The head of Bethlehem Steel Corp. said yesterday that talks for a sale to a rival steelmaker are going well and that any deal would be structured as an asset sale rather than as a wholesale takeover of the company.
Bethlehem and International Steel Group Inc. are in the midst of a 60-day exclusive deal exploration period as a precursor to a possible acquisition of Bethlehem, which would create the country's largest integrated steelmaker. The agreement expires Jan. 6.
Bethlehem Chairman and Chief Executive Officer Robert S. "Steve" Miller Jr. said talks with ISG are "terrific."
"We've been doing intensive due diligence, but until we get through this period of exclusivity we won't know whether it's the right deal for us or not," he said.
Miller said ISG would purchase only the assets of Bethlehem - the two biggest of which are its plants in Burns Harbor, Ind., and Sparrows Point just outside Baltimore, which employs about 3,400. That means Bethlehem would still be responsible for its "legacy costs," such as retiree health care and pensions, that have built up over the years.
"ISG would purchase in bankruptcy the principal operating assets of Bethlehem Steel, including the Sparrows Point plant, and pay for it by cash and stock to the Bethlehem estate, which at that point would become a holding company dealing with the liabilities we have accumulated," Miller said.
'A lot of work to do'
Mitch Hecht, the chief financial officer of ISG, said his company still has "a lot of work to do" in the due-diligence process, but expects to make a decision on the deal by Jan. 6.
"I'd be lying if I told you we were committed one way or the other," he said yesterday.
ISG was formed from the ruins of Cleveland-based LTV Corp., which filed for Chapter 11 bankruptcy protection in December 2000 and then shut down, throwing more than 10,000 out of work.
New York investment firm W.L. Ross & Co. was able to buy the assets of the former LTV without also taking on its legacy costs. Miller said he envisioned a similar situation at Bethlehem, but "the difference in our case is we're going to try and achieve it without a shutdown."
John Cirri, president of United Steelworkers of America Local 9477, which represents Bethlehem workers in Baltimore, said the structure of a potential deal with ISG has not been presented to the union, but that he has no immediate objection to an asset sale vs. a wholesale purchase of Bethlehem.
"As long as our quality of work life is protected, that's the main thing," Cirri said.
Billions in obligations
Bethlehem filed for bankruptcy protection in October last year. Included in its liabilities are a health-care obligation of nearly $3 billion and a pension fund that is underfunded by $3.2 billion.
Miller said he expects the federal Pension Benefit Guaranty Corp. to take over Bethlehem's pension in the near future because the company sees no way it can pay for the fund. The steelmaker has a $190 million payment due in July and another $1 billion due in 2004.
He acknowledged that whatever price ISG ultimately would pay for Bethlehem's assets would not cover the retiree health care obligations that Bethlehem now has.
"Retiree health care would have to change," he said, noting that retirees older than 65 have access to Medicare and that a trade bill signed by President Bush in August provides some health care subsidies for those too young to receive Medicare.
Pharmaceutical benefit
"What that leaves not yet done is a pharmaceutical benefit," which Bethlehem now pays, he said.
"There may be some value in the [Bethlehem] estate to help with that, but it will not be as complete or as comprehensive as it was before, but we are doing the best we can."