Stakeholders to decide Algoma Steel's fate.

Sault Ste. Marie is breathing easier since a deal was reached between Algoma Steel and its creditors on February 28.

The agreement came after two weeks of intense negotiations involving key parties to the restructuring of Algoma Steel. They concluded more than a year of talks involving the provincial and federal governments, creditors, employee groups and parent company Dofasco Steel of Hamilton aimed at finding a way to erase Algoma's $800-million deficit and put the steelmaker back on its feet.

The result is a compromise which has earned the praise of Premier Bob Rae, as well as the support of the company's stakeholders. If accepted by all the stakeholders groups, the agreement will give both Algoma Steel and Sault Ste. Marie a new lease on life.

Under the terms of the agreement:

* creditors will agree to convert 60 per cent of the principal and 100 per cent of the pre-Feb. 18 interest to 5.5-per-cent distress preferred shares 

* the province will provide loan guarantees of $110 million and, along with the federal government, will provide assistance and retraining for older workers.

* Algoma's 6,000 workers will exchange wage concessions for 60-per-cent controlling interest in the company. Average hourly wages will drop $2.89 to about $16.81, while salaried employees will take a 14.5-per-cent cut in pay.

* the existing labor force of 5,800 will be cut by 1,600 over the next five years, taking maximum advantage of attrition, retirement and voluntary reduction in hours.

* Dofasco will relinquish its rights as a shareholder, pay $30 million in return for the transfer of $150 of Algoma's tax losses, provide a $10-million guarantee of Algoma's credit facilities and enter into certain commercial agreements with the New Algoma relating to the purchase of steel slabs and pellets.

The parent company will receive the same deal as other secured debenture holders for its holdings of secured debentures of New Algoma.

New Algoma will be governed by a 13-member board of directors consisting of four union representatives, one salaried employee representative, the chief executive officer of the association and seven independent members.

Once the plan is implemented, 60 per cent of New Algoma's common equity will be issued to trusts for the benefit of the company's employees, with the remaining 40 per cent distributed to New Algoma's creditors and preferred shareholders. The employee buyout will make New Algoma the largest employee-owned steel plant in North America.

As majority shareholders, employee representatives will have the right to review specific decisions of the board of directors to sell the company, make major deviation from the five-year business plan, or purchase assets not related to New Algoma's business operations in Sault Ste. Marie or Wawa.

PROTOCOL

In conjunction with the restructuring plan, Algoma and the United Steelworkers of America have signed a negotiations protocol, in which they stress their commitment to a strong, independent and effective management for New Algoma, and to the elimination of waste in all of its operations. They will be working together to redesign the workplace to reduce costs, increase productivity and enhance the skill content of jobs.

To assist the company through this interim period, a seven-person committee is being struck to review Algoma's existing senior management structure and personnel, and to recruit the seven independent members of New Algoma's board of directors. The committee will include former premiers Bill Davis and Alan Blakeney, GSW Inc. chairman Ralph Barford, Algoma chairman Earl Joudrie, Steelworkers national director Leo Gerard, Local 2251 president Jack Ostroski and one member yet to be named.

HISTORICAL

Joudrie calls both the stakeholder compromise and the negotiations protocol "historical agreements."

They set out "the essential terms of the first Canadian restructuring where employees have acquired a controlling interest in a company in exchange for financial contributions and a commitment to fundamental company restructuring."

Before implementation of the plan can proceed, all stakeholders must give their final approval. The target date for these approvals is May 1.

For the Steelworkers in Sault Ste. Marie and Wawa, the first stage in that process took place on March 5 and 6, when union members studied the plan and voted to re-open their collective agreement.

Negotiations will be taking place during April for new five-year agreements which will contain the appropriate sections of the stakeholder compromise and the negotiations protocol.

Ostroski, president of Algoma's largest bargaining group, believes that the overall plan will be good for Algoma and for the community.

"As employee owners, we're going to be involved in both the regular decisions and the major decisions," says Ostroski. "We intend to operate it as any company should be operated, on straight business principles. We're not there to create jobs or a featherbed, because we cannot afford that luxury."

OBSTACLES

Ostroski recognizes that, even if the restructuring takes place as scheduled on May 1, there are obstacles to overcome - obstacles such as the slump of the steel industry and general economy and the over-valuing of the Canadian dollar.

"Reducing the cost of producing steel here, reducing the manpower that has an effect on the cost, working smarter, reorganizing work so that we become more productive, more efficient and, hopefully, more profitable and more competitive - that is our wish list," he says. "But we always have to be careful of those other influences that could turn this into sand in our mouths."

Algoma Steel's current crisis actually began a decade ago, when integrated steel producers throughout North America began experiencing declining profits.

The recession of the early 1980s was followed by a general reduction of steel consumption and demand for steel. The supply of steel increased at the same time due to growing supplies of low-priced imports and the evolution of mini-mill technology in North America.

Algoma Steel, like a significant number of U.S. steelmakers, found itself unable to cope with these combined market factors, and the company incurred losses in seven of the nine years between 1982 and 1990.

The situation reached crisis proportions in January 1991. The combination of poor performance and a 112-day strike resulted in an accumulated debt in excess of $750 million and a $75-million cash drain.

When Dofasco announced that it would no longer provide financial support to the faltering Sault Ste. Marie steelmaker, Algoma did not have sufficient resources to meet projected obligations. In February 1991 the company applied for protection under the Companies Creditors' Agreement Act (Canada), and it has been operating under that protection ever since.

The announced restructuring plan gives the company a chance to survive, but the future is far from certain.

A five-year business plan, which forms the operational basis for the restructuring plan, was released by the company in September 1991. It predicts a continued difficult environment for the Canadian steel industry over the next five years, with weak demand and price increases below the rate of inflation.

The business plan clearly demonstrates that future profitability at Algoma will be based on flat roll products. Both structural and tubular products will also generate positive cash flow over the next five years, but for the long term their potential is less stable.

The heart of the plan is the need to become more cost-effective, which it addresses through selective capital expenditures (principally a ladle transfer station and a round caster), a more streamlined production process and a substantial reduction in labor costs.

"Achieving these reductions is not optional," concludes the report.