North American market,
they actually ended up in a pretty good position."
That position, simply put, was supply and
demand. The supply of available North American independent
steelmakers was short-at the time, only Stelco, AK Steel Corp.,
West Chester, Ohio, and WCI Steel, Inc., Warren, Ohio-and the
number of interested parties seeking a presence in North
America was high.
Thus Stelco, newly restructured and with a
rebuilt, modern Lake Erie Steel plant in Nanticoke, Ontario, as
a crown jewel, went from downtrodden to desirable. Four major
steel producers expressed serious interest by Friday, Aug. 24.
By the time the weekend was over, U.S. Steel had an agreement
to acquire the company and the backing of the holders of 76
percent of Stelco's outstanding shares in support of its
The deal provides numerous benefits for U.S.
Steel, which had been rumored to be interested in Stelco for
more than three years. Stelco has been a key supplier to North
American automotive companies for years and its presence on
Lake Ontario makes the transportation of steel, slab and raw
materials to the United States relatively inexpensive.
John P. Surma, chairman, president and chief
executive officer of U.S. Steel, noted, in fact, that Stelco is
long some 900,000 tons of slab. His company can use that slab
capacity to feed finishing operations it already owns in the
United States and also to complement its acquisition of Lone
Star and its steel tube operations.
Stelco had been planning to generate cash by
selling slab to some of its North American competitors. U.S.
Steel, which may have been a buyer of those slabs, now has its
hands on an ample supply.
The deal also significantly boosts U.S.
Steel's presence in the automotive market, where it already
ranks among the lead suppliers. The Stelco operations will
provide it with an additional 5.5 million tons of annual steel
production capacity, bringing its total North American capacity
to just shy of 25 million tons per year and making it the
fifth-largest steel producer in the world.
Speculation has begun as to what is next for
U.S. Steel. Signs point to additional growth by acquisition.
One sign clearly is not in its path. Asked about future
acquisition opportunities, Surma spelled things out succinctly
"We won't be putting up a stop sign."