Bethlehem Steel Corp. said yesterday that it plans to sell 12 million shares of common stock to raise hundreds of millions of dollars to reduce its $1.6 billion unfunded pension liability.
In a registration statement filed with the Securities and Exchange Commission, the nation's No. 2 steelmaker said virtually all of the net proceeds will go to its pension fund, which stood at $3.4 billion at the end of last year.
The company, which has one of the nation's largest unfunded pension liabilities, did not know how much the offering will raise since it has yet to set a date for the sale. At yesterday's closing price of $23.50, the sale would generate $282 million before fees are paid to the brokerage firms handling the offering.
Bethlehem Steel said the offering will increase the number of shares outstanding by 13 percent to about 103.5 million from 91.5 million.
The announcement came as welcome news to Bethlehem's 65,000 retirees, 17,000 of whom live in Maryland. "We think its great," said Jack F. Trenner of Towson. "We think they have done very well under the circumstances."
Mr. Trenner, 68, sits on the board of the Retired Employees Benefit Coalition, a group that represents retired Bethlehem salaried workers.
Bethlehem owns the Sparrows Point steel mill in Baltimore County and the adjacent shipyard, which together employ 7,000.
Bethlehem has dramatically reduced its work force over the years and consequently has three times as many retirees as active workers. Squeezed by the recession, weak steel prices and foreign imports, it missed its first-quarter pension payment in 1992. Since then it has been increasing its contributions, boosting the annual payment from $40 million in 1992 to $260 million last year. About $121 million of last year's payment was from a sale of preferred stock.
But despite the payments, the company's unfunded liability increased from $1.2 billion at the end of 1992 to $1.6 billion at the end of last year as the result of falling interest rates and increased pension benefits.
Bethlehem is one of about 25 large industrial companies that have been aggressively trying to reduce their pension liability in the last two years, according to Dallas L. Salisbury, president of the Employee Benefit Research Institute, a nonprofit research group in Washington that tracks employee benefits. While selling stock to fund a pension plan is not a normal corporate strategy, it is not unusual for companies in Bethlehem's position to do so, he said.
While there is debate as to whether paying down pension liability is the best use of capital, there is increasing pressure from the federal government, whose Pension Benefit Guaranty Corp. guarantees private pensions, to fully fund pension accounts, Mr. Salisbury said.
Other large companies have reduced their pension liability through cash payments, stock sales and direct contributions of stock to the funds, Mr. Salisbury said.
In its registration statement, the company said the payment to the pension fund would improve its capital structure and overall financial condition. The company also said it will reduce its annual pension expense by improving pension fund earnings and provide additional flexibility for future pension funding.
The offering will be managed by Salomon Brothers Inc., J. P. Morgan Securities Inc. and Morgan Stanley & Co.