Beth Steel directors OK sale to Ohio rival

Ailing company's mills expected to stay open under $1.5 billion deal

February 09, 2003|By Gus G. Sentementes | Gus G. Sentementes,SUN STAFF

Bethlehem Steel Corp., a patriarch of American industry whose sprawling Sparrows Point mill once helped place it among the world's top steel producers, agreed yesterday to be sold to a healthier rival for about $1.5 billion.

The corporation's board of directors voted unanimously in a telephone conference to approve the sale of "substantially all" of Bethlehem's assets to Cleveland-based International Steel Group Inc. The vote was one of the last milestones for a company that made steel for such landmark structures as the Golden Gate Bridge and the U.S. Supreme Court building.

Bethlehem, which has operated under Chapter 11 bankruptcy protection for the past 16 months, must still get approval for the sale from the U.S. Bankruptcy Court in Manhattan and also faces a federal antitrust review. The deal would probably close early in the second quarter.

"After virtually 50 years of steady decline of the fortunes of America's integrated steel industry, this is the hallmark of a new beginning," said Robert S. "Steve" Miller Jr., Bethlehem's chairman and chief executive officer.

Miller said that during their two-hour conference call yesterday, the board members "turned over every rock ... to make sure that this would produce a better value of the assets than an orderly liquidation, and in the end they were persuaded that this is the highest-value alternative."

ISG, in buying the country's third-largest steelmaker, would surpass several competitors to become the No. 1 maker of raw steel in the United States, with annual shipping capacity of 16 million tons.

Acquiring the vast Sparrows Point complex in Baltimore County is a key part of the deal, ISG officials have said, noting its deep-water port, diverse mix of product offerings and state-of-the-art $300 million cold rolling mill, which opened three years ago.

Mitch Hecht, ISG's chief financial officer, said the company was "thrilled by the decision by the board."

"Right now, our plan is to try to come up with a viable operating plan for all of the facilities," Hecht said. "We have no plans to shut down any of the facilities."

Bethlehem expects to file an agreement outlining the deal with the bankruptcy court within the next two weeks. A news release issued yesterday offered few details of the terms of the agreement or even a final figure on the sale price.

Charles Bradford, a steel industry expert with Bradford Research in New York, said many questions remain about the deal's details.

"How much of the purchase price goes to whom? Some of it's going to be for working capital, some is going to be to cover liabilities, but we don't know what liabilities [ISG] is taking over," Bradford said. "And how much is the final cash they're going to lay out for Bethlehem?"

Bethlehem and dozens of other steelmakers have filed for bankruptcy in recent years after losing market share to lower-cost foreign competitors and being hit with mounting retiree pension and health care costs.

Industry experts have said that Bethlehem would not survive long on its own and that a sale was vital to keeping its mills open. They've regarded ISG's offer as the best chance for Bethlehem to avoid a traumatic shutdown of its plants and a full-scale layoff of its 11,000-member work force.

Such a calamity happened at the LTV Corp. in Cleveland, where 10,000 people were thrown out of work, and the mills were placed on hot idle as a result of its bankruptcy. Through his private investment firm, New York financier Wilbur L. Ross Jr. bought LTV's mills out of bankruptcy court for about $325 million in cash and debt and formed ISG to run it. ISG reopened the mills in March 2001 and rehired about 3,000 workers.

Workers at Bethlehem's plants - including the 3,300 at Sparrows Point - are bracing for significant job reductions, expecting ISG to seek a new union contract that would probably lead to a leaner work force.

Yesterday's vote to sell the company followed Bethlehem's announcement Friday that it would seek to terminate the health care and life insurance benefits of its 95,000 retirees - including 19,000 in the Baltimore area.

In a telephone interview yesterday, Miller said, "The old Bethlehem Steel that made those commitments to the retirees no longer has the capability to support" the costs. The company has paid more than $300 million in retiree health care bills since declaring bankruptcy, he said.

"It's lamentable that we're having to stop it, but we have carried it as long as we possibly could while exploring other options," Miller said.

The United Steelworkers of America union, which represents about 80 percent of Bethlehem's workers, has come out in support of the sale to ISG.

"We're as encouraged by the board's decision to accept ISG's offer as we were outraged [Friday] by Bethlehem's action to cut off the health care benefits of its 95,000 retirees," said USWA spokesman Marco Trbovich. "The union's relationship with ISG has been entirely constructive to date."

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