Union role in steel sale

Steelworkers have a seat at the negotiating table as Esmark seeks to buy Mittal's Sparrows Point

April 06, 2007|By Allison Connolly | Allison Connolly,Sun reporter

The third sale of Sparrows Point in almost as many years would put any of its workers on edge. But this time, the union that represents workers is considered a valuable third party at the negotiating table.

Buyers need workers' support not only to ensure a smooth transition, but also in navigating the often volatile steel market. And with a number of private equity firms looking at Sparrows Point as an entry point into the lucrative industry, getting the union on their side is key.

"They're up front in the negotiations," John Russo, co-director of the Center for Working-Class Studies at Youngstown State University and co-author of Steeltown USA, said this week. "It's not just a signing off. It's a three-party negotiation."

Chicago Heights, Ill.-based Esmark Inc. is on the short list to buy Sparrows Point from Mittal Steel Company NV of the Netherlands, and has already tried to make inroads with the United Steelworkers of America, which represents workers there. Mittal, which was ordered by the Justice Department to sell Sparrows Point to settle antitrust concerns over tin production related to its $33 billion merger with Luxembourg-based Arcelor SA, has until the end of May to find a buyer, though it can ask for a 60-day extension.

Mittal's investment bankers have whittled the list of bidders down to a dozen, including American and foreign steel companies as well as private equity firms.

While it's still early in the bidding process, Esmark was the first to reach out to the union.

"We couldn't do it without their support," Esmark President Craig T. Bouchard said.

The same tack worked for Esmark late last year, when it won control of Wheeling-Pittsburgh Corp. through a proxy battle with CSN of Brazil. In that case, Esmark rallied shareholders and workers and persuaded them to vote in board members that favored selling the plant to Esmark.

When Esmark signed a deal with Mittal earlier this year to negotiate the purchase of Sparrows Point's sister plant in Weirton, W.Va., Esmark had the support of the union. In fact, Esmark officials were meeting with union members the morning they learned the Justice Department ordered Mittal to sell Sparrows Point, which took Weirton off the table.

By partnering with unions before a sale is made, buyers get a better deal, Russo said.

When investor Wilbur L. Ross Jr. made his bid for Sparrows Point and other Bethlehem Steel assets, his International Steel Group won union support for the sale. He promised to inject capital into the plants and establish a employee profit-sharing plan in return for concessions from the union.

The cuts on the union side were painful, reducing the work force by a third and stripping retirees of their company benefits. But Sparrows Point remained open and thrived under ISG and now Mittal. Last fall, when worldwide supply surged and prices dipped, the union headed off layoffs by negotiating voluntary furloughs of up to five weeks to save the company money.

In a memo to workers in February, Local 9477 President John Cirri said he expects to be called to the table when a buyer for Sparrows Point is found. Cirri is recovering from a heart attack suffered last month and could not be reached for comment.

Legally, however, unions don't wield the power to thwart a sale.

While many union contracts contain language that requires a buyer to recognize the union, the buyer is not bound to accept the existing contract, experts said.

"Over time, the labor laws have weakened considerably," said Bill Barry, director of labor studies at Community College of Baltimore County, who teaches a number of Steelworkers from Sparrows Point. "It used to be the new employer had to accept the complete contract. Now it's a right to bargain."

In sheer numbers, unions are not as strong as they used to be. A rash of bankruptcies and consolidations has made them a shadow of their former selves. In 1969, for example, Sparrows Point employed 26,500. Today, it has fewer than 2,500.

In Weirton, the union has made it known that it has not prospered under Mittal and wishes to be sold.

Shortly after the Justice Department decision scrubbed the deal to sell Weirton, members of the International Steelworkers Union, which represents 1,250 workers in Weirton, decided to join the bigger, more powerful United Steelworkers of America.

"The working people in Weirton stand to gain significant support from this merger with the USW," ISU president Mark Glyptis said in announcing the move. "The USW is a major force in the domestic steel industry and will help us as we work to keep a steel mill alive and well in Weirton."

Growing demand from China and India should keep the mills open, as long as they stay efficient.

Rick de los Reyes, an investment analyst with Baltimore-based T. Rowe Price Group, said the steel sector is hot and there should be a lot of interest in Sparrows Point.

"I don't think Mittal wanted to let go of Sparrows Point," he said.

He believes the Baltimore County plant could fetch as much as $2 billion. A company like CSN Brazil, believed on the short list along with Esmark, could ship iron ore directly to Sparrows Point, which has deep-water access.

The Justice Department must also approve of the buyer.

Baltimore County Economic Development Director David S. Iannucci said it would be premature to speculate on whether the county or state would give economic incentives to the plant's buyer.

"We've pledged to support ownership in a general sense," he said. "It's expected there will be wide interest in this mill."

allison.connolly@baltsun.com

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