Cross Complaint Seeks Custodian : Majority Holder Files Suit to Dissolve California Steel
A dispute among the international owners of California Steel Industries, which operates the former Kaiser Steel plant in Fontana, has spilled into the courts, where majority holder Michael Wilkinson is seeking a dissolution of the corporation and appointment of a “custodian” by the court.
Wilkinson, who owns 50% of San Bernardino-based California Steel, filed a cross complaint in Superior Court last week alleging that Kawasaki Steel Corp. of Japan and Companhia Vale do Rio Doce of Brazil--which each hold a 25% interest--”have managed CSI for their own benefit and for the benefit of their foreign-affiliated corporations.”
The complaint came three weeks after the Japanese and Brazilian partners had sued Wilkinson and his other company for allegedly failing to pay the steel company nearly $16 million.
Noting that “there is internal dissension in the management and the two factions of shareholders . . . are so deadlocked that its business can no longer be conducted,” the Wilkinson cross complaint asked the court to appoint a custodian “to take control of the assets . . . as it continues its business pending the orderly dissolution.” The suit seeks to recover losses and damages totaling $100 million. Parties to the suit were not available for comment late last week.
The legal documents, filed in San Bernardino Superior Court, bring to the surface what appears to be a long-simmering dispute.
Ironically, the squabble comes just two years after California Steel was formed as a highly touted international venture to revive steelmaking in the state. Kawasaki was to supply state-of-the-art manufacturing equipment, Rio Doce would supply relatively inexpensive raw steel from Brazil, and the Americans would supply the old Kaiser Fontana plant and the work force.
The dispute apparently began soon after Wilkinson turned down an offer from Kawasaki and Rio Doce to buy him out.
California Steel acquired the steelmaking and finishing facilities at the Fontana plant for $110 million in 1984, after Kaiser gave up trying to make the World War II-era facility profitable. The company currently processes 700,000 tons per year of slab steel imported from Brazil; it employs about 750.
Wilkinson’s suit said the privately held company currently has net earnings of more than $1 million a month and assets of over $500 million.
Wilkinson and his wholly owned company, known as KPC, took their legal action after California Steel, Kawasaki and Rio Doce sued them. Although Wilkinson is chairman and chief executive of California Steel, the suit was authorized by Paulo Burnier, executive vice president of California Steel, “who purports to be president,” Wilkinson’s suit said.
The Kawasaki-Rio Doce suit alleges that KPC owes California Steel $15.87 million for steel coil that it has purchased. KPC is California Steel’s largest customer and makes the steel coil that it buys from the company into pipe and casings for the oil and gas industries.
The Wilkinson cross complaint alleges that the coil that California Steel shipped was of lesser quality than KPC had requested. The suit claims that KPC suffered damages from loss of revenue because the low-quality steel caused KPC’s pipe customers to cancel orders.
According to one lawyer involved in the case, who asked not to be identified, Kawasaki and Rio Doce filed their suit two days after Wilkinson turned down an offer to buy his stakes in both California Steel and KPC. The partners had an agreement permitting such buyouts under certain circumstances, but Wilkinson rejected the offer, his cross complaint acknowledges.
Wilkinson’s investment banker, the investment firm of Donaldson, Lufkin & Jenrette, valued his half interest in California Steel at $64 million. But Peers & Co., the investment banking firm hired by Kawasaki and Rio Doce and affiliated with the Long Term Credit Bank of Japan, a major shareholder of Kawasaki, valued Wilkinson’s interest at $9 million.
The cross complaint also says California Steel offered to purchase the assets of KPC for $1.5 million less than their book value of $11.16 million.
