The number of prospective purchasers of Essar Steel Algoma has been reduced by one.
The disqualification of the as-yet-unnamed bidder was upheld this week in a decision by Justice Frank Newbould of Ontario's Superior Court of Justice.
The number and names of companies interested in acquiring the Sault steelmaker is not known, protected by court-ordered confidentiality directives.
The Globe and Mail's Greg Keenan reported tonight that the disqualified bidder is Essar Steel Algoma's parent company.
"Essar Group, which paid $1.85-billion to buy Algoma Steel Inc. in 2007, has been ruled out as a potential buyer of the company it put into creditor protection last November," Keenan said, attributing the information to unnamed sources.
"The era of Essar Steel Algoma Inc. as a part of the business empire controlled by the Ruia brothers of India appears to have come to an end."
Any source with direct knowledge of Essar Steel Algoma's sale and investment solicitation process would have violated a strict non-disclosure agreement if revealed names of bidders to the newspaper.
A number of previous Keenan pieces citing anonymous sources about Essar Steel Algoma have proven to be correct.
If his report tonight is accurate, it would mean that Essar Group's bid was rejected by Essar Steel Algoma, because it was not satisfied its parent company had the financial wherewithal to consummate the deal.
Court documents state that it was Essar Street Algoma that determined the bid to be unsatisfactory on April 20, in consultation with its financial advisor and chief restructuring advisor, in consultation with Ernst & Young, appointed by the court to monitor Essar Steel Algoma's ongoing operations and assist with the restructuring.
Under terms of the court-ordered sale and investment solicitation process (SISP), the Sault steelmaker may reject any bid if it's considered unqualified, inadequate or insufficient, or runs against the interests of Essar Steel Algoma, its creditors or other stakeholders.
As SooToday reported on Monday, representatives of Local 2251, Local 2724 (representing Essar Steel Algoma's salaried employees) and of the national Steelworkers union, asked the court to re-qualify the disqualified bidder, allowing it to proceed to the second phase of bidding.
The Steelworkers claimed they were not formally notified of the disqualification, as required by the SISP.
"Consultation with Local 2251 regarding the elimination of bidders from the SISP is essential to a fair, transparent and robust process, particularly given the expedited timelines involved," the union argued. Failing to involve them "effectively disenfranchises Local 2251 and erodes its position as a critical stakeholder."
Justice Newbould conceded that the Steelworkers (USW) might be right on that point, but in practice it made no difference.
"In this case, technically perhaps Essar Algoma should have consulted with the USW after the financial information from the subject bidder was received on April 18.... It would however have been a meaningless consultation as the USW had no role to play in the decision as to the financial capability of the subject bidder and it was that decision which led to the rejection of the subject bid," the judge said.
Justice Newbould ruled that he was poorly equipped to second-guess a decision on financial viability made by Essar Steel Algoma in conjunction with "highly qualified professionals with great experience in restructuring."
"Under our corporate law, a court should be loath to interfere with the good faith exercise of the business judgment of directors and officers of a corporation," the judge said.
Regarding the union's complaint that it wasn't consulted, Newbould said: "There is many a slip between the cup and the lip and I do not at all ascribe any bad faith to the actors in this drama. It is far to easy in hindsight to pick things apart and a Companies' Creditors Arrangement Act case with all of its hurly-burly complexity is a situation in which one should not engage in hindsight nitpicking of well-intentioned actions of the parties."
The SISP is expected to conclude by August 31.
