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USS’ shopping spree is not over yet

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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 offer.

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."


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