Arrium Australia

Arrium is a global business with 7,500 employees worldwide. Under crippling debt of over $4 billion, we were engaged in April 2016 to restructure the business and deliver a miracle outcome – to save the business and the city of Whyalla, a community of 22,000 in regional South Australia, entirely dependent on the mine and steelworks. 

Background

Arrium Australia is Australia’s leading steel long products manufacturing and distribution business with circa 6,500 employees across 150 sites in Australia, 2.6 million tonne p.a. steel-making capacity and 10 million tonne iron ore export capacity.

Its global mining consumables division, Moly-Cop comprises 24 entities across 7 jurisdictions, head quartered in Kansas City, USA. 

Australian sites - Arrium




In early 2016, following a period of operational underperformance and financial stress, the Board developed and presented an unsolicited proposal to the banking syndicate to trade the existing debt at reportedly less than 50 cents in the dollar. The key risk, and the proposal reportedly presented by the Board, was the closure of the Whyalla operations in South Australia which would have had catastrophic consequences – over 5,500 jobs would have been lost, the 22,000 person community of Whyalla would be reduced to a ghost town and the state’s GDP would have suffered an annual loss of $700 million.

The proposal created deep distrust between the Board and banking syndicate which ultimately lead to our appointment as Voluntary Administrators in April 2016.
 

Our approach

Our plan was simple. As with all administrations where the underlying business is viable, our goal was to stabilise the business, prepare it for sale and run a competitive sales process before settling and distributing the proceeds to creditors. 

However, due to the scale of the business, its symbiotic relationship with the town of Whyalla, volatile commodity and energy markets, politics and operational challenges over the course of the 17-month engagement, the process was anything but simple. These challenges included: 

• substantial increases in raw materials and utilities pricing
• widening iron ore price spread for lower quality product against the 62% Fe index
• a blast furnace cooling event in May 2016
• political influence and a federal election in July 2016
• a state-wide, multi-week electricity blackout in South Australia in September / October 2016
• a fire on the floating offshore transfer barge in Whyalla in January 2017
• steel margin compression globally
• Cyclone Debbie in North Eastern Australia in April 2017
• 8,000 creditors out of pocket requiring debt adjudication.

How we helped

Shortly following our appointment, we commenced a dual track IPO/trade sale process for Moly-Cop, engaging Deutsche Bank as the lead financial adviser to manage the sale process.  The dual track strategy was critical to generating competitive tension with the trade process providing an additional bidder for the asset.

Following an extensive realisation process in which the market for the asset was fully tested, the trade sale track delivered a more superior outcome than the IPO and we entered into a share sale agreement on 4 November 2016 with American Industrial Partners for USD 1.23 billion.

In parallel, cross-functional teams of restructuring, forensic and real estate specialists were on the ground in Whyalla, St. Leonards and other Australian sites working hard to stabilise the business to provide a runway for the sale process. 

As part of these efforts we established the OneWhyalla committee, a group with representatives from local businesses, all levels of Government, unions, employees of the steelworks and the mine, and the Whyalla community generally who met regularly to give Whyalla a voice and to ensure that there was no information vacuum.

Furthermore, the employees of Arrium in Whyalla voted for a 10% wage reduction and a four year EBA – this was critically important in providing a stable industrial relations platform and demonstrating their personal commitment to the continuity of the business. 

By July 2016, the global business was stabilised and was ready to be formally offered for sale. The ‘ticket to play’ for the potential purchasers was to buy the Australian business in-one-line – this was critical to the survival of Whyalla.

During the sales campaign, we conducted numerous site tours across the country from bidder groups, financiers, politicians, bureaucrats and other stakeholders and uploaded over 7,800 documents to the virtual data room. 

We received over 50 expressions of interest for the Arrium business, including a proposal from respected global steel manufacturer Liberty House GFG with whom a successful sale was negotiated and completed in September 2017, just 17 months after our appointment. 

In a fitting and emotional end to the most complex administration process in Australian History, the townspeople of Whyalla marched through the streets to celebrate the outstanding result achieved in the administration period and to welcome the new owners during an official presentation where lead Administrator Mark Mentha, officially presented the keys of the business to Liberty House CEO’s Sanjeev Gupta.

Results

Setting aside a small number of the executive team (who were operationally replaced by KordaMentha Partners), there were minimal employee redundancies at Arrium and Molycop during the Administration – wherever possible, employees kept their jobs. 

The financial outcomes materially exceeded expectations and Whyalla gets a second chance as part of a global supply and heavy industrial business with a focus on international trade, expansionary CAPEX for volume and unit cost reduction, plus game changing energy solutions.

Further, this engagement reinforces that win-win outcomes can be achieved when all stakeholders stay the course and act with a social conscience.  We met our goal, in maximising individual and community well-being together with outstanding financial outcomes in what has been described by Dan Walton, head of the Australian Worker’s Union, as a miracle outcome.