Personal Thoughts - Dofasco Inc.

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.

Arcelor Bids Again....$63 is the number

ARCELOR ENHANCES OFFER TO ACQUIRE DOFASCO INC.

23 December 2005 Companynews

(c) Copyright 2005 CompanynewsGroup. All rights reserved.

PRESS RELEASE Arcelor enhances offer to acquire Dofasco Inc. Luxembourg/Toronto - December 23rd, 2005 - Arcelor S.A. announces its intention to make an enhanced all cash offer to acquire all of the outstanding common shares of Canadian steelmaker Dofasco Inc. (TSX: DFS) at C$63.00 per share. Arcelor expects that the Board of Directors of Dofasco will recognize that this offer is superior to ThyssenKrupp's offer. Arcelor is open to approaches by Dofasco's Board of Directors and / or another party to finalize the acquisition at this attractive price level for the Dofasco Shareholders. Guy Dollé, Chief Executive Officer of Arcelor, reiterated that "Expansion into North America is a key strategic objective for Arcelor. We believe that Arcelor is an excellent partner for Dofasco. As a partner of the Arcelor group, Dofasco will become a stronger, more competitive steel producer on the North American steel market." Mr. Dollé also underlined that Dofasco's highly regarded corporate values with respect to its relations with employees, and its legacy of active community engagement, are principles that Arcelor shares and will continue to support. Full details of the offer will be included in the formal take-over bid and circular documents which Arcelor expects to mail to Dofasco shareholders in the coming days.

2005 S&P Performance and 2006 Info

A good article wrapping up the year with the big winners and losers on the S&P 500 this year.

Looking for a Bank Stock? Try Laurentian

Laurentian Bank has been on my watch list for a couple of months. It has gone up 12% in the last month. Estimated EPS of 2.33 (Oct 06), gives PE of 12.88...worth looking into.

US Steel Value vs Dofasco

Came across this excerpt from Wall Street Journal Europe;

"Analysts say ThyssenKrupp's offer already is expensive, representing a 40% premium to Dofasco's share price before Arcelor launched its bid in November. In a recent report, Morgan Stanley estimated ThyssenKrupp's offer values Dofasco's steel capacity at about $1,000 a ton, while U.S. Steel Corp. trades at about $350 a ton."

As I had blogged earlier in the month, US Steel won't command the same price as Dofasco. With the difference in value, and other factors, I would like to see USX improve their results. So does Citigroup. Other agencies are soon to follow.