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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.


1leaveusalone(103 comments)posted 6 years 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,
“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 6 years 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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3leaveusalone(103 comments)posted 6 years 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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4UnionForever(1470 comments)posted 6 years 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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