Stelco Inc. was Canada’s largest and most diversified steel producer. In 2003, it was on the verge of bankruptcy. Quantum Investors Inc., a private equity firm specializing in distressed investing, was looking into the restructuring of Stelco Inc.
Erika Chamberlain; Michael R King
Harvard Business Review (W18340-HCB-ENG)
June 08, 2018
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Case answers for Stelco Inc.: Bankruptcy and Restructuring
This case solution includes an Excel file with calculations.
Company Overview – Stelco Inc.
Stelco Inc. was Canada’s largest and most diversified steel producer. In the fiscal year 2002, it has sales of CA $2.8 billion and Stelco’s shares are listed on the Toronto Stock Exchange. Stelco Inc. was in trouble with a high-cost structure, a large pension liability, and a deteriorating cash position.
- Canada is the world’s fourth-largest economy by nominal GDP and the third-largest by purchasing power parity.
- Canada has a highly diversified, world-leading industrial sector.
- Growth in different business segments indicates the higher disposable income of the people.
- The nation’s economy is fueled by abundant natural resources, a well-developed infrastructure, and high productivity.
- The North American steel industry was highly cyclical and had undergone many booms and busts.
- Another reason for the industry’s downturn is the bankruptcy and restructuring of various Canadian steel companies.
- Because of this situation many horizontal mergers designed to capture economies of scale and scope.
- In 2003, the supply of steel in the whole world had been increased by 7.1%
The threat of new entrants in this industry is relatively low.
Rivalry among existing competitors is high.
The bargaining power of suppliers is high as there is a limited number of suppliers.
The bargaining power of buyers is high.
The threat of substitutes is low.
- Pressure from trade unions and other unionized organizations is higher in terms of employee benefit.
- Higher government support for low environmental impact.
- The availability of a skilled labor force reduces costs.
- The company is subject to exchange rate risk and taxation in multiple countries.
- Increment of service price negatively affects a number of customers.
- Influenced deeply by the socio-cultural forces of different markets.
- The changing socio-cultural trends and people’s preferences are positively affecting the people’s preference to use steel-made products.
- The more innovative the company, the higher is its market share.
- Recent technological developments by Stelco Inc.’s competitors exert pressure on the company.
- Anti-trust law in the steel industry and overall in the country
- The higher implication of labor laws and regulations.
- Copyright, Patents/Intellectual Property law.
- The laws related to environment-friendliness and negative impact on the surrounding environment from steel production are growing stiffer around the globe.
- Diversified business structure.
- Integration with cost leaders.
- Increase in cost-efficiency and productivity
- Higher cost structure.
- A higher amount of pension liabilities.
- Lower-cost competitor
- Increased demand for steel and related products in the national and global markets.
- Exploring new markets.
- Cyclical nature of the business.
- Rise of cost leaders in the industry.
- The threat of bankruptcy and takeover.