U.S. Steel Corp. (X), the steelmaker trying to work its way back to profitability after five years of losses, put its Canadian unit in creditor protection and canceled more than $800 million of capital investments.
U.S. Steel Corp. (X), the steelmaker trying to work its way back to profitability after five years of losses, put its Canadian unit in creditor protection and canceled more than $800 million of capital investments.
The Ontario Superior Court granted protection under Canada’s Companies’ Creditors Arrangement Act and appointed Ernst & Young LLP to monitor the restructuring, U.S. Steel said yesterday in a statement.
The steelmaker, the largest in the U.S. by volume, said separately it won’t proceed with an expansion of its iron-ore pellet operations in Keewatin, Minnesota, or a carbon-alloy project in Gary, Indiana, and will take a impairment charge of as much as $600 million. The shares jumped as much as 8.2 percent yesterday in after-market trading in New York.
A year into the job, Chief Executive Officer Mario Longhi is pushing ahead with a plan to modernize the company in the face of a global oversupply of steel and cheap imports. Under an improvement plan -- called “The Carnegie Way” after company co-founder Andrew Carnegie -- Longhi had already ended steelmaking at one Canadian site, announced the replacement of an Alabama blast furnace with an electric unit, and idled two other plants pending the resolution of a trade dispute.
Yesterday’s moves will allow the company to redirect funding to products aimed at customers in the automotive and energy industries, Longhi said in the Pittsburgh-based company’s statement. The decisions “represent another step in our transformation to earn the right to grow,” he said.
Quarterly Forecast
U.S. Steel said third-quarter operating income will improve “significantly,” with profit excluding one-time items to be higher than analysts’ estimates. The average of 14 estimates compiled by Bloomberg is for adjusted profit of 88 cents a share.
The statements were released after the close of regular trading yesterday in New York. The stock gained 40 percent this year through the close.
U.S. Steel acquired its Canadian operations in 2007 when it purchased Hamilton, Ontario-based Stelco Inc. for $1.1 billion. The Canadian government sued U.S. Steel after it said the company hadn’t complied with pledges it made on spending and output. The two sides settled in 2011.
The steelmaker said yesterday it will provide C$185 million ($169 million) in debtor-in-possession financing to the Canadian unit during the restructuring to allow operations to continue through the end of 2015.
‘Substantial Efforts’
“Despite substantial efforts over the past several years to make U.S. Steel Canada profitable, it is clear that restructuring U.S. Steel Canada is critical to improving our long-term business outlook,” U.S. Steel Canada President Michael McQuade said in the unit’s statement.
“Operational changes, cost reduction initiatives and streamlining of operations cannot on their own make it competitive in the current environment,” McQuade said. “Entering CCAA was the only responsible course of action under the circumstances and it was taken only after all other options were thoroughly explored.”
U.S. Steel’s Canadian unit has two locations, in Hamilton and Nanticoke, Ontario, and employs about 2,000 people, according to its website.
Last year, U.S. Steel announced it would stop its iron-making and steelmaking in Hamilton effective Dec. 31.
Source: Bloomberg
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