CP: "Six parties are in the running to beat a German bank's offer to raise capital for Stelco Inc., the restructuring Hamilton steel maker said yesterday. Deutsche Bank of Germany's $900 million offer to raise capital for Stelco in exchange for a nearly one-half stake in the company was established by a court as a bid that others must top. Four of the six parties competing against Deutsche Bank have made their intentions known — global steel companies OAO Severstal of Russia, U.S. Steel of Pittsburgh, Algoma Steel Inc. of Sault Ste. Marie, Ont., and a joint offer by mining company Sherritt International Inc. and the Ontario Teachers' Pension Plan. Speculation has International Steel Group, which recently merged with Europe's Mittal Steel Co., as one of the bidders as well. The six parties have moved into "phase two" of the process to restructure Stelco, which allows them greater access to business, financial and legal information on the company to formulate bids to refinance Stelco by Jan. 31."

This story interested me because there was a management-labor fight that turned nasty a year ago. A new CEO who had little relative experience decided it was possible to break the union of Canada's biggest steel manufacturer. His board had strong ties to the Federal Liberal Party and Office of the Prime Minister Paul Martin. Martin's "blind trust" (ahem) owns the shipping carrier for Stelco. One of these friends, a bankruptcy expert by name of Hap Stephen, was called in to organize a plan to take to a bankruptcy judge and chum he happens to sit with in bankruptcy industry workshop panels. All very tidy.

The Stephen plan called for a Stalking Horse player, so Deutsche Bank was called in and provided a guaranteed fee of up to C$11.5 million. I assume that Deutsche Bank then purchased the bulk of Stelco's long-term bonds (that were not in default) for some pennies on the dollar. Then Stephen took, to his friend the judge, management's assertion that they were insolvent, and could not repay these bonds (which had never been called), in spite of considerable evidence to the contrary argued in court by the union, law firms, broker-dealers, public accountancy firms and the like.

Moreover, apparently, there was never a registered demand on the company by any creditor, and the industry outlook for steel was improving, but that didn't stop management from petitioning itself into bankruptcy. Furthermore, Stelco owns multiple diverse assets that could be readily sold to use the proceeds to buy in its own debt to put its house in order, but that option was never considered.

Interestingly, soon after the filing of bankruptcy, the steel industry turned up. Prices of this basic material rose sharply. Demand from China, and elsewhere, improved. Consequently, Stelco earned C$100 million in net earnings in the next six months, which set a company record. It also set heads turning as the total market cap of Stelco was at the time just C$100 million. Even today, it's slightly over C$200 million.

Just to give you an idea of what's at stake here for the shareholders, there are just more than 100 million shares outstanding, and the six new bidders for the company will likely pay something like C$1.8 million to C$2.0 billion, including debt assumption, to acquire it. Let's just say the debts are $1 billion, which leaves close to a billion for the shareholders. After share dilution to the new investors, I say the old shareholders could be getting a value of about C$5.00.

That's the simple logic; but these things have a way of growing in complexity, so I'll let it play out before commenting further. Even blogging should not be a facility for making people like me look stupid.

But, I will say that simply, in putting Stelco into bankruptcy without the need to, this was a management, and a board of directors, that was not working for shareholders. Interestingly a former Chairman of the Ontario Securities Commission sat on the Board until recent criticisms of his turning a blind eye likely caused his resignation.

Still, the OSC has never said a peep, which lends some weight to my arguments that securities regulators are not in place to serve and protect all society, but mostly just its elite. In fact I, and others too, have discussed writing a book on this subject, to be called: "Subject to regulatory approval;" " the essence being that regulations are made and approvals given when it's in the interests of certain wealthy and powerful parties to do so. But this is nothing new; it's not any different that the reality that the law is fairer to those who can pay for it.

I happen to look at capital markets as a social laboratory. It is my reality TV show.

The more you understand how people operate in their personal lives, and with their friends, and fellow employees, the better, I feel, you can understand the equity market.

I am a free enterpriser " not a capitalist " so let's make that clear. I stand opposed to much of what is represented by big government, big corporations, international labor unions, world religious organizations, and monopolists and oligarchs of all race, creed and color.

I do stand for sovereignty of the individual and for whatever systems can be used to facilitate personal freedom. As it relates to capital markets, I simply want a free capital market.

I don't want the sell-side telling me I already have "a level playing field." Like a duck that quacks and waddles, I know what I'm looking at in today's capital marketplace, and I know the sound of "Tilt."

When I see evidence of "Tilt", as I did at Stelco, I feel compelled to write about it. That's because if something is unclean, we all know that sunlight is the best disinfectant. At the end of the day, if the judge and the various stakeholders all do the best job possible, the truth will come out and the situation will move ahead.

There may be a shareholders' lawsuit against management and the Board at Stelco to follow, but I hope not, because I know how these things go. The insiders including lawyers will, as we speak, likely be conspiring to put their ducks in a row for best protection against a successful action, and the attempt to recover damages will create no wealth, but merely serve to destroy it. So, if there ever is a good time to pressure these people, the time is now, at the 11th hour.

In the end, Stelco shareholders will receive what they get coming to them, good or bad. What that will be, I cannot speculate.

For Dad's sake, I hope its C$5.00, which is a long way from the $0.50 as I started to take an interest last summer. Stelco Class A stock is now at $2.15 and was up to $2.60 a couple weeks ago.

As a trader I know there is big money lined up on both sides, for whatever reason, but since these people know a lot more about Stelco than I, it's best for me to stand aside.

BCara@BillCara.com