Sparrows Point set to be sold yet again

Owner on verge of deal, fourth for steel mill in 4 years

August 02, 2007|By Paul Adams | Paul Adams,SUN REPORTER

ArcelorMittal SA is expected to sell the Sparrows Point steel mill to a group led by Chicago-based Esmark Inc., giving the 118-year-old Baltimore County plant its fourth owner in as many years.

Luxembourg-based ArcelorMittal SA, the world's largest steel producer, could announce the deal as early as today, according to a source with knowledge of the agreement.

A spokesman for ArcelorMittal in Chicago declined to comment yesterday, and mill management said they had not received final word of a sale.

The apparent agreement comes just days ahead of a government-imposed deadline for ArcelorMittal to find a buyer for the sprawling steel mill, which employs about 3,000 workers who have been waiting for weeks to find out who will be signing their paychecks.

Antitrust regulators ordered the sale to ensure that the steelmaker would not have too much control over the market for tin plate after the $41 billion merger of Mittal Steel NV and Arcelor SA. The deal is subject to approval by the regulators.

ArcelorMittal was granted several extensions of the original May 20 deadline set by the Justice Department, with the final one set to expire Monday.

Esmark is a major steel distributor and processor co-founded in 2003 by James and Craig Bouchard, the sons of a former Inland Steel executive who have emerged as key players in the industry's recent push to consolidate. The Bouchards expanded into steel-making last year when they engineered the takeover of Wheeling-Pittsburgh Corp. with plans to merge it with Esmark.

Industry analysts said Sparrows Point could benefit from Esmark's growing network of distribution centers that cater to about 2,000 buyers of steel throughout the Midwest. All could be customers of the mill, along with Wheeling-Pitt, a finishing mill that turns slab into coils for customers and distributors. Sparrows Point could end up being a major supplier of slab to the mill, analysts said.

"For them, having Sparrows Point makes some sense in terms of getting them some additional supply of slab," said Charles Bradford, an industry analyst with Bradford Research.

However, Bradford said, Wheeling-Pitt has had some setbacks since being taken over by the Bouchards. The company experienced unexpected outages in April and reported a loss for the second quarter as an expected rebound in the U.S. steel market failed to materialize.

Esmark's business model has been to pair a steel company with its network of distribution centers - a model that works well in Europe but has been largely abandoned in the U.S. The advantage of that model is that it gives Esmark a steady supply of steel at a known price, said John Anton, an industry analyst with Global Insight in Washington.

"The potential minus is that somebody who is good at selling steel might not be good at making it," he said.

"Sparrows Point is one of the best facilities in the country and I think it would be a feather in their cap," Anton said.

Mittal started off with more than a dozen potential buyers for Sparrows Point, but the list was gradually whittled down as the process dragged on for months. Among the finalists were Esmark and Brazil's Companhia Nacional Siderurgica - two rivals that have faced off previously as top industry players compete for once-distressed properties with the hope of making them profitable.

If the deal is finalized, the Bouchards will have twice come out the winners against the Brazilians; the first being their successful fight to take control of Wheeling-Pitt and merge it with Esmark. That merger is expected to close this year.

The Bouchards represent another chance at a fresh start for Sparrows Point, which has repeatedly been purchased and then cast off by companies at the forefront of the industry's move toward consolidation.

In 2003, a bankrupt Bethlehem Steel sold Sparrows Point, which it had owned since 1916, and its other assets to financier Wilbur Ross and his Richmond, Ohio-based International Steel Group Inc. for $1.5 billion.

ISG took over with significant advantages. Because it was an asset sale, ISG did not assume any of the billions of dollars of Bethlehem's pension and benefits liabilities for its 95,000 retirees. It acquired a mill on a deep-water port and got the benefit of the hundreds of millions of dollars Bethlehem had invested in upgrades, including a new cold mill and a relined blast furnace.

Ross pushed to cut costs further, trimming both plant workers and management ranks.

After Netherlands-based Mittal bought Sparrows Point in 2005, it was even more relentless about cutting costs. It pitted its worldwide plants against each other and awarded work to the most efficient. Mittal's plant in Weirton, W.Va., lost such a competition to Sparrows Point two years ago. Mittal idled Weirton's blast furnace and sent the hot work to Baltimore County. About 1,000 Weirton employees lost their jobs.

In addition, the United Steelworkers worked out a deal with management to offer voluntary furloughs during down cycles and head off layoffs.

As a result, Sparrows Point is as profitable and efficient as it has ever been, swinging from annual losses of $100 million under Bethlehem Steel to a $100 million-a-year profit under ISG and Mittal.

The plant produces about 3 million tons a year, almost as much as it did when it employed more than 26,000 some 40 years ago.

Workers who kept their jobs through the past three acquisitions are also earning more, thanks to performance bonuses.

paul.adams@baltsun.com

Sun reporter Allison Connolly contributed to this article.

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