Essar Algoma management and advisers concluded that Essar group “lacked the financial ability” to buy the steelmaker, Judge Newbould said in his ruling.Kenneth Armstrong/The Globe and Mail
The era of Essar Steel Algoma Inc. as a part of the business empire controlled by the Ruia brothers of India appears to have come to an end.
Essar Group, which paid $1.85-billion to buy Algoma Steel Inc. in 2007, has been ruled out as a potential buyer of the company it put into creditor protection last November, sources familiar with the steel company's restructuring said.
Ontario Superior Court Justice Frank Newbould issued a judgment earlier this week that in effect disqualified an unidentified bidder from participating in the sales process set up by Essar Algoma as part of the restructuring.
That bidder is Essar Group, the sources said.
Management of Essar Algoma, along with the steel maker's restructuring and financial advisers and the court-appointed monitor, concluded that "the subject bidder lacked the financial ability to consummate the proposed transaction," Justice Newbould said in his ruling.
Sources said Essar Group has also made a bid to purchase U.S. Steel Canada Inc., which, like Essar Algoma, is operating under the protection of the Companies' Creditors Arrangement Act amid a steel industry downturn that will change the ownership of two of Canada's three largest integrated steel makers.
U.S. Steel Canada will operate under new ownership once it emerges from CCAA protection because its former parent, United States Steel Corp., has not submitted a bid to buy back its Canadian assets and cut the Canadian unit loose from further financial support last year.
The Essar Algoma trip through creditor protection is the third court-supervised restructuring for the steel maker, which is located in Sault Ste. Marie, Ont.
Justice Newbould rejected a bid by the United Steelworkers union (USW) to force the entities controlling Essar Algoma's restructuring to include Essar Group in the second phase of the sales process, from which a winning bidder is expected to be chosen.
The union argued that it was not consulted in the decision to exclude Essar Group, but that it should have been under the terms of the sales process, which said stakeholders were to be consulted.
"Technically, the USW might be right, but as a practical matter, it made no difference," Justice Newbould wrote. "The decision as to whether the subject bidder provided sufficient evidence of its financial ability to close the contemplated transaction was one for Essar Algoma to make," along with its advisers and the monitor.
Essar Algoma said in response to the union's move that USW local 2251 in Sault Ste. Marie was seeking "to obtain total control over the conduct and the outcome of the [sales process] for the sole benefit of its members."
Mike Da Prat, president of local 2251, said the confidentiality agreements forbid him from revealing the name of the bidder. He said the union is unlikely to appeal the decision, saying the court system does not favour unions.
Essar Group has about $15-billion (U.S.) in debt and is seeking to liquidate some assets, reports out of India say. Essar Steel Minnesota, a planned iron ore mine and processing plant in Minnesota, is also in financial trouble.
Essar Algoma listed long-term debt of $1.34-billion (Canadian) when it filed for CCAA protection in November.
When Algoma became the object of a bidding war during the steel industry consolidation that swept aside what was then a Canadian-owned industry in the 2000s, the company listed cash of $152.4-million on its balance sheet in the financial report it filed before being taken over.