U.S. Steel files for bankruptcy protection in Canada
U.S. Steel (X) has made a variety of strategic moves to position itself for long-term success, including halting its expansion at an iron ore facility and a carbon alloy facility. Another strategic move U.S. Steel has taken is related to its Canadian operations.
U.S. Steel acquired Stelco Inc. in 2007 for $1.9 billion, and renamed it U.S. Steel Canada. Stelco had just emerged from bankruptcy, and now seven years after this acquisition it is heading the same way. U.S. Steel has decided to seek bankruptcy protection, and has deconsolidated U.S. Steel Canada from its combined balance sheet.
What went wrong with U.S. Steel Canada?
U.S. Steel Canada has posted losses in the past five years. The aggregate losses are a whopping $2.4 billion. This represents a combined loss of $16 per share for U.S. Steel shareholders. This prompted U.S. Steel to file for a Companies’ Creditors Arrangement Act (or CCAA). CCAA is a federal act that enables a company to avoid bankruptcy, while working on a restructuring plan.
One of the major reasons for this move is the pension costs and retirement benefits that U.S. Steel Canada carries. AK Steel is another steel company with pension woes.
This decision by U.S. Steel to file for a CCAA is a reflection of current restructuring and consolidation efforts in the steel industry. Recently, ArcelorMittal (MT) sold its Gallatin operations to Nucor (NUE) while AK Steel (AKS) has acquired Dearborn operations from Severstal. AK Steel is the biggest holding company for SPDR S&P Metals and Mining ETF (XME).
The next article in the series will discuss the financial impact of U.S. Steel’s actions.