Beth Steel insists it's not for sale

Speculation fueled by low share price, `poison pill' action

`Sheer size' is tempting

But analysts indicate union pacts, costly upgrades are barriers

January 16, 2000|By Kristine Henry | Kristine Henry,SUN STAFF

Bethlehem Steel Corp.'s shares are at bargain-basement prices, its board recently instituted a shareholder rights plan to fend off hostile takeover bids and the industry is ripe for consolidation.

These factors, coupled with WHX Corp.'s announcement last month that it had purchased 1.6 percent of Bethlehem's shares, has fueled speculation that the Bethlehem, Pa., steelmaker could be a takeover target.

WHX, which owns Wheeling-Pittsburgh Steel Corp., would not divulge when or why it amassed the shares other than to say it "would welcome any opportunity to discuss its investment." But just to be on the safe side, Bethlehem's board boosted the strength of its "poison pill" last month to make it harder for anyone to acquire it.

But analysts say that with the hefty baggage the company has, it's unclear who would want to take it on:

Union contracts limit the amount of streamlining a merged entity could execute.

An attractive tax-loss carryforward of about $1 billion would be lost if Bethlehem was under new ownership.

Expensive upgrades in progress at the Sparrows Point plant in Baltimore weigh down the package.

Additionally, Bethlehem -- the No. 3 steel producer in the nation -- has reported losses in each of the past four quarters totaling about $169 million. In the most recent quarter, which ended Sept. 30, it re ported a loss of $90 million on sales of $958 million.

"There's enough going on internally and enough that needs to be sorted out that it might make a potential buyer sit on the sidelines for a year or two," said Michael Michalisin, a steel analyst at Deutsche Banc Alex. Brown in New York. "I'm not sure who the right buyer would be."

Most analysts agree that WHX is not truly interested in acquiring Bethlehem. The popular theory is that WHX just wants to get its rival's attention so it can propose that Bethlehem buy Wheeling, which it has been trying to unload for several months.

"I am very confident that Bethlehem has no intention of acquiring anyone like Wheeling," said John Tumazos, an analyst at Sanford C. Bernstein in New York. "My idea of hell on earth is running a steel mill. Auto companies want price cuts every year, the union likes raises, furnaces blow up, people die, and customers welsh on deals. If some turkey wants to pay $20 a share for the company, I think they'd be ecstatic to sell."

Not so fast, says Bethlehem Chairman and Chief Executive Officer Curtis H. "Hank" Barnette.

"Bethlehem is not for sale," he said. "Having said that, if any responsible party sought to have a meeting with us about any responsible matter, we would listen. But the likely conclusion would be the same."

Barnette agrees with those who say the steel industry needs to consolidate, but he sees Bethlehem as the one to do the acquiring. But he would not discuss whether the company was considering buying Wheeling.

Good fit difficult

He and analysts noted that it is difficult to find steel companies that would fit well and provide enough synergies that a merger would pay off.

Some have speculated that U.S. Steel, the nation's top producer, might be interested in acquiring Bethlehem. But analysts said this week that is an unlikely scenario.

Charles A. Bradford of Bradford Research in New York said he tried to promote that idea to U.S. Steel but never got anywhere. He thought the acquisition made sense a few years ago, because Bethlehem had an unfunded pension liability of about $1.5 billion, while U.S. Steel's pension fund was overfunded by $2 billion.

"You're not allowed to take money out of the pension fund without big tax consequences, but if you merged [Bethlehem and U.S. Steel] you'd save $200 million a year," Bradford said.

But now that Bethlehem has virtually no pension liability, he said, the deal makes less sense.

Bradford said union agreements also make acquiring Bethlehem less attractive to potential buyers.

Options limited

"The company is limited in its ability to close facilities," he said. "It can reduce employment with attrition, but it can't do a lot of wholesale shutting down of facilities."

Bobby Jackson, recording secretary for United Steelworkers Local 2610, which represents about 1,450 employees at the Sparrows Point facility, said he doesn't think the union is a hindrance to progress. Workers who are laid off should receive the benefits agreed to in the labor contract, he said.

Jackson said he thinks the company was right to institute the poison pill and that he'd like to see it stay independent.

If that isn't feasible, "I would love to see a major corporation that intends to make steel and make money come in and keep jobs in Baltimore," he said. "But these corporate raiders scare me."

The No. 2 producer, Nucor Corp., is not considered a candidate to acquire Bethlehem, because it doesn't use union labor and has said it is not interested in purchasing older facilities such as Bethlehem's. Analysts say few other domestic producers would have the capability to acquire Bethlehem.

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