Shares of ISG run up 26% in Wall Street trading debut

Ross 'delighted' with IPO, talks of exporting steel

December 13, 2003|By Lorraine Mirabella | Lorraine Mirabella,SUN STAFF

Shares of International Steel Group Inc., the new owner of the Sparrows Point steel complex, shot up 26 percent in their trading debut on Wall Street yesterday following the first initial public offering by a major integrated steelmaker in nearly a decade.

ISG, assembled from the wreckage of bankrupt steel companies including Bethlehem Steel Corp., sold 16.5 million shares at $28 a share late Thursday, raising $462 million.

The stock opened at $33.50 yesterday on the New York Stock Exchange and then traded mostly higher to close at $35.20, or $7.20 above the IPO price.

"It's been a hugely successful offering, and we're delighted with it," said Wilbur L. Ross, chairman of Cleveland-based ISG.

"We're setting a new pattern to prove that American companies under the right circumstances - determination on the part of management and labor and capital structure - can succeed. I don't believe that manufacturing in this country is hopeless."

Going public positions the company for growth, internally, by adding new products, through acquisitions, and through exports, Ross said.

"Now we have a strong balance sheet, free of bank debt ... and equity we could use for acquisitions," possibly from among the about 30 steel companies currently in bankruptcy, he said.

At Sparrows Point, one of the few U.S. steel plants located at a deep water port, "at some point in time, if the dollar stays at ever-lowering levels, it may be that we would be able to export steel."

IPOs have enjoyed somewhat of a resurgence this year, with 57 offerings that on average are up 25 percent over their offer price, according to Renaissance Capital of Greenwich, Conn. But ISG's first-day gain far surpassed the average first-day pop of 8 percent, Renaissance's data shows, reflecting the growing interest among investors in steel producers and other industrial companies, analysts said.

The last major integrated steelmaker to go public was AK Steel Corp., based in Middletown, Ohio, which raised more than $700 million in 1994. Integrated steelmakers produce steel from raw materials while the so-called minimills, including Nucor Corp., use scrap metal.

For the steel industry, "demand is improving, global demand is improving, the industry is consolidating, the dollar is weak and freight costs are high," said Kathleen Smith, portfolio manager for Renaissance Capital's IPO Plus Fund. "It's the perfect picture for domestic steel companies."

Ross said ISG also has benefited from stronger cooperation and more flexible labor agreements with the United Steelworkers of America, as well as from the tariffs imposed by the Bush administration to protect the U.S. steel industry from foreign competition. Bush lifted the tariffs last week.

ISG has grown into the second-largest steelmaker in the country in less than two years by buying up the plants of bankrupt steel producers across the nation, including LTV Corp. in February 2002 and Bethlehem last year. Its plan is to compete globally by keeping production costs down, which it has done in part by paring corporate staff and management jobs and by reaching collective-bargaining agreements that allow it to cut job classifications.

There had been "a good deal of controversy when we bought LTV and when we bought Bethlehem," Ross said yesterday.

"It's amazing how the world has changed in a little bit of time. We've now created an entity with $3 billion of equity market value that will be free of bank debt by the end of the year. That makes us fairly unique as a steel company."

ISG and other U.S. steelmakers also have benefited from a weakening dollar that has kept foreign imports at bay and helped to boost domestic prices, analysts said.

"North American steel fundamentals are very strong right now," said Christopher Olin, a senior researcher for Longbow Research in Cleveland. "And ISG's business model is looking very good right now" because it has been able to lower its costs.

Additionally, Olin said, "When the GDP [gross domestic product] numbers start to look better, investors flock toward Old Economy stocks first, and that's helping. The timing has been perfect for ISG."

Investors have shown a great deal more interest over the past four to six months in commodity industrial companies at the expense of steady growth companies in the food, beverage and pharmaceuticals industries, said Arvind Sachdeva, a senior portfolio manager for Victor Capital Management Inc. in Cleveland.

Among the strong performers have been United States Steel Corp., the top domestic steel producer.

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