2 Baltimore steel plants plan to merge

January 17, 1991|By Kim Clark

The owners of two of Baltimore's stainless steel plants have decided to merge.

Cyclops Industries Inc., owner of the Eastern Stainless Steel plant on Rolling Mill Road near Eastpoint, announced yesterday that it had agreed to be taken over by Armco Inc., which owns the troubled Baltimore Specialty Steels plant on East Biddle Street.

Parsipanny, N.J.-based Armco said it would pay $156 million, or $22 a share, for all of Cyclops' stock, $9.75 more than the stock's price before the announcement.

The stock of Pittsburgh-based Cyclops jumped $7.50 by the end of trading yesterday on the New York Stock Exchange, closing at $19.75 a share.

Armco's stock closed up 25 cents at $5.125.

Armco, which owns several stainless-steel and carbon-steel plants around the country, said it would raise the cash it needs to buy Cyclops by selling $100 million in preferred stock to Alleghany Corp., a New York-based insurer.

Officials at both companies said they did not know how the planned acquisition would affect the two Baltimore plants.

But Armco announced last week that it wanted to sell its 900-worker stainless-steel rod plant, which has lost money for eight of the last 11 years.

And Armco spokesman Lee Bland said yesterday that Armco executives were excited about taking over the Eastern Stainless plant because that 650-worker plant is one of the few in the small but profitable market for thick stainless-steel plates.

Industry observers said yesterday that the idea of combining the two specialty-steel companies seemed wise but that the financing of the deal raised questions.

Rick Stephan, a steel-industry analyst for Moody's Investor Research, a bond-rating firm in New York, said the announcement made him consider downgrading Armco's bonds.

"There are some operating benefits" to merging the two medium-sized steelmakers, he said, but Armco's plan to pay what seems to be a premium for Cyclops "may limit their financial flexibility."

Mr. Stephan said he also was concerned about the timing of the acquisition, coming as it does at the start of a recession. "All of the steel companies have been reporting deteriorating earnings," he noted.

Armco said it wanted to buy Cyclops, which also owns carbon-steel and stainless-steel facilities around the country, because the merged company would become one of the industry's biggest producers of stainless steel.

`This merger is consistent with Armco's long-term strategy to become a world-class producer of stainless steels,` Armco President Robert Purdum said in the statement announcing the acquisition plan.

Susan Breon, spokeswoman for Cyclops, said many of the details of the acquisition remain to be settled but that Cyclops thinks the combined company will be in an especially strong position when the federal government lifts limitations on the amount of steel that can be imported by the United States next year.

"Our eye is toward the future," she said.

The acquisition, which requires the approval of Cyclops' shareholders and the federal government, is expected to be completed by spring.

Cyclops, which has 6,700 employees nationwide, reported losing $6 million on revenues of $904 million in the first nine months of 1990.

The Eastern Stainless plant, which Cyclops bought out of bankruptcy in 1987, reported earning $400,000 in the third fiscal quarter, down 87 percent from the year-ago figure.

Armco has 10,500 employees and is the nation's sixth-largest steelmaker.

The New Jersey-based company reported a loss of $81 million on revenues of $1.3 billion in sales in the first nine months of 1990.

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