Employees monitor red hot steel being poured from ladles at an Algoma Steel facility in Sault Ste. Marie, Ont., on June 21.Deborah Baic/The Globe and Mail
Canadian billionaire Barry Zekelman isn’t ruling out a takeover of Algoma Steel Group Inc. ASTL-T as he weighs several options after his privately held steel products company recently took an equity stake in the venerable Canadian steel maker.
Chicago-based Zekelman Industries in late July revealed in a 13D filing with the U.S. Securities and Exchange Commission that it amassed a 5-per-cent stake in Sault Ste. Marie, Ont.-based Algoma. Such filings are required for activist as opposed to passive investors. In the filing, Zekelman Industries said it may engage with management and the board, or other shareholders about “potential business combinations, dispositions or other transactions.”
Mr. Zekelman, who was born in Windsor, Ont., took over the company at age 19 after the sudden death of his father in 1986. Zekelman Industries is the largest buyer of flat rolled steel in North America and a major player in modular home construction, with annual sales in excess of US$5-billion. It is the parent of Atlas Tube, Wheatland Tube, Western Tube, Sharon Tube, Picoma, Z Modular and Hayes Modular. The company has grown in part by making acquisitions.
In an interview, Mr. Zekelman said a long-standing dream of his is to own a steel mill and conceded that one way to realize that ambition would be to buy Algoma, even if he’s not sure if that would be the right move.
“Algoma has been a supplier of mine for decades and has gone through a lot of transitions and ownership, and what I see going on there now I like, and they’re one of the last independent public steel mills left around North America,” Mr. Zekelman said.
“I have a vested interest to see what may happen to them. Do they remain a standalone or someone else gets involved with them, or views them as a target or maybe a bolt-on acquisition? I’d like to at least have a seat at the table and have a say in the matter.”
When asked if Zekelman Industries was considering a takeover of Algoma, he refused to be pinned down.
“There’s lots of options on the table, and I’m not committed to any of them.”
Laura Devoni, director, human resources and corporate affairs with Algoma, wrote in an e-mail to The Globe and Mail that it was the company’s policy not to comment on questions about any discussions “we may or may not have with any particular shareholder.”
The North American steel industry is rapidly consolidating, with Japan’s Nippon Steel Corp. in May targeting United States Steel Corp. (U.S. Steel) in a deal worth US$14.9-billion and Cleveland-Cliffs Inc. in July offering to buy Hamilton-based Stelco Holdings Inc. for $3.85-billion. In both cases, the premiums offered are sizable.
The steel sector is both a strategic industry for the West and a major employer in North America, which makes it politically sensitive. President Joe Biden earlier this year vowed to block the U.S. Steel acquisition, saying that it is important that the company remains domestically owned amid concerns about U.S. job losses. The Washington Post said this week that Mr. Biden will soon formally nix the transaction.
Ian Gillies, analyst with Stifel, wrote in a note to clients that there is a strategic rationale for Zekelman buying Algoma as it would allow the company to gain much more control over its production process in its steel tube business and its modular housing business. He added that both Algoma’s discounted stock-market valuation and its growing production profile make it a potentially attractive target.
Mr. Zekelman confirmed that Zekelman Industries has the financial firepower to buy Algoma, and says its financials are substantially better than in 2018, when it last offered the street a peek into its books ahead of a planned initial public offering. That transaction did not go ahead because Zekelman Industries did not obtain the valuation it wanted. Mr. Zekelman said he has no intention of attempting to go public again through another IPO or through a reverse takeover of Algoma.
“I don’t like answering to anyone,” he said of his rationale for remaining private.
Algoma’s history stretches back to 1901 when it was founded by American financier Francis Clergue. It made steel for the construction of the railway lines across Canada. During the First World War, it manufactured artillery shells.
The steel industry is notoriously cyclical and Algoma has sought creditor protection multiple times through the years, including during the Great Depression and, most recently, in 2015 during a severe downturn in the industry. The company came back to the public markets in 2021 in a US$1.3-billion special purpose acquisition company (SPAC) transaction put together by a group of U.S. investors that included activist Eric Rosenfeld, chief executive of Crescendo Partners.
Over the past few years, it has invested heavily in electric arc furnaces, which don’t use highly polluting coking coal and blast furnaces. The stock, however, has struggled, and rarely traded above its US$10 listing price. Since Zekelman Industries unveiled its stake, the stock has rallied by about 14 per cent.
“I’m interested in Algoma because I’m interested in Canadian steel,“ Mr. Zekelman said. “I want to see Canadian steel survive, and I think it should have a strong future, or our country doesn’t have a strong future.”
The United States and Canada recently unveiled new tariffs on steel imported from China because of its alleged unfair trade practices, which has seen the Asian superpower accused of dumping cheap product on the global market in an attempt to eradicate Western competition.
Mr. Zekelman said while the new tariffs will help, they don’t go nearly far enough – in part, he says, because steel made in China can be easily shipped to Thailand, Turkey or Taiwan, relabelled and then shipped to Canada, essentially disguising the true country of origin and bypassing the tariffs.
He was also critical of the huge subsidies the Canadian government is paying to the automotive industry to build electric-car battery plants in Ontario in an attempt to compete against China. But meanwhile, he maintains that much of the steel used in construction of these plants comes from China, as well as from Russia and India, all of which he says have terrible environmental standards.
“They’re not even using Canadian steel. They’re actually using the dirtiest steel in the world with our tax dollars. I think it’s criminal,” he said.
Mr. Zekelman has in the past tried to influence the political discourse around steel. Wheatland Tube, a subsidiary of Zekelman Industries, was fined nearly US$1-million by the U.S. Federal Election Commission after it made donations totaling US$1.75-million to the Donald Trump re-election campaign in 2018. The Commission concluded that Mr. Zekelman participated in the decision to direct funds towards the Trump camp. Foreign nationals are prohibited from making political contributions under U.S. law. The donations were made during a Canada and U.S. trade war when Mr. Trump had imposed punitive tariffs on steel imports.