New steel firm bids to add to its assets

International Steel Group offers $1.5 billion for most of Bethlehem Steel, including two suburban-area plants.

International Steel Group Inc. offered $1.5 billion yesterday for most assets of bankrupt steelmaker Bethlehem Steel Corp., including plants in Coatesville and Conshohocken that employ 1,500.

If the deal is completed, International Steel - which bought LTV Corp.'s steel mills in April - would leapfrog United States Steel Corp. to become the nation's second-largest steel company behind Nucor Corp.

The acquisition of Bethlehem Steel - which has been operating under bankruptcy protection since October 2001 - would be a major step toward the consolidation of the U.S. steel industry. The Bush administration had hoped to encourage such deals by giving the industry some breathing room in the form of tariffs on some steel imports last year.

Many details remain to be ironed out by International Steel; Bethlehem Steel; and the United Steelworkers of America, which represents hourly workers at Bethlehem Steel.

Union representatives from the local plants went to the union's headquarters in Pittsburgh yesterday to learn more about the proposal, which assumes the adoption of a new labor agreement.

Bethlehem Steel's chief executive officer, Robert S. Miller, said it would take several weeks for the company to study the 100-page asset-purchase proposal with its advisers to determine if it was in the best interest of the steelmaker's creditors and other constituents.

He said the chances of common-stock holders' getting anything was remote. Unsecured creditors are likely to get next to nothing. Yesterday, Bethlehem Steel stock closed down 2.2 cents at 8.8 cents.

International Steel said it hoped to complete negotiations within a week to 10 days. Bethlehem Steel's board of directors and the bankruptcy court must approve the sale. Other bidders could emerge.

When International Steel, of Cleveland, began operating the LTV mills, it did so with 40 percent fewer hourly workers, leading some to suspect that similar cuts might be coming at Bethlehem's operations, which include large integrated mills in Baltimore County, Md., and Burns Harbor, Ind.

Rodney B. Mott, International Steel's president and chief executive officer, said it was too early to assume that such deep cuts would occur at Bethlehem Steel. "I don't know that Bethlehem was manned the way LTV was," Mott said.

Industry observers were surprised that International Steel's offer included the former Lukens operations in Coatesville and Conshohocken and the Steelton mill near Harrisburg that makes railroad rails.

Mott said International Steel had expected to add product lines, and, because of that, "the plate operations [in Coatesville and Conshohocken] and the Steelton rail mill become very attractive to us."

Charles M. Mattia, the former manager of Bethlehem's plate operations in Coatesville, Conshohocken and Burns Harbor, said that business was dramatically different from the rest of Bethlehem Steel and International Steel because it was a low-volume specialty business. The Coatesville and Conshohocken plants are former Lukens operations. Bethlehem bought Lukens in 1998 for $740 million.

Mattia, who retired last year, said that the plate business would represent at most 7 percent of International Steel's capacity and that it therefore might take a back seat at the company.

Formed to buy LTV, International Steel is instituting the culture of minimills - which are nonunion and characterized by flexible work rules - into the traditional integrated steel industry. Minimills make steel by recycling scrap. Integrated steel companies make steel from ore.

Lower labor costs could help revive the domestic steel industry, which has seen dozens of bankruptcies in recent years, said Chris Plummer of Metal Strategies Inc., a consulting firm in West Chester.

"We're delighted to see a good customer like Bethlehem surviving under a minimill culture," said Hyman Sall, chairman and chief executive of the Natco International division of Atlantic Metals Corp., a Philadelphia company that makes powders used in steel furnaces to improve production.

The reaction of workers in Coatesville and Conshohocken ranged from excitement to skepticism.

Carlo DiMidio, vice president of United Steelworkers of America Local 9462 for the Bethlehem plant in Conshohocken, which has had a union only since 1999, said workers there were used to doing whatever was needed in the plant. "I just hope they hold on to us," he said.

Kevin Ralston, an employee in Coatesville, said many people were taking a "wait-and-see" attitude. He said workers were unhappy about the prospect of lower pensions and concerned about the potentially dramatic changes in the way they do their jobs - while acknowledging that change might be necessary to compete with the rest of the world.

The deal with International Steel may save the jobs of DiMideo, Ralston, and thousands of other steelworkers, but it does nothing to help Bethlehem Steel find the $3 billion it needs to pay for health-care benefits promised to 75,000 retirees.

The federal Pension Benefit Guaranty Corp. took over Bethlehem Steel's pension funds, which are underfunded by $4.3 billion, as of Dec. 18. That takeover came earlier than Bethlehem Steel hoped because it wanted to get 1,000 early retirees into the plan; however, without the takeover, International Steel would not have offered to buy Bethlehem Steel.

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Contact staff writer Harold Brubaker at 215-854-4651 or hbrubaker@phillynews.com.

This seems like very good news for the Steel Industry, and for Pennsylvania, Maryland, Ohio, and Indiana to me. USS missed the jump on this one. International Steel Group's executives seem like a very good bunch.

I would've bet USS was going to by Bethlehem for its Burns Harbor plant. They could have shut down their own facility at Gary.

ISG appears to be run by engineers, not just bean counters. It's definitely good to see the east side of the LTV Cleveland mill puffing away again. Now for the west side.

-Eric

ISG appears intent on overwhelming everyone else with their might. Blast furnace steel is of a superior quality to electric arc stel, and is cheaper once the excess dross of the USWA agreements are gone. ISG is getting the Integrated's act together to try to kick the Mini-Mills butts. I find it interesting that they will operate both Burns Harbor and E. Chicago right next door to each other. But, these are both economically viable plants.

I think you are right.
I wonder if USS, just having gone through another house cleaning and sell off of assets (railroads, mines, vessels) is in the steel business for the long term. When Brazilian pellets can be shipped into Lake Michigan mills for less than Mintac (Minnesota) pellets, it makes you wonder.

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