Less than a year after OAO Severstal fended off United States Steel Corp. for Rouge Industries Inc., the Russian steel giant appears to be butting heads again with its Pittsburgh rival, this time over Canadian steelmaker Stelco Inc.

Word of a possible offer for Stelco from US Steel surfaced Wednesday, Nov. 10, following reports several companies were preparing bids for the Canadian steelmaker, which has been under the protection of Canada's Companies' Creditors Arrangement Act since January.

But US Steel played coy when asked about a possible buy of its northern rival.

"We continue to look at acquisitions that are accretive and build value," was all US Steel spokesman John Armstrong would say Wednesday. "But we don't discuss any deals until we feel it's appropriate to do so."Severstal announced Tuesday that it has made a formal bid for Stelco after weeks of negotiations, but did not disclose the offer price.

Reports have indicated the offer is worth at least C$500 million ($419 million). Stelco has not yet commented on the Severstal bid.

Miller Mathis & Co. LLC is advising Severstal on the Stelco offer. The New York investment banking boutique also advised Rouge Industries in Severstal's $265 million takeover of that company in January 2004.

Severstal has long wanted to become one of the top five steel producers on the globe. The addition of Stelco's 4.5 million tons of annual production would make it the world's 12th biggest steelmaker.

Severstal beat out US Steel and AK Steel Corp. for Dearborn, Mich.-based Rouge in December 2003 and wants to expand further into North America.

Despite being legally insolvent, Stelco has reported C$100 million in profits in its last two quarters.

The news that US Steel is eyeing Stelco is not surprising. Canada would certainly be on the deal-making radar of US Steel, which has been unafraid to look beyond U.S. borders for acquisitions.

The Pittsburgh-based steelmaker bought the Kosice steel mill in Slovakia in 2000 and in September 2003 it snapped up the Sartid steel mill in Serbia. It now has 7.4 million tons of capacity in central Europe.

In May, US Steel teamed with European counterpart LNM Holdings NV to bid for 93.02% of Ukrainian steelmaker VAT Kryvorizhstal, but VAT was eventually sold to a Ukraine competitor.

US Steel invoked Section 363 of the U.S. Bankruptcy Code for its $1.05 billion buyout of National Steel Corp. that closed in May 2003.

Ever since buying NatSteel, US Steel has been rumored to be interested in making another big deal.

Stelco was put into play on Tuesday with the expiry of an exclusive period granted to Deutsche Bank AG to perform due diligence.

The German bank had been expected to announce that it would lead a C$200 million rights offering for Stelco.

However, late Tuesday, Clearwater Capital Management Inc. and Equilibrium Capital Management Inc. said they had formed an investor group that wants to raise C$125 million in a rights offering under which debenture holders would receive accrued and unpaid interest.

Toronto-based investment firm GMP Capital Corp. had already approached Stelco with a proposal to raise C$215 million once the company exits creditor protection.

While all of this maneuvering is going on, some Stelco shareholders are opposing the steelmaker's bankruptcy protection.

Because the company has made money in the last two quarters, they claim Stelco's shares have value and that the bankruptcy protection should be withdrawn.

Stelco shareholders would likely receive nothing under the offers from Deutsche Bank or Severstal if the company remains under creditor protection.

Stelco was the fourth Canadian steelmaker to seek creditor protection during a period of oversupply brought on by cheap imports. Steel prices have since rebounded and the sector has returned to profitability.

Algoma Steel Inc. of Sault Ste. Marie, Ontario, Canada's third largest steel producer, emerged from bankruptcy protection in February 2002 while Mississauga, Ontario, counterpart Slater Steel Inc. remains under CCAA protection.

Slater sold its Sorel Forge unit to Chicago forging die steel supplier A. Finkl & Sons Co. earlier this year for about $40 million.

Insolvent Ivaco Inc. of Montreal has had its creditor protection extended to Dec. 15 and is being sold to an affiliate of Heico LLC.

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