Stelco Inc. is close to selling three non-core subsidiaries to Mittal Steel Co. in a deal that would be key to the legally insolvent steel maker's plan to raise new capital.
Mittal, the world's largest steel maker, is close to purchasing wire products manufacturers Stelwire Ltd. and Stelfil Ltée and mini-mill steel maker Norambar Inc. for a price in the range of $175-million, sources close to the discussions said.
Those three units and mini-mill steel company AltaSteel Ltd. were put up for sale because they don't fit into what Stelco management wants to be its new core business, centred on its main Hilton Works and Lake Erie Works mills in Hamilton and Nanticoke, Ont.
Mittal, produced 42 million tons of steel last year and operates in 14 countries.
The company is bidding to buy existing steel mills in Turkey and the Czech Republic.
It was created last year when London-based entrepreneur Lakshmi Mittal merged his LNM Holdings with Ispat International NV and International Steel Group Inc., an American steel maker that rose from the ashes of Bethlehem Steel Corp. and LTV Steel Co. Inc.
Stelwire, located in Hamilton, employs about 310 people.
Norambar, based in Contrecoeur, Que., has about 350 employees, and Stelfil, which is located in Lachine, Que., employs about another 230 people.
There are discussions with buyers on the sale of the subsidiaries, but Stelco won't comment on any negotiations, Stelco spokeswoman Helen Reeves said yesterday.
The sale of non-core assets is part of a restructuring plan submitted to the Ontario Superior Court earlier this month and now the subject of negotiations between Stelco management and the company's various stakeholders.
Part of the proceeds from the sale of the subsidiaries would go toward a $200-million initial payment Stelco intends to make on its $1.3-billion pension solvency deficiency, which the company cited in January, 2004, as a key reason why it sought -- and was granted -- protection from creditors under the Companies' Creditors Arrangement Act.
The $200-million will come from a combination of $100-million worth of senior, secured, floating-rate notes and two-thirds of the net proceeds of the sale of the non-core assets to a maximum of $100-million.
Stelco officials are in the midst of trying to sell the restructuring plan to stakeholders, but they have already been told by some union officials and representatives of the international office of the United Steelworkers of America that it's a non-starter, in part because the union regards the $200-million pension down payment as inadequate.
Union officials and members of USWA Local 8782 at the Lake Erie Works are also angry that the plan requires that pension benefits be frozen for 10 years, which takes away their right to negotiate increases.
Member of Local 8782 were asked on Monday to give their executive authority to notify Stelco that they would go on strike within 90 days. About 98 per cent of those who voted approved the measure and the union is expected to issue the 90 days notice to Stelco some time this week.
The potential freeze also angers USWA Local 1005 at the Hilton Works, which is the only one of the six USWA locals that has refused to participate in the CCAA negotiations.
Retirees from Hilton Works with 30 years experience receive about $2,640 a month, based on improvements negotiated in 2002, said Local 1005 president Rolf Gerstenberger. If pensions had been frozen in 1996, retirees would be living on $1,440 a month, Mr. Gerstenberger said.
The Ontario government, which would be on the hook for pension payments if Stelco went bankrupt, is also pushing for a solution to the pension problem and has backed a Brascan Corp. proposal calling for a $500-million down payment.