Shares of restructured Stelco jump above $18 on first trading day
TORONTO (CP) - New shares of Stelco Inc. (TSX:STE) soared more than 250 per cent in their first day of trading as an analyst said the newly restructured steel maker is an attractive acquisition target and its assets are worth more than $2 billion.
That meant instant multimillion-dollar profits for financiers, creditors and Stelco's new CEO, all of whom were issued shares at $5.50 apiece after Stelco emerged from two years in bankruptcy protection Friday night.
On Monday morning, the stock began trading at $15 and it rose to $19.49 by the end of the day, with more than two million shares changing hands.
New chief executive Rodney Mott booked a one-day paper profit of nearly $14 million on the one million shares that Stelco sold to him for $5.5 million. The steel maker disclosed Mott's intentions to make that personal investment on Sunday.
Mott's stake is part of a new employee stock option plan, for which a total of 2.61 million shares have been reserved.
But the biggest winner was Tricap Management Ltd., the Toronto-based restructuring fund that now is Stelco's largest shareholder. Tricap, which arranged at $375-million loan for Stelco, is controlled by Brookfield Asset Management (TSX:BAM).
It owns about 9.82 million shares, or 36 per cent of Stelco, meaning it made a one-day paper profit of about $137 million on Monday.
Two other financing firms, Sunrise Partners Ltd. Partnership and Appaloosa Management LP, also hold large stakes in Stelco.
In addition, some of Stelco's creditors had opted to take stock in lieu of cash they were owed.
The company's previous shares were wiped out and delisted during its restructuring. Monday's gains prompted an angry reaction from some former shareholders.
"Today's action puts lie to Stelco's dire claims that the sky was falling. We were right, they were wrong and the proof is on the tape," said one institutional investor.
Stelco filed for bankruptcy protection in January 2004, saying it could soon run out of cash. Steel prices subsequently soared, allowing it to earn profits.
In a note to clients Sunday, CIBC World Markets analyst John Novak said Stelco's Lake Erie plant, in Nanticoke Ont., and its iron ore assets, make it "an attractive acquisition target for both potential North American and international acquirers."
As the steel industry continued to consolidate, Stelco rejected numerous suitors during its restructuring, saying the bids were not sufficient. It has since sold off numerous smaller assets and trimmed down to its two main plants in Nanticoke and Stelco.
Novak estimated that the Lake Erie plant, which was built in the 1980s with automakers in mind, could be worth $1.4 billion.
The plant has about 1,400 workers and is more cost-efficient than the 100-year-old Hamilton plant, which has 3,700 employees.
Stelco's iron ore assets could be worth $544 million, Novak said.
But the steelmaker's appeal to buyers may depend on upcoming contract negotiations with the United Steelworkers at its Hamilton plant. Their current contract expires July 31.
"One of the problems at Stelco has been the animosity with the union," said New York-based steel analyst Charles Bradford, of Bradford Research.
The new Hamilton contract will be the first major task for Mott, who took over from former Stelco CEO Courtney Pratt on Monday.
When it comes to supplying the ailing steelmaker with a fresh start, Bradford said: "Mott is maybe the one guy who can pull it off."
Bradford said his confidence in Mott stems from the CEO's good relationship with the United Steelworkers union and his successful operating strategies at ISG, which was sold to Mittal Steel last year.
Stelco's Hamilton unionized employees were voting for a new local president Monday. Current president Rolf Gerstenberger, a Marxist who refused to take part in Stelco's restructuring, is being challenged by current vice-president Jake Lombardo. Results are expected Tuesday.
Contract negotiations will get underway in May, Gerstenberger said Monday.
"We couldn't do much until we had the presidential thing settled," he said.
© The Canadian Press, 2006
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