Stelco Inc.: Bankruptcy and Restructuring – Case Solution

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Stelco Inc.: Bankruptcy and Restructuring Case Answers

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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.

Economy analysis

• 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.

Industry analysis

• 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.

PESTLE analysis

Political

• Pressure from trade unions and other unionized organizations is higher in terms of employee benefit.
• Higher government support for low environmental impact.

Economic

• 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.

Social

• 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.

Technological

• The more innovative the company, the higher is its market share.
• Recent technological developments by Stelco Inc.’s competitors exert pressure on the company.

Legal

• 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.

Environmental

• The laws related to environment-friendliness and negative impact on the surrounding environment from steel production are growing stiffer around the globe.

SWOT analysis

Strengths

• Diversified business structure.
• Integration with cost leaders.
• Increase in cost-efficiency and productivity

Weaknesses

• Higher cost structure.
• A higher amount of pension liabilities.
• Lower-cost competitor

Opportunities

• Increased demand for steel and related products in the national and global markets.
• Exploring new markets.

Threats

• Cyclical nature of the business.
• Rise of cost leaders in the industry.
• The threat of bankruptcy and takeover.

Z score