Merger of Beth Steel offered

$1.5 billion sale of assets could keep mill open, form biggest U.S. steelmaker

Bid includes Sparrows Point

`Significant' work-force cut planned regardless of deal with International Steel

January 07, 2003|By Gus G. Sentementes | Gus G. Sentementes,SUN STAFF

International Steel Group Inc. offered yesterday to buy the assets of bankrupt Bethlehem Steel Corp. for $1.5 billion in a move that could create the nation's largest steelmaker and keep the steel mills of a one-time American industrial giant operating.

The Cleveland-based company said its offer was for substantially all of the steel-making and related assets of Bethlehem as well as some assumed liabilities. The bid includes Bethlehem's Sparrows Point plant in Baltimore County, where 3,300 work, as well as its largest plant in Burns Harbor, Ind.

Robert S. "Steve" Miller Jr., Bethlehem's chairman and chief executive officer, said yesterday that Bethlehem will review the offer with its creditors before seeking board approval - a process that could last several weeks.

"In concept, this is a very attractive proposition," Miller said in a conference call. "The combination does create an amazing new entity in the American steel market."

ISG's offer includes a significant portion of cash, Miller said. A sale also must be approved by U.S. Bankruptcy Court after a court-mandated auction and possibly by federal anti-trust regulators.

A Bethlehem merger with ISG, created last year to acquire bankrupt steel plants, is viewed by many industry experts as the company's best chance for avoiding liquidation. The combination would create a company with more than 16 million tons of annual steelmaking capacity, Bethlehem said, outstripping U.S. Steel Corp. and Nucor Corp.

The ISG offer came on the last day of a 60-day exclusive "due diligence" period in which the two steelmakers explored a possible merger. Bethlehem has been operating under Chapter 11 bankruptcy protection since October 2001.

In a statement yesterday, ISG said it presented an asset purchase agreement to Bethlehem and is negotiating definitive terms with that company's management.

The liabilities include leasing contracts for operating equipment, existing contracts and accounts with suppliers, and environmental liabilities attached to Bethlehem's facilities, said ISG President and Chief Executive Officer Rodney B. Mott in a telephone interview yesterday.

Retirees, workers

Bethlehem's retiree health-care obligations - a significant liability of about $3 billion - were not part of the offer and would be resolved through bankruptcy court, Bethlehem and ISG officials said yesterday.

Another key hurdle - a reduction in the number of Bethlehem workers - will be addressed through what ISG called a "transition assistance program" for hourly employees who choose to retire at the time of a change of ownership in Bethlehem's facilities.

Mott said the companies and the union were working out the details and costs of the program. Miller and Mott declined yesterday to release a target number of how many employees would be offered an early retirement buyout.

Bethlehem and ISG initially had planned on reducing Bethlehem's 12,000-person work force through early retirement enticements offered through its underfunded pension plan. But that option ended after the federal Pension Benefit Guaranty Corp., wary of further liabilities, moved to take over the Bethlehem plan last month - several months before both companies had expected.

The PBGC said the Bethlehem plan, which covers 95,000 workers and retirees, was underfunded by $4.3 billion. About 14,600 retirees and spouses live in the Baltimore area.

Yesterday, Bethlehem's Miller reiterated that the company's plants faced a "significant reduction" in work-force numbers, either as a merged or stand-alone entity. He declined to give a number or percentage of workers affected.

Sizable offer

Analysts said that ISG's offer was higher than expected and that it may have made such an offer to discourage other potential bidders if the bankruptcy court holds an auction for Bethlehem's assets. Wilbur L. Ross Jr., ISG's chairman, had previously said an offer would be at least $800 million - enough to cover the secured creditors - with only a modest amount left over for the bankrupt company's unsecured creditors.

"What I wonder is if somebody else out there is looking at Bethlehem," said Charles Bradford, a steel industry analyst with Bradford Research Inc. in New York. "It could be a way to discourage other buyers from making a bid in the bankruptcy court proceeding."

ISG's Mott said: "We are not aware of any other company that's shown strong interest in Bethlehem. We strictly made our determination based upon what we think is the value of the company."

Miller said he wasn't aware of any companies that are interested in making a competing offer in bankruptcy court.

In the past two years, No. 2 U.S. Steel Corp. and Companhia Siderurgica Nacionale, Brazil's largest steelmaker, held talks with Bethlehem. But no companies other than ISG have signaled an interest.

John Anton, a steel analyst with Global Insight in Washington, said he thought the offer was a good one for Bethlehem and its workers, even though a reduction in its work force is expected.

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