Just days after the United Steelworkers (USW) Local 2251 said it wouldn’t supported the selection of the New York equity firm as Essar Steel’s preferred buyer, the company received word that the consortium agreement fronted by KPS had been terminated. However, the terms lenders involved in the bid still want to pursue the acquisition.
In a July 14 news release, Essar Steel Algoma said the term lenders notified them that they “remain committed” to “closing the transaction contemplated by the asset purchase agreement as soon as possible.”
The steel producer, which is under creditor protection since last November, had seeking approval in an Ontario Superior Court for the consortium led by KPS to take over the operation as part of the ongoing restructuring effort.
But to finalize the sale by the end of August would require renegotiations of the collective agreement and pension plans, which gave Local 2251 an effective veto over any new ownership bid.
In rejecting the KPS proposal, the union announced on July 12 it had signed a letter of intent to negotiate with Ontario Steel Investments, a new company set up by Essar Global, the steelmaker’s parent company, to combine the Sault plant with the former Stelco assets in Hamilton and Nanticoke.
“While it is unfortunate that KPS has withdrawn from the consortium,” said Essar Steel Algoma CEO Kalyan Ghosh in a July 14 news release, “I am pleased that the term lenders remain committed to closing the transaction. Algoma will work with its stakeholders to achieve the optimal outcome for the future of Algoma, its employees, pensioners and the customers we serve.”
The Steelworkers had indicated their distrust of the insolvency court and the entire sales and investor solicitation process (SISP) employed by Essar Steel to seek a new owner.
In a July 14 statement, the union called the developments “the latest twist in a mismanaged” process that has ignored the input of key stakeholders who have a veto in the restructuring.
“This flawed process lacked the bid tension needed to allow difficult decisions to be made in an informed way,” said the United Steelworkers in a release.
"We know KPS. They are a top-notch fund run by recognized professionals," said Marty Warren, USW District 6 director. "The USW understands KPS could have brought a lot to the table.
"But what they bring comes at a very steep price for the workers. It is hard for a local union to recommend to its members that they pay such a high price when there are other serious bidders out there who appear to be offering materially better terms."
Warren added he was unaware of the identities of the term lenders.
“It is hard to see what they can bring to the table besides money. All the bidders have that, and it seems that other bidders are prepared to leave more of it with the workers in Sault Ste. Marie."
"With KPS withdrawing its bid, we now have the opportunity to put the restructuring back on track, with a process that truly addresses the interests of our members, our pensioners and our community," said Lisa Dale, president of Local 2724, representing salaried employees at Essar Algoma.
An earlier bid from Essar Global was reported by various media outlets to have been rejected in the restructuring court because the Mumbai-based global giant was unable to demonstrate it had the financial wherewithal to consummate the deal.