A sale of insolvent Slater Steel's steel bar operations in Hamilton, Ont., could occur this week in a deal that would reduce its workforce by one-third, or more than 130 workers, says a New York-based vulture fund anxious to complete the acquisition.
Delaware Street Capital director Gary Katz said the fund signed a confidentiality agreement with Slater Feb. 19 that allows it to review the company's books and arrive at a purchase price for Hamilton Specialty Bar.
With the ratification of a labor deal protecting pensions and raising wages in exchange for the job cuts, Delaware is working at "blinding speed" to get a sale completed before it's too late to retain customers, Katz told The Canadian Press in an interview from New York.
Slater's Hamilton operation has about 60 major customers, mostly auto parts makers and steel service centers.
"We are hoping to come to an agreement as soon as possible, within a matter of days, once we're able to fully understand what's there" in the company's books, Katz said.
Slater planned to liquidate Hamilton Specialty Bar if no buyer could be found.
Slater spokesman Paul Davis said it's up to Delaware and Pinnacle Steel - a separate entity made up of veteran U.S. steel industry executives who would run the Hamilton plant - to make a firm offer and complete the deal.
"It's really up to the Delaware-Pinnacle side," Davis said. "We have continued to provide them with information that they've requested as they continue to do their due diligence. It's really up to them to make an offer for the acquisition of Hamilton Specialty Bar and then for us to proceed."
Slater, based in Mississauga, Ont., has been operating under bankruptcy protection since last summer. Hamilton Specialty Bar, one of eight Slater units being sold or liquidated, makes products used primarily for automotive components such as drive trains, suspension systems and engine components.
Delaware wants to reduce the workforce but also make capital investments in Hamilton that could increase its production capacity by more than 10 percent and, it is hoped, pave the way for hiring in the future.
"We are planning on moving forward to operate this plant at full capacity and potentially increase the capacity in the plant, and we intend on using one-third fewer workers to do that. The workforce that is there is going to have to multi-task and do several jobs," Katz said, who said the new entity would be called Hamilton Specialty Bar and become a private company.
"We believe that there is growth potential in the future. Down the road, we hope to expand the plant and increase the number of workers."
Delaware has been around for more than three years and specializes in buying and turning around distressed company assets. Among recent ventures, it led a $175-million-US refinancing of bank debt at Mississippi Chemical Corp., which was operating under bankruptcy-court protection in the United States.
Slater's court protection expires March 1, but Davis said an extension will be sought to smooth the sale of the Hamilton operation and other divisions.
Negotiations between Slater and Delaware were to take place Monday, Feb. 23, and continue over the next several days. Delaware wants a deal done well in advance of mid-March, when Slater is scheduled stop receiving scrap metal to make its products.
In addition to making a deal with the Steelworkers, Delaware said it will contribute $15 million to Slater's unfunded pension obligation for Hamilton Specialty Bar. Delaware has also agreed to take on retiree medical cost obligations of $800,000 a year and will contribute $1 million for employee retraining.
Katz wouldn't guess on the value of a deal between Slater and Delaware.
"I think it will be relatively easy for us to agree on a formula by which to arrive at a purchase price, but the company is in a state of flux," Katz said, calling the value of the company a "moving target."
Industry sources say Hamilton Specialty Bar could fetch between $15 million and $25 million.
Delaware became interested in Slater's Hamilton operations in late January, about two weeks after Slater announced plans to liquidate the division.
"This is a deal that I think normally would take four to six months to put this together. From start to end, we're trying to do all this in four to six weeks," Katz said. National Post