Russian steelmaker OAO Severstal announced yesterday that it is buying the steel plant at Sparrows Point and says it plans to run the mill at full capacity and invest up to half a billion dollars during the next five years to improve productivity.
Severstal, led by a Russian billionaire who is one of the world's wealthiest men, emerged as the successful bidder in the government-ordered sale, saying it will pay $810 million in cash for the Baltimore County plant. An agreement with an earlier buyer that would have paid Luxembourg-based ArcelorMittal $1.3 billion for the plant collapsed over a lack of financing.
Severstal plans to keep all of the plant's steel-making operations going, both rough steel and finishing. Workers, whipsawed under a succession of owners in recent years, have feared that a buyer might cut back on the type of products produced at the mill, throwing a chunk of the 2,500 employees out of work.
But Gregory Mason, chief operating officer of Severstal, said that the company has no plans to cut employment, wages or benefits and that it hopes to keep the current management in place.
"We're not buying Sparrows to chop it up," Mason said.
Both labor and management at the 119-year-old plant expressed relief, saying Severstal has the finances and global reach the mill needs to maintain operations at peak capacity for years to come. Capable of producing 3.6 million tons, the plant turned out 2.5 million last year, Mason said - Severstal wants to see it operate at capacity.
By contrast, its current and previous two owners treated Sparrows Point as a "swing plant," meaning employment and production were curtailed whenever the steel market hit a rough patch.
"Under ArcelorMittal, we were a stepchild - that's how we were treated," said John Cirri, president of the United Steelworkers Local 9477, referring to the plant's current owner. "So we're going from being a swing plant to being the 'beast in the East,' and that's what we're going to be."
The plant has been buffeted by the change and uncertainty generated by a worldwide consolidation of the steel industry. This marks the fourth time the plant has been sold in five years. Once the world's largest steel mill, the plant is now down to less than a 10th of its peak work force.
For Sparrows Point workers, the wait for a new owner has been filled with a whirlwind of emotions: uncertainty with cautious optimism that the buyer would honor their labor agreement and invest in building up the plant. Union officials say worker protections in their current contract will remain.
Erin Kelly, 25, a cold mill crane operator from Baltimore who has worked at the plant for more than five years, said yesterday that she doesn't know too much about Severstal.
"As long as they know about our contracts ... and they could respect that and are agreeable with the stipulations we have and they're willing to work with you, that's all that matters," said Kelly, whose father is also an employee at Sparrows Point.
The USW contract says the union has the right to reject buyers it finds objectionable. Sparrows Point has had so many owners come and go during the past few years that some workers joke about seeing a Wal-Mart sign appearing next.
"We have always maintained that the union will not reach agreement with a successor unless it includes a long-term business and operational strategy that produces security for our members, their families and our retirees," said David McCall, chairman of the USW bargaining committee for ArcelorMittal in North America, in an e-mailed statement. "We now have that at Severstal."
The recent uncertainty is a sharp contrast to the stability that characterized Sparrows Point's run as an industrial icon of a lunch-pail city for most of its history. For 87 of those years - most of them prosperous - the plant was operated by Bethlehem Steel.
At peak employment in 1959, more than 30,000 worked at the plant - then the largest steel mill in the world. And during World War II, the adjacent Bethlehem shipyard, cranking out Liberty Ships for the war effort, employed more than 45,000. A company town grew up around the plant with schools, stores and workers' housing.
After years of decline, Bethlehem went bankrupt in 2001. In 2003, Ohio-based International Steel Group paid $1.5 billion to add Beth Steel to its growing portfolio of bankrupt steel companies. Almost overnight, it became the largest steel company in the United States.
ISG cut costs, won labor concessions, and pushed itself into the black. Then ISG, in turn, was snapped up by Mittal Steel Co. NV of the Netherlands for $4.5 billion in 2005.
Lakshmi N. Mittal was a leader in pushing steel from a series of national industries to a global one undergoing rapid consolidation. But Mittal's global ambitions forced Sparrows Point onto the market again. The Justice Department had antitrust concerns about Mittal's acquisition of Arcelor SA of Luxembourg, another large international steelmaker. To satisfy the regulators, Mittal agreed to sell off Sparrows Point, and completed the merger creating ArcelorMittal.
In August, 2007, ArcelorMittal agreed to sell to E2 Acquisition Corp., a consortium of steel companies led by Chicago-based Esmark Inc.
But "it became increasingly more apparent" that E2 couldn't pull together the financing and never reached the necessary agreement with the United Steelworkers, according to a court filing last month by the Justice Department's trustee, Joseph G. Krauss. At Krauss' direction, ArcelorMittal canceled the deal, putting Sparrows Point back on the market.
Krauss, who led the sale process that ended yesterday with the Severstal agreement, declined to comment. ArcelorMittal spokesman William C. Steers said only that the company had cooperated in the process and thanked the Sparrows Point employees "for their hard work and dedication to their jobs during this transition."
Severstal - the name means "Northern Steel" in Russian - is fighting for a place in the newly globalized steel world. It is big - it had revenue of $15.2 billion in 2007 - and getting bigger - revenue and profit were up about 22.5 percent last year from 2006. It owns a mining division and controlling interest in an Italian-French iron and steel company, Grupo Lucchini. But Severstal is still only one-seventh the size of ArcelorMittal.
"Severstal has a good reputation," said Mark Reutter, author of Making Steel, a book about Sparrows Point. Severstal's principal owner, Alexei Mordashov, has a background in steel, as opposed to Ross and Mittal, who functioned more as financiers, Reutter added. "He puts money into his mills," Reutter said.
Mason said Severstal was interested in expanding its American production because "domestic supplies can't fill the demand" here. At the same time, he said, the falling value of the dollar and the cost of transportation have made importing steel to the United States too expensive.
Severstal expects the deal to close during the next three months, and Mason said he didn't anticipate either of the problems that sank the E2 sale - lack of agreement with the union and difficulty in arranging financing.
"If we wish to borrow, we can borrow," Mason said. And if the company decides to pay cash, with nearly $2 billion in cash on its balance sheet, "We wouldn't have any problem."
Tom Russo, the plant's general manager, noted with some surprise that yesterday's price tag was far below what E2 said it would pay last year. But some analysts said E2's bid was too high, which may have contributed to its failure to close the deal.
And the price of critical raw materials - chiefly iron ore and metallurgical coal - have soared during the past 12 months, hurting the prospects of plants such as Sparrows Point. Such costs - combined with the slowing U.S. economy - factor in to the plant's worth, analysts said.
email@example.com firstname.lastname@example.orgSun reporter Hanah Cho contributed to this article.Copyright © 2015, The Baltimore Sun