Bethlehem joins rise in steel stocks Rumors of mergers, strong orders raise big producers' shares

Offer for Inland was catalyst

Bethlehem shares expected to open 20% higher today


March 23, 1998|By Sean Somerville | Sean Somerville,SUN STAFF

Bethlehem Steel Corp. shares are expected to open today about 20 percent higher than a week ago, after a climb last week amid expectations of high first-quarter earnings and possible industry consolidation.

The company last week put together a string of five 52-week high closing prices, ranging from $12.3125 Monday to $14.75 Friday. The heavy trading last week put shares 85 percent above $7.9375, the 52-week low registered Dec. 29.

Bethlehem shares got a boost Tuesday after Ispat International NV said it would buy Inland Steel Co. -- a transaction that some analysts said portends the long-awaited consolidation of the U.S. steel industry.

Other steel stocks also rose sharply last week, with AK Steel Holding Corp. up 10 percent, USX-US Steel Holding Co. up 7 percent and LTV up 13 percent.

Scott Morrison, an industry analyst for Donaldson Lufkin & Jenrette, said old-line steelmakers may have to combine to battle lower-cost minimills, which use inexpensive scrap metal as raw material and less expensive nonunion labor. "I think the landscape will change," he said.

Bethlehem, which employs about 5,300 at its Sparrows Point plant in eastern Baltimore County, already has an acquisition in the works. It will pay $740 million for Lukens Inc. of Coatsville, Pa.

As a result of the deal, Bethlehem early next year will close its Sparrows Point plate mill, which employs about 400.

Analysts said speculation of additional consolidation is only part of the reason for the increases. Morrison on Thursday changed his recommendation on Bethlehem from "market perform" to "buy," noting the company's financial performance.

He said the sale or closure of unprofitable businesses in Bethlehem's restructuring last year is starting to pay off. "First-quarter earnings should be quite strong," he said.

With the steel industry expected to benefit from high prices, Morrison's 12-month target price for Bethlehem shares is $20.

Charles Bradford, a steel industry analyst, said investors should be wary of reading the Ispat-Inland deal as the first of many mergers. He said he sees that deal more as a change of ownership than as a cost-saving merger.

Bradford and other analysts have long favored mergers as a way for steel producers to improve leverage in negotiations with the nation's three biggest automakers. "Right now, you have three car companies negotiating with 10 steel companies," he said. "It doesn't take a genius to figure out who's going to win that."

He said steel stocks rose last week not because of merger fever, but because of a few more basic reasons. "Business is strong," he said. "Everybody's booked out for orders as far as they want to be booked out. And it's always that way this time of year."

In addition, he said, fears of imports flooding the market proved unfounded, the weather was mild and energy prices remained low.

Finally, he said, Bethlehem Steel shares were so low that they had been a good buy long before last week.

Pub Date: 3/23/98

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