Beth Steel raises offer for Lukens $740 million bid has Allegheny Teledyne 'considering its options'

Cash and stock vs. all-cash

Some say bidding war could continue

400 jobs in limbo

Steel

January 06, 1998|By Sean Somerville | Sean Somerville,SUN STAFF

Bethlehem Steel Corp. countered Allegheny Teledyne Inc.'s offer yesterday for Lukens Inc. with a $740 million bid, $90 million higher than its initial $650 million deal to buy the Coatesville, Pa.-based steelmaker.

The increase is the latest in a contest between Bethlehem and Pittsburgh-based Allegheny Teledyne, which made a $715 million offer after Bethlehem and Lukens announced their agreement Dec. 15. If Bethlehem buys Lukens, it will shut down its Sparrows Point plate mill in Baltimore County in about a year, eliminating 400 jobs.

"We continue to believe that this transaction has significant strategic benefits to Bethlehem," said Curtis H. Barnette, Bethlehem's chairman and chief executive officer, justifying a boost in the company's cash-and-stock offer from $25 to $30 a share.

Bethlehem and Lukens said they had signed an amended agreement that included the new terms. Allegheny Teledyne, which has a $28-a-share offer on the table, yesterday said it was "considering its options."

Lukens shares rose $2.0625 to $30.4375. Bethlehem Steel shares fell 50 cents, to $8.625. Allegheny Teledyne shares fell 37.5 cents, to $26.375.

Analysts said the bidding war might not be over. "The potential does exist for Allegheny Teledyne to come back," said Bob Schenosky, a steel industry analyst for Merrill Lynch Global Markets.

Allegheny Teledyne's pension plan is overfunded by $690 million, enough to easily absorb Lukens' $25 million in pension liability. By comparison, Bethlehem has its own pension liability of almost $500 million.

Allegheny Teledyne, which also has strong cash flow and a healthy balance sheet, wants Lukens to widen its stainless steel offerings, Schenosky said.

Allegheny offered $28 a share in cash for Lukens. Under Bethlehem's $30-a-share offer, the company would pay 68 percent in cash and 32 percent in stock. Both deals include the assumption of $250 million in Lukens debt.

Under the Bethlehem deal, R. W. Van Sant, Lukens' chairman and CEO, would serve as president of the Bethlehem-Lukens Plate Division. Allegheny Teledyne hasn't committed to a role for Lukens' senior managers.

The amended agreement indicates that Lukens' board wants Bethlehem as a partner, analysts said. But it's not clear that shareholders would prefer the Bethlehem deal. "Do you want Beth stock or do you want all cash?" Schenosky said. "That's something that has to be answered by the shareholders."

Bethlehem said the Lukens acquisition would help it compete in the 12 million-ton steel plate market, which is worth about $5 billion a year. Plate customers include shipbuilding, construction, farm equipment, industrial machinery and oil pipeline industries.

After the deal, Bethlehem would pay $50 million to close the Sparrows Point plate mill. The company would also close a small Lukens plant in Coatesville. Combined, the two companies would sustain their steel plate production of 2.2 million tons in four plants instead of six.

The merger would increase Bethlehem's annual sales from $4.7 billion to $5.5 billion. "The combination of the strengths of each company will establish the premier plate business in North America and, perhaps, the world," Barnette said.

Union representatives at Sparrows Point, who watched two rounds of bidding, said they anticipated more moves.

"I'm sure it's not over with yet," said Frank Rose, president of United Steelworkers of America Local 2610, which represents workers at the Sparrows Point plate mill. "I'm looking for Allegheny to come back with another counter offer. They have deep pockets."

Rose said plate mill workers participated in a plant-wide agreement to trade 900 jobs for a $300 million cold-mill by 2000 -- a deal that would bring employment at the Baltimore County plant down to about 4,400.

Pub Date: 1/06/98

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