Court OKs Bethlehem's sale to ISG

$1.5 billion deal slated to close next Wednesday

Number of jobs lost unknown

Former titan of industry caps 19-month odyssey

April 23, 2003|By Gus G. Sentementes | Gus G. Sentementes,SUN STAFF

NEW YORK - A bankruptcy court judge in Manhattan approved yesterday the $1.5 billion sale of Bethlehem Steel Corp. to a Cleveland rival cobbled together last year from the remains of two steelmakers.

The Pennsylvania steelmaker, a one-time titan of American industry, plans to sell virtually all its assets - including the Sparrows Point plant in Baltimore County - for nearly $1 billion in cash and $500 million in assumed liabilities to International Steel Group Inc.

"The realistic alternative would have been liquidation or this transaction," said Wilbur L. Ross Jr., chairman of ISG, who attended yesterday's sale hearing in U.S. Bankruptcy Court in Manhattan.

Bethlehem expects the deal to close next Wednesday. ISG's purchase of Bethlehem would create one of the largest makers of raw steel in the country with annual shipments of 16 million tons.

"This is a milestone day in the history of the steel business," said Robert S. "Steve" Miller Jr., Bethlehem's chairman and chief executive officer, during a conference call yesterday. "A major piece of the consolidation of this industry is taking place."

Since 1997, more than 30 steelmakers have filed for bankruptcy protection.

Consolidation in the steel industry appeared to gain renewed momentum this week. U.S. Steel Corp. received court approval Monday to buy National Steel Corp. out of bankruptcy and remains the nation's largest steelmaker.

Ross, a New York financier whose private firm, WL Ross & Co. LLC, invests in distressed companies, formed ISG early last year to acquire the closed steelmaking operations of LTV Corp., at one time the country's second-largest steelmaker. ISG paid about $325 million in cash and assumed debt for LTV's steel assets. In October, ISG purchased Acme Steel Co. of Illinois for $65 million.

Judge Burton R. Lifland's approval of Bethlehem's sale caps a 19-month odyssey for the worn-out industrial giant, which filed for Chapter 11 Oct. 15, 2001. At the time of the filing, Bethlehem listed $4.2 billion in assets and $6.75 billion in liabilities, including a health care obligation of nearly $3 billion and pension fund obligations of $1.85 billion.

After the bankruptcy filing, the beleaguered steelmaker worked to come up with a reorganization plan that would have allowed it to continue operating as an independent company. At the same time, Bethlehem began exploring the sale of its assets to domestic and foreign companies. Time was a luxury, since Bethlehem would have run out of cash by the end of this year.

Harvey Miller, an attorney representing Bethlehem, told the judge and a courtroom full of lawyers representing various parties yesterday that the company's financial condition made it "more and more obvious that doing a standalone plan of reorganization [was] ... more of a long shot."

Bethlehem's so-called "legacy costs," or its pension and health care obligations to its retirees, dissuaded companies from making an offer for the steelmaker until those billions of dollars in liabilities were resolved.

In mid-December, the federal Pension Benefit Guaranty Corp. stepped in to protect the pension plan, meaning that ISG would not have to assume that obligation if it bought the company. The action cleared the way for ISG's Jan. 6 bid for Bethlehem.

Bethlehem's board approved the sale in February, and a sale agreement was signed March 12. To finance the acquisition, ISG secured two loans totaling $700 million, as well as a $300 million revolving-credit line to be used for working capital.

On March 31, the bankruptcy court allowed Bethlehem to terminate health care coverage for its 95,000 retirees and dependents - including nearly 20,000 in the Baltimore area.

Though ISG was not legally obligated to assume those costs, the steelmaker has set up a trust that will contribute a portion of ISG's profit toward retiree health care costs.

The PBGC's takeover of the pension plan and Bethlehem's termination of retiree health care benefits were criticized by the United Steelworkers of America union, lawmakers and retiree groups.

One critical component of the deal is the reduction of Bethlehem's work force - currently about 11,000 - with the cooperation of the Steelworkers union.

Though the work force will be reduced, the exact number of layoffs has yet to be announced.

Ross said yesterday that ISG has set aside $125 million as part of a "transition assistance program" to help workers to leave the company. The payouts are based on a worker's years of service and are capped at $50,000 per employee, Ross said.

Yesterday, John Duray, a United Steelworkers spokesman, said the union had a reason to be optimistic with ISG.

"This is a company that is committed to making steel in America, and to making money, and to keeping Steelworkers on the job," he said.

ISG is "committed to investing in the industry, which is not an inconsequential thing in this economy. If you don't invest in these mills, they go by the wayside pretty quickly," the USW spokesman said.

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