Turning point for Bethlehem

Decision: Bethlehem might take the lead in saving the nation's sick steel industry, even if it means selling the company.

April 15, 2001|By Kristine Henry | Kristine Henry,SUN STAFF

Last month Phillip Pack called a family meeting. The 35-year veteran of Bethlehem Steel's Sparrows Point plant had just added up the costs of sending his twin sons to college and the numbers didn't look good.

Jerod, a high school senior who wants to be a pilot, had been accepted at the prestigious Embry-Riddle Aeronautical University in Florida -- his first choice. But the price tag was too high, especially with Phil Pack's uncertain future.

"I couldn't commit to that," Pack said. "My wife and I looked at the figures side by side and decided it wasn't a good idea."

Instead, Jerod and his brother Phillip will go the University of Maryland.

Phillip Pack never thought he'd have concerns like those when he joined Bethlehem Steel Corp. in 1966. In those days, jobs were for life. The year before, Bethlehem earned a $150 million profit (the equivalent of $865 million today), produced 15 percent of the country's domestically made steel and had 130,000 employees.

But large-scale downsizing and the closing of numerous facilities -- including the plant in the Pennsylvania town that gave the company its name-- has made Bethlehem Steel hard to recognize.

It has fewer than 15,000 employees, produces less than 8 percent of the steel shipped in the United States and lost more than $300 million in the past two years.

Shares of its stock -- which traded as high of $198.75 in the 1950s before a 4-to-1 stock split -- have averaged $13 over the past decade, and closed Thursday at $2.81, up 14 cents, on the New York Stock Exchange.

Its huge losses are forcing the company to weigh options that include acquisitions, mergers or even the unthinkable -- sale of the 97-year-old former titan of industry.

The options seem out of place for a company whose steel helped win two world wars, formed the Golden Gate bridge and provided jobs for generations of families.

"Twenty years ago, all the things going on now weren't there -- technological changes, the advancement of the world market," Pack said. "The perceived threat wasn't there. We figured we were going to be rolling like this all the time."

Faced with prospects too gloomy to ignore, including the fact that 17 American steel makers have filed for bankruptcy protection since mid-1998, management has acknowledged what many have been saying for years: that the steel industry needs to consolidate and that Bethlehem must be in on it.

At the annual meeting on April 24, shareholders will vote on a shareholder proposal that the company take the lead in consolidation. Bethlehem supports the proposal.

"I believe bold and urgent actions must be taken by steel companies, the Steelworkers union, and the government to address the problems endemic to the steel industry," Bethlehem Chairman Duane R. Dunham stated in the company's 2000 annual report. "Consolidation of the domestic industry, including the permanent elimination of noncompetitive facilities, needs to occur."

Dunham isn't setting timetables, indicating how a potential consolidation might look, or even promising quick action on Bethlehem's part. But he appears to be shifting from the hard line taken by his predecessor, Curtis H. "Hank" Barnette.

Barnette instituted a "poison pill" so that the company couldn't be taken over and insisted that, "Bethlehem is not for sale."

The shareholder proposal was submitted by Greenway Partners LP of New York, which is run by senior managing partner and self-described "activist investor" Alfred D. Kingsley and managing partner Gary K. Duberstein. They said the talks with Bethlehem over the proposal were "cordial."

"We were saying things they thought needed to be said," Duberstein said. "When your back's against the wall, it's amazing what you can come up with."

Greenway is letting Bethlehem come up with the plan for consolidation on its own.

"We're not telling them how to do it," Kingsley said.

But engineering a deal that works is the most difficult part of the task.

"I think what the [Greenway] proposal says is generic Finance 101," said steel analyst Charles Bradford of Bradford Research in New York. "But it's really hard to come up with a combination that makes sense."

Many of the same factors that helped bring steel makers to this point are also the major obstacles to joining forces -- and to getting out of the red.

One issue is overcapacity. The steel makers of the world can produce more steel (about a billion tons) than users need (about 725 million tons), which drives down prices.

Exacerbating the problem in the United States is the matter of imports. U.S. steel makers charge that many foreign nations subsidize their steel mills, which allows the companies to sell their products for less than it costs to make them, further eroding prices. The strong U.S. dollar, which makes this market more attractive to foreign producers, makes the problem worse.

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