12/20/2011 11:44 EST | Updated 02/19/2012 05:12 EST

Lakeside Steel gets $77.5-million takeover offer from unnamed buyer

One of Canada's last publicly traded steel companies, Lakeside Steel Inc. (TSXV:LS), has received a $77.5-million takeover bid from an unnamed buyer, a move that more than tripled the small company's stock price Tuesday.

The Welland, Ont.-based company revealed it has a non-binding letter of intent from the prospective buyer to acquire the company at 40 cents a share — nearly six times the company's stock price before the transaction was announced.

But the deal won't be finalized until the unnamed company finishes its due diligence on Lakeside, which has to be completed by Jan. 9.

Lakeside chairman and chief executive Vic Alboini, a Bay Street investor whose company also holds a minority stake in smartphone maker Research in Motion Ltd., said the sale of money-losing Lakeside is best for shareholders and the company's nearly 400 employees.

"For the shareholders it is a premium to where the share price has been trading," Alboini said in an interview from Florida.

"For the employees and the customers and suppliers and the people we deal with, it provides a bigger group that would acquire Lakeside and drive it to the next level."

Trading in Lakeside shares had been halted for several days and on resumption they rocketed up more than 300 per cent to trade as high as 33 cents on the TSX Venture Exchange — though remaining well below the price of the 40 cent per share offer.

That suggests investors are worried the potential deal may still fall apart.

The stock ended the day Tuesday at 26.5 cents, up 19.5 cents or 279 per cent, in trading of more than 4.1 million shares on the junior market.

Alboini wouldn't identify the potential buyer other than to say it was a strategic purchaser.

That suggests it's another steelmaker or a company wanting to expand in Lakeside's key market — the growing U.S. shale natural gas industry.

Lakeside makes steel pipes and tubing used in the oil and gas industry. It has factories in the Niagara region city of Welland, Texas and Alabama.

Shale gas expansion in Texas, Pennsylvania, Wyoming and in parts of Canada in recent years have led to a huge demand for pipe and other steel from gas drillers, and companies that supply that market stand to cash in.

Alboini said Lakeside was approached by the unnamed buyer after the Canadian steelmaker announced a financing deal last month

"When that news appeared we had several parties that approached us expressing interest in Lakeside and we decided to enter into a letter of intent with one of them," he said, adding that the financing deal will now be cancelled.

Jaguar Financial, a merchant bank headed by Alboini, is the largest shareholder in Lakeside with a nearly nine per cent stake, while Alboini personally holds more than three per cent of the company.

Alboini has been in the news for much of the last year with his persistent call for RIM (TSX:RIM) to sell itself and improve its corporate leadership to become more profitable and boost a sagging share price.

Last month, Lakeside reached a new labour contract covering about 350 workers represented by the Canadian Auto Workers union that will run until October, 31, 1014.

Doug Orr, a CAW national staff representative, said the proposed deal raises concerns for workers.

"We don't know what their plans are if it is sold, but it is a highly productive plant ... so hopefully there is a plan for the future if a sale does go through," he said.

"The members' concern right now is the unknown."

If the prospective purchaser of Lakeside is not Canadian, and the deal goes through, it will continue a years-long trend that has seen virtually all major Canadian steel companies swept up by foreign firms.

Hamilton-based Stelco was bought by U.S. Steel in 2007, Dofasco was purchased by ArcelorMittal in 2006, Algoma Steel was purchased by India's Essar Group in 2007 and SSAB Swedish Steel AB bought Ipsco in 2007 before later selling it to a Russian company.

Lakeside has struggled in recent months, in November posting a $7.6-million second-quarter loss — reversing a $1.2-million profit in the year-earlier period — as it suffered from low margins due to numerous factors, including foreign imports and higher costs. Revenue was down 28.1 per cent to $47.8 million.

The company, which employs 390 people, has been expanding in the southern United States to bring down its costs and deal with the impact of volatility in the value of the two countries' dollars.

Lakeside had also previously expressed some interest in buying some of U.S. Steel's former Stelco assets in Hamilton, if the U.S. firm had been forced to sell them by a lawsuit launched by the federal government.

Ottawa alleged that U.S. Steel broke promises it made to keep jobs and maintain production levels when it bought Hamilton-based Stelco in 2007.

The two sides settled the case earlier this month, with U.S. Steel Corp. promising to keep making steel in Canada for at least another four years and to make major capital investments at its Canadian mills.