Sparrows Point purchased for $72 million by plant liquidator

Steel mill workers were hoping for an operator, but none show at auction

August 08, 2012|By Jamie Smith Hopkins, The Baltimore Sun

A liquidation firm won the bidding for Sparrows Point, offering $72 million for the Baltimore County steel mill — less than a tenth of what the complex sold for just four years earlier — and realizing the worst fears of its roughly 2,000 employees.

Mill advocates vowed to push for a miracle to keep steelmaking going there. The local United Steelworkers union had hoped for a steelmaker would buy and restart the mill — idled after owner RG Steel filed for bankruptcy in May. But no steelmaking companies showed up to bid at the Tuesday afternoon auction in New York, said Joe Rosel, president of Local 9477 in Locust Point.

The mill's general manager, Glenn Mikaloff, sent an email to managers late Tuesday that identified Hilco as the winner and the size of its bid.

"They pledged not to destroy key steelmaking assets for 6 months while the unsecured creditors attempt to find an operator," he wrote. "Sorry I don't have better news."

Hilco Trading LLC, based in Illinois, dismantles closed industrial sites, sells off retail inventory and recently auctioned off equipment from bankrupt solar panel firm Solyndra. Hilco declined to comment beyond saying that it did bid at the auction.

RG Steel did not return calls and didn't file auction results with the U.S. Bankruptcy Court on Wednesday. Any sale of the mill must be approved by the court, which has scheduled a hearing for Aug. 15.

The results were a tremendous blow for the steelworkers and hundreds of others in the region whose jobs depended on the mill, where steel has been made since 1889. Both the union and Baltimore County Executive Kevin Kamenetz said they would work to find a company interested in purchasing Sparrows Point — or critical pieces of it — from Hilco to make steel there.

"Our position is that this is not over yet," Kamenetz said. "My understanding is that the other bidders had wanted an extension, and that was denied."

Ukrainian mining and metallurgy company Metinvest Group had reportedly registered to take part in the auction, but spokesman Ivan Shmidik said by email Tuesday that the company would not bid. U.S. steelmaker Nucor Corp. and Brazilian steel giant CSN had also registered, according to a source. Neither responded to requests for comment Wednesday.

The $72 million sales price is "ridiculous," said Michael Locker, a steel industry consultant with New York-based Locker Associates. OAO Severstal paid $810 million for Sparrows Point four years ago. RG Steel bought the mill and other plants from Severstal just last year.

"This is a viable steel mill that's being sold off for a song," Locker said. "I don't know why the steel companies didn't show up — it's perplexing."

Many steel mills in the country aren't operating anywhere close to full capacity, and RG Steel blamed market deterioration for its rapid descent. But Locker doesn't think the market is so weak that steelmakers wouldn't want a big mill for a liquidation price.

He said the "super accelerated" nature of this bankruptcy case — RG Steel filed for Chapter 11 protection 10 weeks ago — could have left potential operators with too little time to do their due diligence.

"Why the judge and the creditors wanted to move so fast is beyond me," Locker said. "I think it interfered with finding a buyer."

John Anton, a steel analyst at IHS Global Insight, said he couldn't guess at the likelihood of the union and local officials succeeding in finding an operator.

"I will bet however that if anyone does come in they will only operate cherry picked lines, and that the odds of everyone keeping their job is zero," he said by email Wednesday.

Gov. Martin O'Malley intervened when the cash-crunched mill furloughed hundreds of workers in December, asking General Electric — a key RG Steel lender — to help stabilize the company's "financial arrangements." The mill reopened in January after receiving more capital from RG Steel's owner, the Renco Group, and private equity firm Cerberus Capital Management.

Raquel Guillory, a spokeswoman for the governor, said Wednesday that O'Malley intends to help if the mill could still be sold to an operator.

"The governor would be willing to hop on a plane and meet with that company if it means finding a buyer that will keep these jobs here in Maryland," she said.

Sparrows Point was one of Baltimore County's largest employers before the mass layoff, but it was far leaner in recent years than it was at its height under Bethlehem Steel. Together, the company's mill and shipbuilding complex in Sparrows Point employed about 30,000 people during World War II, producing hundreds of ships.

Bethlehem Steel filed for bankruptcy protection in 2001. Sparrows Point has had four owners since then.

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