Posted on 02/07/2003 7:09:00 AM PST by Hermann the Cherusker
Reuters
UPDATE - AK Steel named lead bidder for National Steel
Thursday February 6, 5:52 pm ET
By Nichola Groom
(New throughout, adds analyst comment, U.S. Steel comment, USWA statement, byline, changes dateline previous MISHAWAKA, Ind.)
NEW YORK, Feb 6 (Reuters) - A U.S. bankruptcy court named AK Steel Holding Corp. lead bidder in the race to buy National Steel Corp., beating out United States Steel Corp., though a March deadline to strike a deal with the steelworkers' union could still sidetrack the $925 million deal.
Thursday's ruling, which grants AK Steel (NYSE:AKS - News) "stalking horse" or priority status, is a meaningful but not yet decisive victory for the company, which submitted a surprise counter-bid for bankrupt National Steel (OTC BB:NSTLB.OB - News) on Jan. 23, two weeks after U.S. Steel (NYSE:X - News) made its offer of $750 million.
A deal between National and either suitor, however, is still subject to the negotiation of a new labor contract with the United Steelworkers of American union, which has had a rough track record in negotiating with AK Steel.
The Middletown, Ohio, company has until March 17 to strike a deal with the union. If no agreement is reached by that time, National may back out of the deal. A bankruptcy court auction of National's assets is set for April 7.
A new labor agreement is critical because it would reduce the ballooning pension and retiree health-care costs that have helped drive more than 30 steelmakers into bankruptcy since 1997.
"If that deal doesn't exist then U.S. Steel wins by default if they do have a deal," said HSBC analyst Peter Bures, who owns no shares of either AK Steel or U.S. Steel. "So it really comes down to who can get the unions to sign with them."
DESPITE RULING, HURDLES ABOUND
Difficulties between the union and AK Steel stem from a three-year lockout of union workers at the company's Mansfield, Ohio, plant. In a Thursday statement, the USWA said that because of the lockout, which ended in December, AK Steel may prove "to be its own worse enemy" with respect to buying National.
A U.S. Steel spokesman on Thursday said the company is still interested in buying National and is focused on its discussions to work out a new labor contract with the union.
Both companies are hoping to work out a union contract similar to that of International Steel Group's. Last month, ISG and the USWA reached a landmark agreement that helped pave the way for its acquisition of bankrupt Bethlehem Steel Corp. (OTC BB:BHMSQ.OB - News)
Both U.S. Steel's and AK Steel's offers include the assumption of $200 million in liabilities, though AK Steel's bid includes National Steel Pellet Company, which U.S. Steel, based in Pittsburgh, did not plan to buy.
Besides the union contract, the deal is also subject to "higher and better offers," National said. Any rival offer, however, would have to trump AK Steel's bid by at least $17 million, and Thursday's ruling allows AK Steel to collect a $15 million breakup fee if National decides to sell its assets to another bidder.
National Steel, based in Mishawaka, Indiana, further said it has received a request for additional information from the U.S. Justice Department on the U.S. Steel offer. National plans to cooperate fully with the request, which it said was expected.
National Steel filed for Chapter 11 bankruptcy protection last March. It said the ruling brings it closer to a resolution of its Chapter 11 proceeding, though it is going ahead with its plan to emerge as a stand-alone entity if a deal does not go through.
Shares of AK Steel closed at $5.98 Thursday on the New York Stock Exchange, while U.S. Steel's stock ended at $12.25, also on the NYSE.
There is a lot of money to be made making steel once you are freed from the encumberances which are bankrupting the industry.
I still think the real winner is going to be ISG.
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