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Investment Firm Drops Plan to Acquire Canadian Steelmakers
07/14/2016 - A New York-based private equity firm has backed out of a deal to buy Canada’s Essar Steel Algoma and reportedly has dropped a separate bid for another major Canadian steelmaker, U. S. Steel Canada.
KPS Capital Partners had intended to acquire both steelmakers, which are operating under creditor protection as they attempt to find new ownership, and merge them to create a bigger and healthier operation.
However, it has dropped its bids because it failed to reach agreements with the province of Ontario, reported the The Hamilton Spectator newspaper.
The government has been involved in the sales process owing to the cpmpanies' pension liabilities, which together exceed CA$1 billion, according to The (Toronto) Globe and Mail newspaper.
Essar Algoma confirmed that KPS has indeed backed out of the deal, but didn’t give a reason why. It also said its term lenders, which, along with KPS, formed a consortium that has an agreement to acquire the business, would continue to work toward closing the deal on their own.
“While it is unfortunate that KPS has withdrawn from the consortium, I am pleased that the term lenders remain committed to closing the transaction. Algoma will seek to work with its stakeholders to achieve the optimal outcome for the future of Algoma, its employees, pensioners and the customers we serve,” Essar Algoma chief executive Kalyan Ghosh said in a statement.
The Spectator, citing an unnamed source, said KPS also had dropped its bid for U. S. Steel Canada.
The Essar Algoma sales agreement faces opposition from the United Steelworkers union, which effectively has veto power over the deal because it is conditional on the buyer winning new labor agreements. And the Steelworkers, angry over the way the sales process has unfolded, said they are putting their support behind another bidder, Essar Algoma’s former parent, Essar Global.
Essar previously had an offer on the business, but its bid was rejected by the Ontario courts on grounds that it lacked the means to complete a deal. Nevertheless, it is trying again, proposing to acquire Algoma for US$903 million.
In a statement, the Steelworkers said that their advice has been ignored through the sales process. They also said other bidders have been prematurely excluded from the process.
"The USW understands KPS could have brought a lot to the table," said Marty Warren, the United Steelworkers District 6 director, in a statement. "But what they bring comes at a very steep price for the workers. It is hard for a local union to recommend to its members that they pay such a high price when there are other serious bidders out there who appear to be offering materially better terms," he said.
However, it has dropped its bids because it failed to reach agreements with the province of Ontario, reported the The Hamilton Spectator newspaper.
The government has been involved in the sales process owing to the cpmpanies' pension liabilities, which together exceed CA$1 billion, according to The (Toronto) Globe and Mail newspaper.
Essar Algoma confirmed that KPS has indeed backed out of the deal, but didn’t give a reason why. It also said its term lenders, which, along with KPS, formed a consortium that has an agreement to acquire the business, would continue to work toward closing the deal on their own.
“While it is unfortunate that KPS has withdrawn from the consortium, I am pleased that the term lenders remain committed to closing the transaction. Algoma will seek to work with its stakeholders to achieve the optimal outcome for the future of Algoma, its employees, pensioners and the customers we serve,” Essar Algoma chief executive Kalyan Ghosh said in a statement.
The Spectator, citing an unnamed source, said KPS also had dropped its bid for U. S. Steel Canada.
The Essar Algoma sales agreement faces opposition from the United Steelworkers union, which effectively has veto power over the deal because it is conditional on the buyer winning new labor agreements. And the Steelworkers, angry over the way the sales process has unfolded, said they are putting their support behind another bidder, Essar Algoma’s former parent, Essar Global.
Essar previously had an offer on the business, but its bid was rejected by the Ontario courts on grounds that it lacked the means to complete a deal. Nevertheless, it is trying again, proposing to acquire Algoma for US$903 million.
In a statement, the Steelworkers said that their advice has been ignored through the sales process. They also said other bidders have been prematurely excluded from the process.
"The USW understands KPS could have brought a lot to the table," said Marty Warren, the United Steelworkers District 6 director, in a statement. "But what they bring comes at a very steep price for the workers. It is hard for a local union to recommend to its members that they pay such a high price when there are other serious bidders out there who appear to be offering materially better terms," he said.
