A member of the A/V team straightens Canadian flags in front of rolls of coated steel at Stelco in Hamilton before a visit by Chrystia Freeland, on June 29, 2018. Originally called the Steel Company of Canada, Stelco is the biggest steel maker in the country.Peter Power/The Canadian Press
Cleveland-Cliffs Inc.’s proposed acquisition of Stelco Holdings Inc. STLC-T is likely to get the nod from Ottawa, industry experts say.
The Cleveland-based steel company on Monday announced it had reached a friendly deal to acquire Canadian steel maker Stelco for $3.85-billion.
Originally called the Steel Company of Canada, Stelco is the biggest steel maker in the country. Founded in 1910, it operates the Lake Erie Works steel plant and Hamilton Works, both in Ontario.
Industry Minister François-Philippe Champagne will scrutinize the deal to make sure there are no national security concerns and that it makes economic sense for Canada under a net benefit test.
While China-based acquirers with their sights set on Canadian critical minerals assets have been lately rebuffed by Mr. Champagne because of national-security concerns, since Cleveland-Cliffs is based in the United States, one of this country’s closest allies, national security isn’t expected to be an issue.
Cleveland-Cliffs CEO confident of Ottawa’s approval on proposed Stelco acquisition
On the net benefit front, Cleveland-Cliffs CLF-N has already made a number of economic promises, including a pledge to preserve union jobs, putting Canadians on the management team, investing at least $60-million over the next three years back into the business, keeping Stelco’s headquarters in Hamilton and retaining the Stelco name.
“On its face, this deal looks good to me,” said Heather Exner-Pirot, senior fellow and director of natural resources, energy and environment at the Macdonald-Laurier Institute.
“It takes into consideration some Canadian interests and is with a buyer in the United States, with whom we depend on and collaborate on for our mutual security and have a free-trade agreement. If this kind of deal was blocked, I don’t know what deals would ever get passed. “
Mr. Champagne earlier this month raised the bar on allowing deals involving the acquisitions of Canadian miners with significant critical-minerals operations, saying those deals would be approved only under the most exceptional circumstances
While high-purity iron used in some steelmaking is a critical mineral, steel itself is not classified as such in Canada, which makes the path to deal approval easier. Mr. Champagne also recently approved the acquisition of the coal business of Teck Resources Ltd. by Glencore PLC of Switzerland, a major M&A deal valued at US$6.9-billion, but one that didn’t involve a critical-minerals asset.
Audrey Champoux, press secretary for Mr. Champagne, in an e-mail to The Globe and Mail, declined to comment on the government’s review of the Stelco acquisition, citing confidentiality provisions of the Investment Canada Act.
Pierre Lassonde, co-founder and chairman emeritus of mining royalty company Franco-Nevada Corp., has been a vocal critic of past acquisitions of Canadian metals and mining companies because he believes the industry has been overly hollowed out over the past two decades, particularly after the acquisitions of Falconbridge Ltd., Inco Ltd., Alcan Inc. and others in the 2000s.
However, on this deal, he sees no cause for concern.
“I don’t have any issues with Canada allowing this takeover,” he said.
He points to the relatively small value of the deal, the fact that steel isn’t a critical mineral and he believes the Canadian steel industry isn’t big enough to survive on its own.
“Our steel industry is simply too small,” he said. “In the long run, it can’t compete against international giants.”
The Stelco of today is a much smaller and leaner version of its former self. Stelco over the years has drifted in and out of creditor protection in part because of the vicissitudes of a notoriously boom-bust industry.
When Stelco was acquired in 2007 by U.S. Steel Corp., it wasn’t long after emerging from creditor protection. In 2014, it was put into creditor protection once again as United States Steel Canada. Three years later it emerged as a Canadian company and the Stelco name was resuscitated after a mammoth thinning-out restructuring effort led by financier Alan Kestenbaum that saw it shed $3-billion in debt and $1.4-billion in pension and benefit obligations.