Stelco Chief Executive Alan Kestenbaum expects a windfall after selling the Hamilton-based company to U.S. steelmaker Cleveland Cliffs.CHRIS WATTIE/Reuters
The sale of Stelco Holdings Inc. STLC-T to U.S. steelmaker Cleveland-Cliffs represents a windfall for CEO Alan Kestenbaum, who will receive nearly $647-million for his stake in the Hamilton-based company – including nearly $40-million from a stock award the company granted him last year.
The numbers pale, however, compared with the rewards reaped by Mr. Kestenbaum and his private-equity partners who rescued Stelco from the scrap heap in 2017 by paying just $70-million in cash to get the steelmaker out of bankruptcy.
Mr. Kestenbaum, a metals-industry veteran who created a private investment vehicle called Bedrock Industries Group LLC, partnered with New York investment firm Lindsay Goldberg in the deal. According to Stelco securities filings, Lindsay Goldberg was entitled to 74 per cent of the proceeds from the Stelco investment, with Mr. Kestenbaum getting 24 per cent.
Stelco went public in November, 2017, with the company selling 15 per cent of itself to investors at $17 a share. That left the partners owning 85 per cent of the company, or 75 million Stelco shares.
According to filings with provincial securities regulators, a Lindsay Goldberg partnership called LG Bedrock Holdings LP has sold more than 31.5 million shares since the IPO for proceeds of nearly $1-billion.
Another partnership co-owned by Lindsay Goldberg and Mr. Kestenbaum, Bedrock Industries Cooperatief U.A., sold more than 29 million shares for over $650-million during that period.
That includes a November, 2019, sale of 12.2 million shares by the Bedrock entity to Fairfax Financial Holdings Ltd. for $250-million, or $20.50 per share. Fairfax owned 12,994,000 shares as of April 30, worth over $900-million at the $70-per-share Cleveland-Cliffs buyout price.
The Lindsay Goldberg entity ceased making insider-disclosure filings in August, 2022, when its 2.65 million shares fell below the required-reporting threshold.
Mr. Kestenbaum, a 62-year old Florida resident at the time of the company’s annual management information circular, filed in April, served as Stelco’s CEO from the closing of Stelco’s IPO until February, 2019, when he became executive chairman. He returned to the CEO role In January, 2020.
He owns 8,670,330 Stelco shares outright from his initial investment, worth just under $607-million at the Cleveland-Cliffs buyout price.
In addition, Stelco awarded him 511,038 restricted-stock units on March 3, 2023, as part of its executive-compensation programs. Stelco has since added to the award to reflect its cash dividend to shareholders, so Mr. Kestenbaum now has 566,291 restricted-stock units, which he will be able to cash out for $39.6-million as part of the deal, pushing his total gross to just under $647-million.
Stelco said it paid Mr. Kestenbaum $35.3-million in 2023, including the share award, a salary of $4.32-million and a bonus of $3.64-million.
In the proxy circular, Stelco says its board “considers Mr. Kestenbaum’s significant equity holdings in the company” – 16 per cent of Stelco at the end of 2023 – when it sets his compensation.
His 2023 share award came from Stelco’s total shareholder return” program, which gives executives stock when Stelco’s stock return hits thresholds of 50 per cent, 75 per cent and 100 per cent from the $35.89 share price in its February, 2022, inception. Stelco hit the 50 per cent threshold on March 2, 2023, and Mr. Kestenbaum’s 511,038-share award was his payment.
The $70-per-share offer from Cleveland-Cliffs Inc. represents a more than 100 per cent total return when dividends are considered, suggesting Mr. Kestenbaum and other executives are eligible for similarly-sized awards.
Mr. Kestenbaum is a minority owner of the Atlanta Falcons NFL team. Once a Glencore PLC employee, he went on to found metals trader Marco International and Globe Specialty Metals, a maker of silicon alloys. The publicly traded Globe Specialty Metals combined with privately-owned Spanish company Grupo Ferroatlántica in 2015 to become Ferroglobe PLC, where Mr. Kestenbaum served as executive chairman prior to his Stelco purchase.