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Arizona Daily Star
Tucson, Arizona | Published: 09.01.2009
Tucson copper company Asarco LLC should be returned to its owner, a subsidiary of Grupo Mexico, as it emerges from bankruptcy, a judge decided Monday.
The opinion, which now must be considered by a U.S. district judge, sets the stage for a possible strike by the United Steelworkers, the union representing about 1,400 of Asarco's approximately 2,500 employees. Union members have approved a strike if the Mexican conglomerate resumes control of Asarco.
The decision is also sure to disappoint the current management of Asarco, which fought against Grupo Mexico's attempt to retake the company and for a competing proposal by India-based Sterlite Industries.
U.S. Bankruptcy Judge Richard Schmidt in Corpus Christi, Texas, said Grupo Mexico's plan "is more likely to pay creditors in full in that it is funded with sufficient cash" at the time Asarco emerges from bankruptcy.
Sterlite's plan, though overwhelmingly preferred by creditors, relies on the company's recovering money from a legal judgment related to the bankruptcy, Schmidt said. That was a mark against it.
Asarco, which has headquarters at Williams Centre in midtown Tucson as well as three mines and a smelter scattered across Southern Arizona, issued a guarded statement about the decision.
"Our Board will consider the court's recommendations and findings and then, in consultation with our advisors, major creditor constituencies, and Sterlite, will determine the next steps that are in the best interest of the debtors and their estates," President and CEO Joseph Lapinsky said in the written statement.
But people in the copper communities of Southern Arizona are not guarded in their overwhelmingly negative opinions of Grupo Mexico, which controlled Asarco from 1999 until the bankruptcy court appointed an independent board of directors in December 2005.
Grupo Mexico is known in the Hayden-Winkelman area, where Asarco has a mine, a railway and a smelter, for poor environmental stewardship, treating suppliers badly and terrible labor relations, said state Sen. Rebecca Rios, who represents the area in the Arizona Legislature.
"I think a lot of the folks in the area had their hopes that Sterlite would be able to come in and take over," Rios said. "I hope what Grupo has done in the past is not repeated in the future."
Stakes raised late
Both sides repeatedly upped the ante during a recent two-week hearing over the future of Asarco, amending their bids to higher and higher amounts. In the end, Grupo Mexico's bid means paying $2.48 billion for the assets, while Sterlite's bid adds up to about $2.17 billion, Schmidt said.
One major issue had to be resolved before Schmidt could strictly compare the merits of the two bids, he said: A "successorship clause" in the contract between Asarco and its unions, which requires any new operator of the company to recognize the existing collective-bargaining agreement.
In the end, he decided that Grupo Mexico doesn't need to have a new contract in place with Asarco's unions in order to take the company out of bankruptcy, as argued by Sterlite, which negotiated a three-year contract with the unions. The current contract expires next June, affording the sides enough time to negotiate a new one, Schmidt concluded.
While the Steelworkers had been hostile to Grupo Mexico's attempt to retake Asarco, Schmidt dismissed the fears of the conglomerate's labor stance.
Although Grupo Mexico has not consummated a new contract with the union, that doesn't mean it won't, Schmidt said. He noted that Grupo Mexico has committed to abiding by the existing contract after Asarco emerges from bankruptcy and to giving a seat on the board to the new Asarco.
Under Grupo Mexico's plan, the new CEO of Asarco would be Manuel E. Ramos Rada, currently an executive of Grupo Mexico subsidiary Americas Mining Corp. He would replace Lapinsky, who ran the company in what has been a profitable bankruptcy — the company has had net income of more than $1.1 billion since the filing in August 2005.
Strike threat downplayed
Schmidt also concluded that the threat of a strike does not affect the feasibility of Grupo Mexico's bankruptcy-exit plan, even though the bankruptcy filing occurred during a four-month strike in 2005.
During a court hearing, Grupo Mexico attorneys offered to extend the existing collective-bargaining agreement by one year from its expiration date in June 2010, Schmidt noted. Manny Armenta, a United Steelworkers official in Arizona, has dismissed the gesture as meaningless because it was never offered in negotiations that occurred before the hearing but was unilaterally trotted out in court.
"That doesn't give us the protection we're seeking," Armenta said last week. "They made the offer in front of the judge. They never made an offer to us."
But Schmidt said final approval of Grupo Mexico's plan to retake Asarco could be made conditional on extension of the existing contract by a year.
Schmidt also dismissed the threatened strike, noting that Asarco is in a much better financial position now than it was in 2005. He also said Grupo Mexico has begun making preparations to counteract a strike, that the recession makes replacing striking workers easier, and that the union may well be using the threat of a strike as a bargaining tool.
"The risk of a union strike is overstated and does not undermine the feasibility of (Grupo Mexico's) plan," Schmidt wrote.
Contact reporter Tim Steller at 807-8427 or tsteller@azstarnet.com
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