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File photo of the U.S. Steel Canada operation in Hamilton.Frank Gunn/The Canadian Press

The former parent company of Essar Steel Algoma Inc. is teaming up with agriculture and industrial giant Cargill Inc. to renew its bid to buy U.S. Steel Canada Inc., sources familiar with the companies' plans say.

Essar Global, which made a public bid for U.S. Steel Canada in August, is trying to jump ahead of Bedrock Industries LP, which has been anointed by the Ontario government as the favoured bidder to take the troubled steel company out of protection under the Companies' Creditors Arrangement Act.

The August bid for U.S. Steel Canada, formerly known as Stelco Inc., was rejected by the company and the court-appointed monitor overseeing the restructuring. Sources familiar with the new bid say it is also unlikely to succeed, as Bedrock is offering better terms and deep-pocketed Cargill's participation is limited to a loan.

"Our understanding is Cargill is involved as a lender, not a partner," said one investment banker involved in this complex restructuring for U.S. Steel Canada. "Cargill has made a loan against a foreign steel or coal asset owned by Essar Global."

Cargill's energy and industrial unit has a global metals business that operates nine steel service centres in the United States and China that process and finish steel for end users. The Minneapolis-based parent is one of the largest private companies in the world, with 150,000 employees and annual sales of $107-billion (U.S.).

U.S. Steel Canada's chief restructuring officer William Aziz said the "purported offer from an Essar-led consortium" is unsolicited and the steel maker's focus remains on the Bedrock offer.

Essar was eliminated from the sales and investment solicitation process in August, Mr. Aziz noted.

Separately, Essar Algoma's court-appointed monitor Ernst & Young Inc. filed a lawsuit Thursday in the Ontario Superior Court of Justice alleging oppressive conduct by entities controlled by Essar Global.

Ernst & Young alleges the Canadian company suffered harm after Mumbai, India-based Essar Global took control of companies supplying port facilities, power and coal to the steel maker.

Ernst & Young also alleges that Essar Global affiliates should pay back $9.1-million billed to the Canadian company for corporate jets and rent on residential and office space in New York City. And the monitor is pushing Essar Global and companies it controls to repay up to $24.5-million in cash advances made by the steel maker.

"It is difficult to imagine that the [Essar Global] bid for Stelco is viable when the company is being sued by its monitor," said the investment banker, who is working with U.S. Steel Canada.

The Bedrock offer for U.S. Steel Canada would inject $504-million (Canadian) in cash and see payments made to the Ontario government, a pension contribution and other investments to purchase the former Canadian unit of United States Steel Corp., which was granted CCAA protection in September, 2014.

Essar Algoma was granted protection under the CCAA in November, 2015. Essar Global has been effectively disqualified from bidding for the Sault Ste. Marie, Ont.-based steel maker it once owned, but has hooked up with United Steelworkers union locals in that city to try to get back into the sales process for Essar Algoma.

The Ontario government is a key stakeholder in the U.S. Steel Canada restructuring because it provided a $150-million pension loan to U.S. Steel when the Pittsburgh-based giant purchased Stelco in 2007. The province is also potentially on the hook to finance a pension solvency deficiency of more than $800-million at U.S. Steel Canada.

U.S. Steel cut the Canadian unit loose last year, but still holds a credit claim for loans advanced to U.S. Steel Canada during its ownership period. The value of those claims is in dispute.

Editor's note: A previous version of this story said Essar Algoma has been effectively disqualified from bidding for the Sault Ste. Marie, Ont.-based steel maker it once owned, but has hooked up with United Steelworkers union locals in that city to try to get back into the sales process for Essar Algoma. In fact, Essar Global has been effectively disqualified from bidding.

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