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. It 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