U.S. Steel Canada, Essar Algoma Mills Won't Shut in Proposed Merger, Says Investment Firm
06/22/2016 - The investment firm planning to buy Canada’s Essar Steel Algoma has confirmed that it also is bidding on U.S. Steel Canada and intends to merge the two steelmakers, reports The (Toronto) Globe and Mail newspaper.
If all goes according to plan, the combined company would continue to operate all of the Essar Algoma and USSC mills that are running now, Mike Psaros, co-founder and co-managing partner of New York-based KPS Capital Partners LP, told The Globe and Mail.
“There are offensive mergers and defensive mergers,” Psaros told the newspaper. “In defensive mergers, you put two companies together and you shut stuff down. This is an offensive merger.”
Essar Algoma went on the sales block in February after filing for creditor protection in late 2015. USSC, which has been operating under creditor protection since 2014, also went up for sale – for a second time – this year.
The USSC sales process is ongoing. Essar Algoma, however, announced last week that it had selected a buyer – a consortium made up of KPS and Essar Algoma’s term lenders.
The deal requires court approval and is conditional on winning a new agreement with the United Steelworkers union, which had sought to have Essar Algoma’s former parent, Essar Group, included in a second round of bidding on the company.
According to an earlier report in The Globe and Mail, Essar was disqualified as a bidder by Essar Algoma, its restructuring advisers and the court-appointed monitor overseeing its creditor protection case because it didn’t have the financial means to do what it was proposing.
Given its interest in Essar Algoma, Essar Group, not surprisingly, said on Tuesday that it does not support the KPS deal.
“In Essar Global's view, there has not been adequate opportunity for other potential bidders to participate throughout this process. In addition, a better pricing environment should have allowed more time to pursue other alternative options to ensure the best result for Algoma's stakeholders," it said in a statement.
In response, Essar Algoma said that in selecting the KPS bid it followed the court-approved sale and investment solicitation process and had consulted with its financial advisers and its chief restructuring adviser. It also said the deal was signed with the approval of the court-appointed monitor overseeing its creditor-protection case.
