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November 24, 2005

A reader's opinion on Stelco, Thurs., Nov. 24, 2005, 1:47 PM

I received the following letter from a Stelco shareholder:

The PR from Stelco said there was a late night agreement (Nov-23-05), which included representatives of bondholders. Which bondholders? Do these representatives" carry sufficient creditor votes to win the creditor vote set for Dec 2nd ? Sorry, but I see this as another maneuver to sway creditors in capitulating, which they may very well do when they see this revised plan.

There has not been a creditor vote and management is attempting to have their way without a public vote by all stakeholders, which they know they would lose today. This Dec 2nd vote allows Judge Farley to stay through his vacation and hold a later session to review alternative proposals if the Dec2nd vote does not carry for Stelco management.

I believe that if sufficient bondholders were behind the agreement last night there would be no waiting until Dec 2nd for a creditor vote, and there would be much trumpeting today about how these bondholders were led to reason."

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Makes sense to me.

What I cannot fathom is (i) how can Big Media regurgitate these Stelco news releases under the heading financial reporting. Are these reporters and their editors brain-dead? (ii) If it's true, or even likely, as reported by the most sensible of ROBTV anchors last evening, Both Stelco and Dofasco are in play", then why would Stelco bondholders have any stake in voting to receive the small return of capital that is proposed in this restructuring plan? Common sense would dictate that some international steel company is going to come in and bid a market price.

Arcelor bid $4.3 billion cash for Dofasco. Add Dofasco's total debt of more than $2 billion to that to come up with the total purchase cost of over $6 billion. Then compare that total to the fair market value of Stelco. The $400 million creditor debt, the amount of the bond debt, and the $1 billion in unfunded pension liability of Stelco, is not that significant. That's not coming just from me. It comes from Stelco's auditors prior to this fabricated story of bankruptcy". And after the bankruptcy proceedings had started, the Judge would not accept opinions of other independent accountants. This was a kangaroo court from the beginning.

Stelco has been saddled by horrendous management. The present CEO was recently head of Toronto Hydro " another badly managed government deal " and is no steel man. The company has made one mistake after another, but experts say that the Stelco Fort Erie plant is the best in the world, and part of the Hamilton plant is as good as anything operated by Dofasco. Despite lousy management, Stelco ships more steel than Dofasco.

In the hands of legitimate steel operators, Stelco would make probably $400 million a year profit in these good market times. If you doubt me, then you should know it was a statement made a few months ago by the Stelco CEO " the one who could care less if Stelco operates steel plants or windmills.

Let me repeat a major story published in the Toronto Star just a few months ago. I included the whole of this particular Toronto Star article following my own notes (which I entitled Stelco joke continues"):

Stelco's operating profit of $118 million before interest, taxes and restructuring expenses in the three months smashed the record for any quarter in the company's 95-year history. The company set the previous mark of $88 million in the same 1995 quarter. It is also the fourth consecutive quarter that Stelco has earned a profit since a judge granted the steelmaker protection under the federal Companies' Creditors Arrangement Act almost 16 months ago. The profits would have been even higher if the company did not run into reorganization costs of $21 million in the quarter, including $10 million in "professional fees" for lawyers and financial advisers.... Stelco estimated in March that its 2005 operating profits would be in the range of $350 million to $400 million but Pratt said the company is currently reviewing that forecast. In the first quarter, Stelco's net sales soared 26 per cent to $968 million from the same 2004 period. The company attributed the big increase to renewing contracts at much higher prices and jumps in spot prices because of heavy market demand."

There are just 102 million common shares outstanding in Stelco. The shares are trading at 15 cents. You do the arithmetic.

The judge, the management, the restructuring officer and the Liberal Party heads in power in Ottawa and Toronto (for the time being) clearly don't want you to. They have an agenda, which is to take 100 per cent of the value of your shares from you. And give it to their friends. Canadian banks will finance the share purchases by these friends with loans taken from your deposits at those banks. Your current broker-dealer, who will inform you that your old" shares are worthless, will float the new" Stelco shares. Your broker-dealer, to whom you pay for advice and counsel, and who therefore has a fiduciary duty to you, is in a position of conflict of interest. In their pursuit of greed, that has not stopped them before from acting against you.

You are not likely to read commentary like mine in newspapers today because the business model of those so-called reporters of news is advertiser paid. And you do know the conflict that puts them into because the government, the banks and brokers, and companies like Stelco, are by far their biggest advertisers. In fact, it would be fair to categorize those advertisers as the lifeblood of today's Big Media.

Here's the bottom line. I believe Stelco management will soon be history -- because the Company is in play and will be sold by the Brascan Bay Street Boys soon after the new Stelco shares are floated.

So this is an open letter to the Prime Minister, the Premier, and the Judge. I hope your friends pass it along.

I want you to know I'm just a Little Guy. I've met your peers in past years, and sized them up, man to man. So I know who you are.

As for me, I write a little blog containing my personal opinions. People seem to like it. I am now receiving 1 million website hits a week. By the end of next year, I anticipate that the constant growth in my blog readers will result in more than 1 million hits a day. These people are mostly Little People, who happen to know that I have no stake in Stelco, just an abiding interest in the fairness of capital markets. Since Canada is not a Gulag, I am not going to stop writing about Stelco until there is justice.

Do you get my drift?

Posted by Posted by Bill Cara on November 24, 2005 01:47:34 PM | Category: Canada

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