Offer viewed as best likely for Beth Steel

Some analysts surprised by size of ISG's proposal

$1.5 billion is about $200 a ton

Creditors and board expected to accept deal

January 08, 2003|By Gus G. Sentementes | Gus G. Sentementes,SUN STAFF

Bethlehem Steel Corp. likely will not see a better deal than the $1.5 billion offer made Monday by a competitor, leaving creditors and the board few options other than to accept the offer or risk an uncertain future with the steelmaker trying to continue on its own, industry experts said yesterday.

Management expects to consult with creditors while wrapping up details of a purchase agreement for the bankrupt company's assets for presentation to the board by the end of the month. If accepted, the offer by Cleveland-based International Steel Group Inc. would then await only the approval of the U.S. Bankruptcy Court.

Most analysts were surprised by the size of ISG's offer for Bethlehem's steelmaking operations and the assumption of some liabilities.

Leo Larkin, a metals analyst with Standard & Poor's, said ISG acquired bankrupt LTV Corp.'s assets last year for about $40 a ton. But LTV was in a more dire situation, since its mills had effectively stopped operating.

The offer for Bethlehem comes to about $200 a ton, Larkin said. The deal would keep Bethlehem's plants, including the Sparrows Point and Burns Harbor, Ind., mills, operating through an ownership transition, according to ISG.

Mitch Hecht, ISG's chief financial officer, said yesterday that a "sizable portion" of the purchase price would go toward transition costs related to downsizing Bethlehem's 12,000-person work force. Initially Bethlehem and ISG had intended to offer early retirement packages, but that was torpedoed by the federal takeover of the company's pension plan last month.

It was unclear yesterday how much of the purchase price might go to satisfy creditors' claims. Bethlehem's secured creditors are owed about $800 million, while unsecured creditors are owed about $5 billion.

"For Bethlehem, I think it's the best offer they would get," Larkin said. "I don't think the creditors have a choice - I think they should be glad they're getting what they're getting."

Wayne Atwell, a Morgan Stanley metals analyst, also said the offer was higher than expected. But, he added, the steel industry as a whole is in better shape now than last year when Wilbur L. Ross, ISG's chairman and head of New York investment firm W.L. Ross & Co., bought LTV's steelmaking assets out of bankruptcy.

"The industry is back in the black; it's an entirely different environment now than it was when Ross bought LTV," Atwell said.

"Bethlehem's assets are better than LTV's assets. Burns Harbor is one of the best in the country, if not the best."

Jeffrey L. Tanenbaum, an attorney who represents Bethlehem in its bankruptcy case, said the company is continuing to evaluate the ISG offer.

Thomas M. Mayer, a New York attorney representing Bethlehem's nine-member creditors' committee, said the creditors are waiting for more information before making a decision. He indicated that creditors planned to examine all options.

Bethlehem "has always said that it's committed to pursuing a standalone plan," Mayer said. "We will ask the company to explain if this proposal is better than reorganizing Bethlehem on a standalone basis, and if so, why."

Chris Olin, a senior research analyst with Midwest Research, said: "It's not only the best offer, I think it will be the only offer out there. My guess is that the creditors are leaning toward accepting an offer."

"I would assume that [the creditors] are comfortable with this at the moment," said Peter A. Chapman, editor of Bankruptcy Creditors' Services Inc, which tracks billion-dollar company restructurings.

"If anybody comes along with a bigger check," Chapman said, "they will throw Wilbur overboard and ride a new horse to the finish line."

If a sale is completed, ISG, formed in 2001 to acquire bankrupt steel companies, would become the largest steelmaker in North America. With Bethlehem's steel mills, it would be able to ship 16 million tons a year.

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