HAVING BEEN "all in" for several hands of no-limit Steel Restructuring Poker, Wilbur L. Ross Jr. is taking many of his chips to the cashier's window. On a truck.
His stunning deal to sell International Steel Group and its Sparrows Point mill to a company led by billionaire Lakshmi Mittal will produce about $2 billion cash for him and his co-investors, reducing their stake in the business by at least half.
Perhaps we shouldn't be surprised. Vulture investors like him, who acquire assets out of bankruptcy proceedings, rarely buy and hold. But Ross, a former banker for Rothschild Inc., has always been smarter and luckier than the average scavenger, and his decision to dump a ton of steel shares in early 2005 someday might be seen as a brilliant exit.
If this is as good as it gets for steel for a while - and there are many signs that it is - Ross is selling at the top.
Oh, he's not bailing entirely. Besides the Mittal cash, ISG shareholders get a 7 percent to 8 percent ownership stake in what will be called Mittal Steel. Yesterday the market valued that stake at about $1.7 billion. Ross will be on the Mittal board.
"This is probably the largest single investment we've made in anything," he said, referring to the swapping of ISG shares for Mittal shares.
But he's being cute. By getting more out of Mittal than they're putting in, ISG shareholders are cutting their risk, recouping most of the $2.2 billion investment made in assembling the company from the remains of bankrupt steelmakers and playing with house money from now on.
World events favored Ross on the way in, and they're favoring him on the way out.
He clinched his first steel deal, for LTV Corp.'s assets, less than a week before President Bush instituted tariffs against foreign steel in March 2002. Then the dollar, whose persistent strength did more than anything to kill the U.S steel business, swooned 30 percent against the euro, making Ross' product even more competitive as he bought Sparrows Point and other Bethlehem Steel plants.
He and other restructuring investors shut down obsolete mills, shrinking supply, and used bankruptcy laws to shed pension obligations. The global economy steamed ahead after the United States and Britain invaded Iraq and China got over its SARS scare, nearly doubling steel prices and giving the industry its best year since the mid-1990s.
But all good things go kablooey, and in the steel business they do it especially often. Bush's "bonus depreciation" tax breaks, designed to induce business investment in an election year, are about to expire, potentially lowering demand for steel.
Order books are shrinking for domestic mills, and the U.S. economy might not help. Oil prices are ridiculous, consumers are maxed out on debt, and the Federal Reserve keeps raising interest rates, which could dampen growth or put us into recession next year.
And China - which according to the International Iron and Steel Institute consumed an amazing 27 percent of world steel last year and probably increased its share this year - depends heavily on the U.S. economy.
If we stop buying toasters and toys, China stops buying steel, and the price of Sparrows Point's hot-rolled product goes from the $700 per ton precincts to below $400, whence it came. A recent slowing of Chinese imports might be the first sign.
The good news is that employees at the former Bethlehem, LTV and other ISG mills will probably fare better than they did in past downturns. Shareholders will, too.
Call Ross, who got married in the Hamptons two weeks ago and will reap about $300 million in cash and Mittal shares from this deal, a savior. Or call him a jackal. His profits come at the expense of steel industry creditors, who got repaid pennies on the dollar; pensioners, whose benefits got chopped, and employees, who got laid off at some plants.
But don't deny that Sparrows Point and its ISG brethren will be better prepared to ride into a recession than they have been in decades. With Mittal they'll have stable ownership, good balance sheets, access to raw materials and global marketing reach.
They just might not be sitting as pretty as Ross, who once bought millions in distressed Korean Development Bank bonds the day before a bailout by the International Monetary Fund.
His marriage to Hilary Geary Oct. 9 is his third try at matrimony. In a toast at the reception, he joked that he "only paid a little over retail" for her ring, according to The New York Times wedding section. The Mittal family might be happy to make the same boast.