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Tata Steel stalks Canadian giant

Calcutta, June 3: Tata Steel is on the prowl once again.

After snapping up Anglo-Dutch steelmaker Corus Group Plc in February for $11 billion, India Inc’s biggest buyout, the steelmaker has joined the race to acquire Stelco, the last Canadian steel giant that is up for grabs.

If the Tatas pull it off, the Indian steelmaker, which is the fifth largest in the world with a steel-making capacity of 26 million tonnes, will gain a strong foothold in the North American market where it does not have a production base as yet.

Hamilton-based Stelco makes about 3.7 million tonnes of steel a year, including sheet steel, which is used in auto and appliance manufacturing.

Stelco, which came out of bankruptcy in 2006, said it was considering a sale after its last domestic competitor was gobbled up in May.

A Tata Steel spokesperson refused to confirm its interest in Stelco, but said the company would continue to look at opportunities as and when they arose.

“There is nothing at the finalisation stage that warrants our comment,” he added.

Russia’s Severstal and Evraz could be other potential bidders for Stelco, which in the past also attracted interest from the Jindals.

The only Indian steel company to establish a strong presence in North America is the Ruias-controlled Essar Steel Holdings, which bought Canadian steel maker Algoma in April, before acquiring Minnesota Steel in the US.

On Friday, Stelco confirmed that it was in preliminary discussions with third parties for a possible sale or merger.

There has been no discussion on the material terms of any transaction, Stelco said in a statement.

“We believe it is appropriate to begin the next phase of our business plan and explore all potential alternatives to position Stelco to be an integral part of a larger globally competitive company,” Rodney Mott, president and chief executive officer of Stelco, said in the statement.

Shares of Stelco rose C$5.03 or 19 per cent to close at C$31.93 on Friday, its biggest intra-day gain in 13 months, valuing the company at C$866.1 million or $816.4 million (Rs 3,309 crore).

Tornoto’s Brookfield Asset Management Inc, which runs a restructuring fund, is Stelco’s largest shareholder with a 36 per cent stake.

US hedge fund Appaloosa Management holds another 18 per cent of Stelco stock.

The other big shareholder is Toronto-based hedge fund Sunrise Partners LP.

Analysts reckon that the high-cost operation at Hamilton will pose a challenge for the new buyer, but the real nugget is Lake Erie Works, the newest integrated steel mill in North America, which doesn’t have the legacy costs that weigh down operations at its sister mill in Hamilton.

The most onerous legacy cost for the company, which suffered a loss during the nine-month period ended December 31, 2006 after coming out of bankruptcy, is a 10-year series of payments to Stelco’s four main pension plans that began last year and will cost $675 million.

Mott, who was the chief executive officer of International Steel Group Inc when it was combined with Mittal Steel, has trimmed costs by slashing the unionised workforce.

The Canadian steelmaker has appointed a special committee of directors and CIBC World Markets and UBS to assist in the sale process.

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