Inside Scoop on What Happened with Dofasco

I came across this article, which basically gives all the details as to what happened with Dofasco...

Dofasco board shows steel in Thyssen deal: Behind the scenes, board and advisors forced higher offer
Sandra Rubin
Financial Post 7 December 2005
National Post National FP9(c) 2005 National Post . All Rights Reserved.

We were interested to see reports last week that Dofasco CEO Don Pether took it on the chin from some hedge funds for signing a $61.50 a share friendly deal with ThyssenKrupp instead of soliciting higher bids. Mr. Pether's tongue must have been bleeding. What they didn't know, and he couldn't say, is that Dofasco's management and financial advisers had personally contacted all the usual steel industry suspects to ask them if they wanted to mount a bid -- and got Thyssen to up its own bid at least twice and cut the break fee in half before signing a deal.
The whole saga started May 27 with a $43 a share joint offer from the Luxembourg-based steelmaker Arcelor and U.S. steelmaker Nucor Corp.
People thought the sale was going to go ahead then. In fact, we hear Jon Levin, who was working with Joan Weppler, Dofasco's vice-president and general counsel, and a Fasken Martineau team that included Wally Palmer and Sean Stevens, actually cancelled his summer vacation. (For those of you who don't have your list handy, that's No. 17 on the Top 50 Ways to Make Yourself Popular at Home. It's a Category 33.6 offence, punishable by jewelry.)
When the $43 offer landed, Dofasco retained a team led by Peter Buzzi at RBC Dominion Securities to provide a fairness opinion and its view can be distilled thus: unfair. A short time later, the Arcelor group, which was being advised by a team at Ogilvy Renault headed by Marc Lacourciere and Terry Dobbin, upped its bid to $46 in cash plus a share of Quebec Cartier Mines.
Things really only heated up Nov. 10 when Arcelor and Nucor (being advised on the financial side by Jim Kofman and David Bain of UBS Securities) sent Dofasco a letter saying they were willing to pay $52 a share if the bid was hostile, and $55 for a friendly bid that allowed them to do due diligence.
Oh, and at that point Arcelor threatened to circumvent the board and go directly to shareholders. The board thought about it over the weekend and met Monday, Nov. 14 to discuss the situation. They sent the Arcelor group a return letter, saying the latest offer didn't appear to fully value the company. They suggested the group meet with Dofasco's financial advisers.
Nov. 16, Dofasco's special committee met and asked Mr. Pether to contact ThyssenKrupp to see if the German company would be interested in making an offer.
The two companies had been looking at doing some joint ventures together -- and Mr. Pether had had a rather interesting conversation a few months earlier with Ekkehard Schulz, ThyssenKrupp's executive chairman. It went something like this.
Dr. Schultz: "You know, Don, I've been thinking. We've been looking at doing business for some time. I like you. I like your company. And I think we'd want to make a bid for Dofasco if someone put you in play by making a hostile run at you -- assuming, of course, you think that's appropriate."
Mr. Pether: "Ekkehard, if we're on the wrong end of a hostile, there's no one I'd rather have as my white knight." Maybe Dr. Schulz consulted Madame Imakamyownlucka, the noted public-company psychic. Maybe it was just fortuitous. All we can tell you is such a conversation actually took place.
In the meantime, Arcelor and Nucor advised Dofasco it could chose from either the group's two previous bids -- one of which was as high as $55.
Mr. Pether telephoned Dr. Schulz to inform him of the hostile bid. Dr. Schulz said he'd call Dofasco back the next day. It's safe to assume he called Mark Trachuk of Osler Hoskin & Harcourt right after hanging up. Mr. Trachuk and Oslers had been working with Thyssen since last summer on making a potential Canadian acquisition.
Mr. Trachuk called in Lorraine Lynds among others at Oslers, while Jonathan White of Citigroup in London and Mary Amor at Citigroup in New York were mobilized to provide financial advice.
The next day, Nov. 17, Dr. Schulz advised Mr. Pether that ThyssenKrupp was interested in making a proposal, and a management team would fly to Toronto for a meeting with Dofasco and its advisers the following day.
Dofasco's special committee informed the full board of ThyssenKrupp's interest, and advised the board that based on the advice of their financial advisers, they were rejecting the revised Arcelor bid.
Dr. Schulz and his team arrived as promised Nov. 18. There were meetings. They went well. Dofasco and Thyssen signed a confidentiality and standstill agreement and Thyssen was given access to non-public financial information.
The board told Arcelor that its bid had been rejected. Later that day, DS advised the board on what it felt would be an appropriate price. Someone, somewhere, among the advisers was also providing advice on what would be an appropriate menu.
The two management teams had a clandestine dinner in one of Oslers' board rooms. No lawyers, no bankers -- and no restaurant. "It had to remain secret," says someone who knows. "They really hit it off. The social dynamics are important in these types of things."
Nov. 21, Dr. Schulz wrote Mr. Pether formally indicating Thyssen was prepared to outbid Arcelor, with a deal that included a $200-million break-fee. Dofasco looked at the offer and told Thyssen it wasn't high enough. At that point, Arcelor was still at the table offering to bid more. The next day, it did.
Nov. 22 Arcelor and Nucor submitted what they said was their "final offer," a complex cash and share deal. What they didn't know is Dofasco already had a higher bid.
ThyssenKrupp, meanwhile, upped its price. Dofasco's board met, reviewed the bids, and decided Thyssen's was clearly better although it felt the break-fee was too high and the price was still too low.
In the wee hours of Nov. 23, we're talking 1 a.m., Arcelor issued a press release going public with an all-cash bid of $56, which was higher than previously indicated. Later that morning, Dofasco got a letter from ThyssenKrupp topping its previous offer, and Arcelor's publicized offer as well.
Dofasco again sent it back, saying it was still too low. Dofasco's board met later that morning and decided the Thyssen offer was approaching the magic number, but directors were concerned the break-fee was too high. The board held a discussion on the risks and benefits of conducting a full auction.
We imagine Dofasco's advisers would have told them that with the company in play, they would be smart to contact other strategic buyers to make sure there were no other interested parties.
The board meeting adjourned. Phone calls were made. The responses were lukewarm at best. When the board met again that afternoon, it was told that Dofasco management and its financial advisers had contacted a number of steel companies and none indicated an immediate or strong desire to enter into significant discussions to buy the company.
Later that day, Thyssen came back at $61.50 plus a lowered $100-million break-fee. The deal looked pretty attractive. Dofasco's board decided to give Thyssen an exclusivity agreement good until Dec. 5 to do due diligence.
Thyssen went in, had a look, and informed Dofasco on Saturday, Nov. 26 that it didn't need until Dec. 5. The company asked Dofasco if it would be ready to sign and announce on the morning of Monday, Nov. 28.
Everyone, of course, had coteries of tax lawyers, competition-law lawyers, and Investment Canada types involved. But the bottom line is the $5-billion deal was drafted, documented and negotiated in five days. And some people wonder why some people have God complexes. . . .