U.S. Steel X said last Friday that the Ontario Superior Court of Justice has cleared a transition agreement allowing the steel maker to separate from its loss-making Canadian unit – U. S. Steel Canada (“USSC”).
Under the transition agreement, U. S. Steel will not be generating any sales on behalf of USSC and will load its production on its U.S.-based mills. Moreover, the company will move away from offering any technical and engineering services related to product development or sales with USSC.
U.S. Steel will not be a bidder if USSC enters into a new sale and restructuring process in the future. However, it will continue to provide all shared services (other than sales) that USSC requires for up to 24 months.
The court ruling also allowed U.S. Steel Canada to stop paying for health and prescription drug benefits for roughly 20,000 pensioners. The United Steelworkers (USW) union, last Friday, said that it will continue to fight to protect the affected pensioners.
USSC's board, in Sep 2014, decided to apply for relief from its creditors pursuant to Canada's Companies' Creditors Arrangement Act (CCAA). USSC recorded an aggregate consolidated operating loss of $2.4 billion for five years at the time of the CCAA filling. The unit also accounted for around $1 billion of U. S. Steel’s total employee benefits liability as of June 30, 2014. As a result of the filing for bankruptcy protection, USSC and its units were deconsolidated from U.S. Steel's financial statements on a prospective basis.
U.S. Steel logged a wider loss in the second quarter of 2015, hurt by a sizable charge to write-down its retained interest in USSC and lower prices due to a torrent of cheap steel imports.
U.S. Steel remains hamstrung by weak steel market fundamentals. The company is struggling to cope with a surfeit of low-priced imports. High levels of imports led to lower steel pricing and volumes in the company’s Flat-Rolled segment in the second quarter. U.S. Steel’s Tubular segment also remains challenged by weak pricing due to imports.
U.S. Steel is also seeing weak demand in the energy market. The company is aggressively pursuing cost-cutting actions amid a difficult operating environment. It has idled a number of production facilities, resulting in the layoff of thousands of workers.
U.S. Steel is a Zacks Rank #4 (Sell) stock.
Better-ranked companies in the basic materials space include Global Brass and Copper Holdings, Inc. BRSS, ThyssenKrupp AG TYEKF and Ryerson Holding Corporation Com RYI. While Global Brass and Copper and ThyssenKrupp sport a Zacks Rank #1 (Strong Buy), Ryerson retains a Zacks Rank #2 (Buy).
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