The last month has put Dofasco on the world stage, with bids coming in at a rapid rate, for an industry defined as "sunset" at best. Dofasco has some value, which of course is what TK and Arcelor see when they make the bids.
Of course, what they both see, and probably others, is QCM in Dofasco's pocket. Given the ore reserves and production, this will more than give a solid return on their bids, with the price of ore increasing for 2006.
However, Dofasco has been generous in their compensation plan with their employees...and keep in mind, anyone that puts out $5B for an investment, strategic or not, wants a return on their investment. Will Arcelor or TK get their return on the ore assets? I think so. But, you can't help but think that after Dofasco's $150 million charge against Q1 2005 for employees' compensation (refer to 2004 annual report), that after due diligence of the books, any suitor won't come in looking to make some changes to extract value for their shareholders.
It may be a year down the road, but I expect that changes may come for any suitor to maximize the return on their investment...with pressure from boards to provide 12-15% return, somehow Dofasco Inc. has to pony up $600-$750 million in gross earnings to contribute to the suitor's bottomline.
With the gap in steel prices and commodities closing, the only place left to squeeze value is in the operating costs.
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment