U.S. Steel to sell some operations to raise $500 million

Though sale could fund acquisitions, Beth Steel not seen as likely target

October 17, 2002|By Kristine Henry | Kristine Henry,SUN STAFF

United States Steel Corp., the country's largest steelmaker and a one-time suitor of Bethlehem Steel Corp., said yesterday that it has signed an agreement to sell its iron ore and coke operations, and might use the resulting $500 million to fund acquisitions. But it appears unlikely that Bethlehem would again be in U.S. Steel's sights.

In the early part of the year, U.S. Steel had said it would like to buy bankrupt Bethlehem and several of its rivals if the federal government would take over the acquired companies' so-called legacy costs, the money owed for retiree pensions and health-care costs. When no government action was taken, talks on the deal ended.

Bethlehem, which employs about 3,400 at its Sparrows Point plant in Baltimore County, is struggling to survive as a stand-alone operation and is negotiating a new contract with the United Steelworkers of America.

When the steelmaker filed for Chapter 11 bankruptcy protection in October last year, it listed $4.2 billion in assets and $6.75 billion in liabilities, including a health-care obligation of nearly $3 billion and a pension fund that is underfunded by $1.85 billion. Bethlehem lost $216 million in the first six months of this year.

U.S. Steel, which lost $56 million from January to June, might be interested in a few of Bethlehem's assets, said steel analyst Leo Larkin of Standard and Poor's, but would not be interested in taking over Bethlehem's huge obligations.

"I don't think anyone's going to touch anything at Bethlehem without [Bethlehem going into] liquidation," Larkin said. "That has to be the starting point."

Larkin said he doesn't see how Bethlehem can continue to operate beyond the first quarter of next year "unless something changes dramatically. It doesn't look very hopeful."

Bette Kovach, a spokeswoman for Bethlehem, said the steelmaker will continue to operate "well into 2003." She agreed that as things stand now, no one wants to buy Bethlehem.

"When we are able to reduce our legacy burden, we could very well become a candidate for a company to invest in, either completely or partially," she said.

U.S. Steel would not comment on its potential acquisition targets. But spokesman John Armstrong said that in general, steelmakers with huge legacy costs are not attractive at any price, even for free.

After talks broke off between U.S. Steel and Bethlehem in the first several months of this year, Bethlehem began pursuing joint ventures, including one between Sparrows Point and Companhia Siderurgica Nacional of Brazil.

That transaction is on hold as Bethlehem tries to win a more flexible contract with the union and as the Brazilian company continues its talks about being acquired by Anglo-Dutch steelmaker Corus Group.

It is not certain that the $500 million expected to be raised from U.S. Steel's sale of its coke operations in Clairton, Pa., and Gary, Ind., its Minnesota iron ore operations and its transportation services subsidiary would be used for acquisitions.

"This sale," said U.S. Steel Chairman, Chief Executive Officer and President Thomas J. Usher, "would enable us to redeploy capital to other potential uses such as strategic acquisition opportunities, debt reduction or voluntary contributions to employee benefit plans."

U.S. Steel plans to sell the operations to an entity formed by affiliates of Apollo Management L.P. of New York. The steelmaker would retain a 20 percent interest in the new company, which would supply the steelmaker with raw materials.

Shares of U.S. Steel fell 18 cents yesterday to close at $12.22 on the New York Stock Exchange.

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