Poison pill leaves firm in limbo

Dofasco's unresolved fate could have an impact on Sparrows Point's future

November 04, 2006|By New York Times News Service

It was a classic poison-pill takeover defense, dating to World War II, when companies often used it to keep assets out of Nazi hands.

In January, Mittal Steel NV made a hostile takeover bid for rival Arcelor SA, conditioned on being able to sell Arcelor's Canadian subsidiary, Dofasco Inc.

So Arcelor decided to place Dofasco into a Dutch trust to keep it away from Mittal and make the entire acquisition more difficult.

As part of its bid, Mittal had signed an agreement to sell the highly profitable Dofasco, which produces flat-rolled and tubular steel products, to a German company, ThyssenKrupp AG.

Mittal eventually succeeded in acquiring Arcelor, announcing a $33.5 billion deal in June. So even as Dofasco continues to be highly profitable, Mittal contends it is still committed to selling it, the trust structure remains in place, and Dofasco employees are getting eager for some answers.

"It's a very unusual position to be in," said Gordon Forstner, a spokesman for Dofasco, which is based in Hamilton, Ontario. "But day to day, it doesn't feel particularly peculiar because at no point have we stopped making decisions in Dofasco's best interests. Still, we're looking forward to resolving our ownership."

Citing antitrust concerns, the U.S. government has ordered Arcelor Mittal to sell Dofasco.

But if the Dofasco trust structure bars its sale, Arcelor Mittal must divest Mittal's Sparrows Point mill in Baltimore County or its mill in Weirton, W.Va.

Mittal has said it prefers to sell the Weirton plant in that situation, although the Justice Department has the final say on which plant is sold and to whom.

The antitrust order means that Dofasco must operate like a stand-alone company. It cannot disclose any substantive information about operations to Arcelor Mittal; the six directors the European company appointed to Dofasco no longer attend board meetings, which are now conducted by Dofasco's six independent directors. Arcelor Mittal receives very limited information about the Canadian company's financial performance.

Dofasco's managers and directors, who are supervised by a monitor appointed by the Justice Department, are following a corporate plan laid out some time ago. That includes making substantial capital investments, Forstner said.

Dofasco is among North America's most consistently profitable steelmakers and has a client list that includes the Big Three automakers as well as Honda and Toyota. Most of Dofasco's 7,400 workers are not unionized, unusual for a long-established steelmaker (its predecessor companies started in 1912 and 1917).

Its ambiguous ownership is also a matter of concern to many people outside the company in Hamilton, where Dofasco's operations are largely based along with those of Stelco Inc., its sometimes troubled rival steel- maker.

"There's not as great a concern as the community felt when Stelco was teetering because we know Dofasco is sound," said Larry Di Ianni, the city's mayor. "But for us it's vitally important that it's stabilized and continues to make contributions to our city."

Mittal contends that it still intends to sell the unit, but that because of the binding trust that Arcelor created, it has no control over the situation.

"Right now time is on their side, and they are generating a lot of cash flow," said Alain William, an analyst for Societe Generale. "At the end of the day, if they can keep it, really the winners will be Arcelor Mittal, and the losers will be ThyssenKrupp."

The trustees are expected to decide by the end of the month whether to sell Dofasco. Paul R. Harter, a lawyer for Gibson, Dunn & Crutcher LLP in London, who is representing the trustees, declined to comment.

Forstner said that no one at Dofasco had any knowledge about how its ownership would be resolved.

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