KPS withdraws bids for Essar Algoma, U.S. Steel Canada – by Greg Keenan (Globe and Mail – July 15, 2016)

KPS Capital Partners LP has abandoned its bids for Essar Steel Algoma Inc. and U.S. Steel Canada Inc., ending its effort to combine two Canadian steel mills that have been operating in creditor protection.

The New York-based private equity fund withdrew the bids because it was unable to reach agreements with the Ontario government, a source familiar with the matter said Thursday. The Ontario government was involved because of combined pension liabilities that exceeded $1-billion at the two steel makers, as well as unknown environmental costs.

KPS had teamed up with Essar Algoma’s term lending syndicate to make an offer that was anointed by Essar Algoma as the preferred bid. Its withdrawal from the U.S. Steel Canada sales process leaves Bedrock Industries Group LLC, another private equity fund, as the only bidder remaining in that auction.

When they revealed their plan to merge the two companies, KPS officials described it as an “offensive merger” that would create one healthy steel maker. Members of the Essar Algoma term lending syndicate will proceed with a bid on their own, sources said.

The participation by KPS in the Essar Algoma bidding also ran into strong opposition from several stakeholder groups, notably the United Steelworkers union, which represents workers at the mill and head office in Sault Ste. Marie, Ont.

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