March 8, 2006 — Algoma Steel Inc. and Paulson & Co. Inc. have reached agreement on a strategic direction to maximize value for Algoma shareholders.
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The new Algoma-Paulson agreement provides for:
• Distribution of $200 million of excess capital to shareholders by the end of the second quarter.
• Prompt appointment of two new mutually agreed upon directors to the Algoma Board.
• Continuation of the strategic process.
As a result of the agreement, Paulson has agreed to withdraw its requisition for a special meeting of shareholders.
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The agreement includes provision for a distribution of $200 million of excess capital to shareholders, with the distribution to be executed by the end of the second quarter. The two companies have also agreed to the prompt appointment, through the normal governance process, of two new (mutually agreed upon) directors to the Algoma Board. The agreement also specifies continuation of the strategic process, which involves the potential for value creation through a sale, merger, acquisition or further distributions of excess capital when appropriate. As part of this agreement, Paulson has agreed to withdraw its requisition for a special meeting of shareholders.
Given the current and short-term outlook for steel pricing, recently completed coal contracts, declining natural gas prices, and the increasing prospect of moderate increases in iron ore pricing in 2006, there is now a greater level of certainty to the company's future cash position. This has allowed the Board to conclude that the company will have $200 million of excess cash to distribute by the end of the second quarter. This would bring total shareholder distributions to $476 million in less than 12 months.
Algoma will make an application for a tax ruling regarding a corporate reorganization involving a return of paid-up capital to shareholders, which, if successful, would result in a reduction in adjusted cost base for shareholders and not dividend tax treatment.
The company believes it is prudent, in the short term, to maintain a significant cash balance along with existing debt capacity for potential strategic investment opportunities. Through the execution of strategic investments to enhance shareholder value and/or improve the company's risk profile, the company is committed to work towards a target capital structure of 25% debt to total capitalization over time. Cash that is excess to these needs will continue to be distributed to shareholders in a prudent manner.
Ben Duster, Chairman of Algoma's Board, said, "We are pleased to have alignment on the strategic direction of Algoma and look forward to focusing on building a stronger company."
John Paulson, President of Paulson & Co. Inc., said, "We view Algoma's continued efforts to enhance shareholder value as a positive for shareholders. We also believe that greater value can be created by working constructively with Algoma's Board."
Algoma Steel Inc. is an integrated steel producer based in Sault Ste. Marie, Ontario. Revenues are derived primarily from the manufacture and sale of rolled steel products including hot and cold rolled steel and plate.