Preferring the devil he knows, Steelworkers Local 2251 Mike Da Prat has rejected KPS Capital Partners as new owner of Essar Steel Algoma.
Instead, Da Prat and five other members of the Local 2251 executive have signed a letter of intent to negotiate with Ontario Steel Investments Ltd., a new company set up by Essar Global to acquire Essar Steel Algoma and the former Stelco steelworks in Hamilton and Nanticoke.
Essar Algoma announced last month that it had entered an asset purchase agreement with a consortium of bidders headed by KPS Capital Partners, a Manhattan-based private equity firm.
But KPS's purchase proposal is conditional on reaching new collective agreements with unions, giving Da Prat's union an effective veto over any new owner.
The decision to deal with Essar Global instead of KPS was announced by Da Prat this morning at the first of three information meetings today with Local 2251 rank-and-file members.
"It is understood that in the event that Ontario Steel is successful in acquiring the assets from Essar Steel Algoma Inc, any renegotiated collective bargaining agreements with USW Local 2251 shall include the income from Port of Algoma Inc. and Essar Power Canada with respect to any profit-sharing component," states an agreement between the union and the new company signed yesterday.
Da Prat told SooToday that the Local 2251 membership appears to support dealings with the Essar Global subsidiary.
"There was no vote taken, but from the comments, the members support the executive," Da Prat.
"What we're saying is, the asset purchase agreement that's going is unattainable, because one of the conditions is to get a collective agreement with 2251."
Local 2251 is now asking Ontario's Superior Court of Justice to consider other bids for Essar Steel Algoma.
A bid from Essar Global is widely reported to have been previously rejected because the Mumbai-based global giant was unable to demonstrate it had the financial wherewithal to consummate the deal.
As Essar Steel Algoma's largest union representing hourly workers, Local 2251 has been dealing with Essar since Essar bought the Sault operations in April, 2007.
Terms of the union’s initial agreement with Ontario Steel Investments Ltd. include the following:
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Purchase price will be US$903 million.
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Ontario Steel will pay all outstanding taxes owed to the City of Sault Ste. Marie within six months of a change in ownership.
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The new company will assume all employer liabilities under Essar Algoma’s defined benefit registered pension plans, valued at US$234 million. A special provincial regulation will be sought to provide a 20-year solvency exemption.
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All employer liabilities will also be assumed for OPEB (Other Postemployment Benefits), valued at US$269 million.
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Ontario Steel will continue the current OPEB (Other Postemployment Benefits) coverage for both active and retired employees.
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Ontario Steel will be capitalized with US$400 million in cash, including a US$275 million new debt facility and US$125 million in equity for shareholders.
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The new company must work to ensure that services from Port of Algoma Inc. and Essar Power Canada continue as usual, with assignment of the existing port and power agreements to Ontario Steel.
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Ontario Steel will acquire substantially all the assets of Essar Steel Algoma, including accounts receivable, inventory, most contracts, intellectual property, real estate and most business permits needed to carry on the business.
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The new company will accept all environmental liabilities subject to an understanding with Ontario’s Ministry of the Environment and Climate Change.
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Ontario Steel will endeavour to reach a mutually satisfactory agreement with senior secured noteholders.
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The deal is subject to approvals from the insolvency court, due diligence and negotiation of satisfactory supply contracts for raw materials.
So why, after nine years of tough dealing with Essar Global’s Algoma subsidiary, racking up thousands of grievances, is the Local 2251 executive now squarely in the South Asian multinational’s corner?
“Essar Global went out of their way to provide us evidence that they would be able to close the deal,” Da Prat tells SooToday.
“I’ve not seen anyone with the detail of information that they provided us. We were provided a very private, confidential document -- a line-by-line audit of their holdings globally.”
After recently dealing directly with members of Essar Global’s Ruia family, Da Prat suspects his problems have not been with the owners so much as with residual local managers.
“Everything that I have seen says that [the Ruias] may just have been remote. Not hands-on,” the union president says.
“From my discussions with the principals that I talked to, they showed us everything. They were totally above board. Everything we asked, they responded to. And what you will see is, they’re responding to the city taxes. They’re going to pay the city taxes.”
“Do you know what the interesting point is?” Da Prat asks.
“In all the times that we’ve had restructurings and disputes, as a union, we always complained about the management team in the place. This time around, it seems that we’re blaming the shareholder.”
“We never went after the shareholders before. Why are we saying that the shareholders are responsible for what happened inside Essar Steel Algoma, when the people we were dealing with was the Essar Steel Algoma management?”
“So the 3,000 grievances were generated by management - I don’t ever recall filing a grievance against the board of directors and/or the shareholders.”
Da Prat nonethess remains deeply distrustful of the insolvency court and the sales and investor solicitation process (SISP) that’s being used to seek a new owner for the Sault’s steel mill.
“The SISP process is totally unsatisfactory,” Da Prat tells SooToday.
“It is totally unfair. Bidders were eliminated by the process. We were not informed. Why? We were not given any rationale why.”
Da Prat was preparing a court affidavit today indicating that Local 2251 objects to the process that rejected Essar Global’s bid.
He will argue that Essar Global has the wherewithal to complete a deal and that a collective agreement with the union is “do-able.”
“We’re going to court in full support of this deal with Ontario Steel that we’ve discussed with Essar Global.”