Sparrows Point buyer plans rapid boost in steel output
Severstal plans to bring plant production up to full capacity of 3.6 million tons a year, company executives told analysts during a conference call from Russia.
Severstal, which announced last week that it was buying the 119-year-old Sparrows Point for $810 million in cash, plans to increase shipments by 15 percent to 20 percent and sales by 20 percent.
The increase in capacity would happen "as soon as possible," Chief Operating Officer Gregory Mason said during the call.
The Justice Department ordered Luxembourg-based ArcelorMittal, the world's largest steelmaker, to sell Sparrows Point because of antitrust concerns over the production of tin plate. A deal to sell the plant to a joint venture led by Esmark Inc. of Illinois failed in December because the buyer did not secure financing and a labor agreement.
The Justice Department must OK the deal, which also needs approval from the government panel that rules on acquisitions by foreign companies.
Analysts peppered Severstal executives with questions about the profitability potential of Sparrows Point. Alexei Mordashov, chief executive officer and owner of 82 percent of Severstal, said he considered Sparrows Point a good investment despite a weak U.S. economy and slow production as it sat on the selling block throughout the past year. The plant had $1.6 billion in sales last year, according to a Severstal presentation.
Mordashov sees the acquisition as a way to increase Severstal's business in the United States and said it would complement its other U.S. plants, which include the former Rouge Steel plant in Dearborn, Mich., and SeverCorr in Columbia, Miss.
"It gives us a much better footprint, a better position in the United States," he said.
The company expects Sparrows Point to add to earnings this year, with synergies with its other U.S. operations saving at least $50 million a year.
Senior Vice President Thomas Veraszto said he doesn't think Sparrows Point should be judged by the past year
"Sparrows Point is a comfortable asset with some issues in the last year," said Veraszto, who termed the acquisition a "good bargain."
Severstal executives said they agreed to adapt ArcelorMittal's contract with the United Steelworkers union "as is with a few changes."
A United Steelworkers official said only details of the contract would be changed, such as changing ArcelorMittal to Severstal throughout the contract.
"We have an agreement in principle," said Dave McCall, District 1 director of the USW.
Labor and management at the plant said they were hopeful that the new ownership would improve conditions at the plant, which employs about 2,500.
"It's a positive turn of events for the plant," Thomas Russo, general manager at Sparrows Point, said yesterday. "What Severstal is saying is that their market strategy is to run the plant full, and we really haven't seen that since the Bethlehem days."
John Cirri, head of the USW local, said he anticipates more jobs as production is increased.
"I would expect that we would see the hiring of more people as production picks up," said Cirri, president of Local 477.
Under the deal, Sparrows Point will continue to supply steel slabs to ArcelorMittal's Weirton, W.Va., plant. Severstal also took on $52 million in health care and retirement liabilities as part of the purchase.