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« Reason

V&M Deal Needs Cooperation

By Tyler S. Clark (Contact)


Published August 18, 2009

Until today, the news updates on the V&M Star expansion project suggested that there had been insufficient communication between the parties, but today's revelation in the Business Journal and The Vindicator that Youngstown and Girard had already in 2008 agreed "to relocate city boundary lines which will be beneficial to the expansion project" suggests Girard may be trying to overplay its hand.

Youngstown agreed to exchange another parcel of land back to Girard in exchange, and "income taxes generated from the approximately 500 jobs related to the expansion would be split 50/50 between the two cities."

No doubt Girard Mayor James Melfi is attempting to look out for the best interests of his city. That's why Mayor Melfi must reach out to the other parties involved and work towards a resolution to any concerns. Today's Vindicator quotes Mr. Melfi taking a rather stand-offish approach: "'I don’t know [about this] firsthand from V&M,' he said. 'If they’re so concerned, I imagine they’ll call me.'"

There's another approach available, as one of the commenters to the article put it:"How about picking up the phone?" The deal offers revenue for Girard in exchange for a certain parcel of land, along with the option to not lose out on land overall. All the costs for environmental remediation (over $5 million) are on Youngstown, and Girard still gets $1 million per year from the deal.

By playing hardball, even after the written agreement last year, Mr. Melfi may be jeopardizing what is obviously an important deal for the region. All parties should continue to reach out to each other and find a solution. We all need it.


Comments

1leaveusalone(103 comments)posted 4 years, 11 months ago

Tyler - I'd like to see this deal go through, but to be truthful, the latest salvo out of the mayor's office sounds a lot like political CYA for a deal that's already gone away. Here is a brief quote from Vallourec's press release about their second quarter results: ...."For the first six months of 2009 consolidated sales amounted to € 2,395.0 million, a year on
year decrease of 20%. EBITDA was down by 25% year on year to € 577.8 million, which
corresponds to an EBITDA / sales margin of 24.1% compared to 25.7% in H1 2008. Net
income, Group share amounted to € 311.1 million, a reduction of 31% compared to prior year
(€ 448.4 million).
Commenting on these results, Philippe Crouzet, Chairman of the Management Board,
stated:
“The recessionary environment has created a significant reduction in demand for our products
both in industrial activity and in the energy markets worldwide. The rapid adaptation of our
production and our costs to match the decline in activity is reflected in the resilience of our
EBITDA margin during the first half. However, demand remains weak in most markets and
pressure on prices is increasing. As a result, we anticipate that the economic recession will
increasingly impact our results in the second half of the year. The adaptation measures that
we’ve deployed during the first half of the year will therefore be STRENGTHENED."(emphasis mine)

Reading between the lines of the financial report, it seems likely that V & M has no intention of expanding any time soon. The world market is glutted with their product, at a time when demand is way down.

The mayor has staked a lot on this deal, and will need someone or something to blame if it doesn't go through. So I'm not convinced that this is just a lack of cooperation on Girard's part.

Hope I'm wrong and it all works out for the good of the community.

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2nlpavalko(12 comments)posted 4 years, 11 months ago

I couldn't disagree more with leaveusalone (no offense).

Maybe I'm missing something, but Girard doesn't seem to be in a situation to lose much of anything in the deal, aside from a piece of land.

I'm of the belief that Mayor Melfi is taking the suburban attitude of not being willing to give up property to the city. Parochialism seems to be alive and well in Girard, and is another blow the the region.

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3Erplane(475 comments)posted 4 years, 11 months ago

Leaveusalone - I like the fact you did your homework. But I dont recall V&M and its parent ever entirely committing to the project at all, in any location. So there is no need to find a reason to back out. What it seems V&M is saying is that we would like this project to come to Ytown if we decide to do it, and for that if you (the 2 cities here) have all your parts done, it makes our job easier to get the green light.

And Ytownshrimp, good companies that have managed through cycles know that you invest when you believe its the bottom of the cycle, so that you have the needed capacity and product for the upswing. Most analysts all believe long term pricing for oil and nat gas will go up. You dont invest $1 billion in consideration of the present market prices, but rather the next 4-5 business cycles.

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4leaveusalone(103 comments)posted 4 years, 11 months ago

Hi Erplane, you're correct - V & M hasn't committed to this project anywhere. My only real point was that there might be a political aspect to Youngstown's mayor's pronouncements. And again, I hope this project works out for Youngstown. You're right - down times are good for investing - but even allowing for that - V & M has excess capacity on a global scale - as do a number of other companies in the same field of OCTG. So unless they're planning a totally new product line for this proposed facility, (which they could be, I suppose) the global economics don't look promising for this expansion. But believe me, I'm hoping it goes through - I just want everyone to be realistic about it, and not play politics.

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5Erplane(475 comments)posted 4 years, 11 months ago

leaveusalone - agreed!

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6Erplane(475 comments)posted 4 years, 11 months ago

YtownShrimp-

I am saying this is not pure speculation. I am saying is that the city is using public funds to develop a property that cannot be inhabited by anybody or any business as it sits now. If this property is redeveloped, and not ultimately used by V&M, it has still changed from a liability to an asset - a piece of property that is site ready. This leads to other questions, such as recourse to use that property for another enterprise. But as it stands, I think land work for future economic development is a good use of taxpayer funds.

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7Robert_Neville(116 comments)posted 4 years, 11 months ago

leaveusalone, YtownShrimp, Erplane, and nlpavalko,
I am sure that this company wants the two parties to end this quickly. The reason that I say this is because this company has big pull in the Washington DC area. I have read were they have bided on some large contract what will be paid by the Iraqi and Afghanistan Governments. I have also heard that they might want to put a new product line in Youngstown but I do not know what that might be. All I know is that the Mittal steel and other large steel companies see the United States as a place to invest in. The reason for this is that US labor price is the cheapest it has been since the 40's. The other reason is the transportation cost to ship from China to the US has risen shapely. I have been working in Europe for over ten years and Mittal steel is the largest in the world. They do not want American steel to be as powerful as it was before. I on the other hand feel that Mittal steel needs to be controlled. Mittal does own steel mills in the US but they are small. What really needs to happen is we need to get is a furnace in the area to produce large amounts of steel and flood the market with cheap steel. Well I hope that they solve this soon because there is a lot of investors that want to drop hundreds of €’s in the hands of this company.

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8UnionForever(1470 comments)posted 4 years, 11 months ago

In the end will it even matter? Melfi will still be mayor of Girard & Mayor Williams mayor of Y-town.

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