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Politics : Canadian Political Free-for-All -- Ignore unavailable to you. Want to Upgrade?

To: Cogito Ergo Sum who wrote (9109)	4/5/2006 11:51:57 PM
From: Ichy Smith	Read Replies (1) \| Respond to of 37263

Bill Cara on his website billcara.com published this today. I believe it is the most important article published on the state of Canada's stock market today. If they can steal Stelco from it's rightful owners, what Canadian Stock is safe? Is CCAA a scam to wipe out shareholder value while padding the pockets of management and canadian investment companies. April 05, 2006 Stelco analyst finally throws in the towel, Wed., Apr. 5, 2006, 6:36 PM I received an e-mail from one Stelco analyst who finally threw in the towel, admitting I have been making a valid point. He also sent me a copy of the CIBC research department on Stelco, dated April 2. As far as I know, there are no other analysts to date prepared to go on the record. -------------------------------------------------------------------------------- "Bill, Like so many others, I have followed your blog’s thread on the Stelco restructuring process for some time now. I work at arms length with the Steel industry (… and) understand the fundamentals fairly well, which was why I was taken back to read about these shenanigans. To be fair, I first dismissed your accusations as outlandish and unfounded – largely because they were totally unsupported by the stalwart media machines. I was wrong. I’m done following Stelco as the company is now neither Canadian nor virtuous. It is, as you say, a mess. My (proverbial) money is on a Mittal buy-out if Arcelor succeeds with this poison pill move. For your interest and enjoyment, I have attached a post-CCAA assessment of Stelco’s value by CIBC world markets and a one-pager I prepared. Forbes was right Bill, you are certainly eccentric. /Anon." -------------------------------------------------------------------------------- Investing in Canadian Steel: is Stelco a legitimate entity? Anonymous Author "The fundamentals behind Canadian steel are volatile, yet optimistic. In 2005, Steel swung from a high of $800/ton to a low of $400/ton; however, most analysts believe the latter represents a new low in the steel cycle with the equilibrium price resting somewhere near the mean value. The new equilibrium price for steel will be driven by domestic demand and foreign competition. On the demand side, downsizing by the “big three” North American automotive manufacturers is being offset by the “on-shoring” of foreign operations. China, Russia and India are the leading steel producing countries outside of the NAFTA trading cluster. Collectively, they enjoy some competitive advantages through cheap labour and lax environmental regulations. China has agreed to limit its production to 400 million tonnes per year which will alleviate some of the downward pressure on steel prices. Stelco, Canada’s largest integrated steel producer, will emerge from CCAA bankruptcy protection on March 31st, 2006. Under the court approved restructuring plan old common shares have been de-listed and new common shares will be issued at $5.50 on April 3rd, 2006. New common shares will not pay dividends until the current pension fund deficit has been eliminated. Institutional creditors Tricap, Sunrise and Appaloosa will own 19.7 million new common shares representing roughly 75% of the total volume. The balance is currently being bought up by brokerage houses. Stelco’s restructuring plan included liquidating non-core assets, a new corporate structure of “limited partnerships”, a new management team and board of directors, and a debt structure held by Tricap, Sunrise, Appaloosa and the Province of Ontario. While the restructuring process has been pitched as a benevolent initiative to protect Canadian jobs and to ensure that a stalwart domestic producer survives, there is underlying controversy over the company’s enterprise value vis-à-vis share value, and the integrity of the key players involved. While under CCAA protection, Ernst and Young Orenda provided a valuation (see appendix H of the 44th Monitors report) to the Monitor which concluded that Stelco’s enterprise value was between $685m and $730m which, after accounting for pension fund deficits, negated common share value. Shareholders then hired Navigant Consulting Inc. to conduct an independent valuation of the company. The report concluded that Stelco was worth between $1.1b and $1.3b and valued its common shares at $10-$12 per share. Based on Navigant’s findings, Stelco shareholders filed a law suit against Stelco on the grounds that Stelco’s valuation – a critical factor in qualifying for CCAA status – was astronomically conservative. The court ruled against the shareholders and approved the restructuring package. Critics of the process question how two reputable consultants can arrive at such drastically different results by using the same methodology and slightly different pricing forecasts for hot rolled steel. If Stelco was indeed undervalued to qualify for CCAA protection, then its new common shares may as well be proportionately undervalued. In emerging from CCAA protection Stelco carries a fire sale market capitalization of roughly $150 million. It is anticipated that both Stelco and Algoma will each align with steel giants Mittal or Thyssenkrupp sometime in 2006. Peter Warrian, steel industry expert, feels that Stelco is already in play and will likely receive a buyout offer sometime after the United Steel Workers Union completes contract negotiations in July, 2006. Provided steel prices remain above $400/ton, Stelco should post positive quarterly earnings in Q1 and Q2 of 2006 and be well positioned for a takeover. Stelco’s management is hosting an investors conference call on Friday March 24th to clarify some of these issues. The “new” Stelco will likely attract large scale private investment provided: 1) The company’s true value is not fully captured in the market price of $5.50/share. 2) The new management team is capable and qualified to lead the company out of CCAA protection. This will include successfully completing contract negotiations with the USWA. 3) The new legal structure was not crafted to aid component wise sell offs of Stelco’s subsidiaries in order to pay down the pension fund deficit. 4) Steel prices do not fall below their 2005 low. 5) Energy prices remain stable for the summer months. While mainstream media have paid little to no attention to widespread allegations of fraud, I continue to believe that Stelco’s shareholders were fleeced in the worst possible way. "