International Steel Group Inc. offered yesterday to buy the assets of bankrupt Bethlehem Steel Corp. for $1.5 billion in a move that could create the nation's largest steelmaker and keep the steel mills of a one-time American industrial giant operating.

The Cleveland-based company said its offer was for substantially all of the steel-making and related assets of Bethlehem as well as some assumed liabilities. The bid includes Bethlehem's Sparrows Point plant in Baltimore County, where 3,300 work, as well as its largest plant in Burns Harbor, Ind.

Robert S. "Steve" Miller Jr., Bethlehem's chairman and chief executive officer, said yesterday that Bethlehem will review the offer with its creditors before seeking board approval - a process that could last several weeks.

"In concept, this is a very attractive proposition," Miller said in a conference call. "The combination does create an amazing new entity in the American steel market."

ISG's offer includes a significant portion of cash, Miller said. A sale also must be approved by U.S. Bankruptcy Court after a court-mandated auction and possibly by federal anti-trust regulators.

A Bethlehem merger with ISG, created last year to acquire bankrupt steel plants, is viewed by many industry experts as the company's best chance for avoiding liquidation. The combination would create a company with more than 16 million tons of annual steelmaking capacity, Bethlehem said, outstripping U.S. Steel Corp. and Nucor Corp.

The ISG offer came on the last day of a 60-day exclusive "due diligence" period in which the two steelmakers explored a possible merger. Bethlehem has been operating under Chapter 11 bankruptcy protection since October 2001.

In a statement yesterday, ISG said it presented an asset purchase agreement to Bethlehem and is negotiating definitive terms with that company's management.

The liabilities include leasing contracts for operating equipment, existing contracts and accounts with suppliers, and environmental liabilities attached to Bethlehem's facilities, said ISG President and Chief Executive Officer Rodney B. Mott in a telephone interview yesterday.

Retirees, workers

Bethlehem's retiree health-care obligations - a significant liability of about $3 billion - were not part of the offer and would be resolved through bankruptcy court, Bethlehem and ISG officials said yesterday.

Another key hurdle - a reduction in the number of Bethlehem workers - will be addressed through what ISG called a "transition assistance program" for hourly employees who choose to retire at the time of a change of ownership in Bethlehem's facilities.

Mott said the companies and the union were working out the details and costs of the program. Miller and Mott declined yesterday to release a target number of how many employees would be offered an early retirement buyout.

Bethlehem and ISG initially had planned on reducing Bethlehem's 12,000-person work force through early retirement enticements offered through its underfunded pension plan. But that option ended after the federal Pension Benefit Guaranty Corp., wary of further liabilities, moved to take over the Bethlehem plan last month - several months before both companies had expected.

The PBGC said the Bethlehem plan, which covers 95,000 workers and retirees, was underfunded by $4.3 billion. About 14,600 retirees and spouses live in the Baltimore area.

Yesterday, Bethlehem's Miller reiterated that the company's plants faced a "significant reduction" in work-force numbers, either as a merged or stand-alone entity. He declined to give a number or percentage of workers affected.

Sizable offer

Analysts said that ISG's offer was higher than expected and that it may have made such an offer to discourage other potential bidders if the bankruptcy court holds an auction for Bethlehem's assets. Wilbur L. Ross Jr., ISG's chairman, had previously said an offer would be at least $800 million - enough to cover the secured creditors - with only a modest amount left over for the bankrupt company's unsecured creditors.

"What I wonder is if somebody else out there is looking at Bethlehem," said Charles Bradford, a steel industry analyst with Bradford Research Inc. in New York. "It could be a way to discourage other buyers from making a bid in the bankruptcy court proceeding."

ISG's Mott said: "We are not aware of any other company that's shown strong interest in Bethlehem. We strictly made our determination based upon what we think is the value of the company."

Miller said he wasn't aware of any companies that are interested in making a competing offer in bankruptcy court.

In the past two years, No. 2 U.S. Steel Corp. and Companhia Siderurgica Nacionale, Brazil's largest steelmaker, held talks with Bethlehem. But no companies other than ISG have signaled an interest.

John Anton, a steel analyst with Global Insight in Washington, said he thought the offer was a good one for Bethlehem and its workers, even though a reduction in its work force is expected.

"This could, if all goes smoothly, prevent any supply distribution and keep workers on the job. ... It's terrible that some people are losing their jobs, but at least some people will keep their jobs. I guess something is better than nothing," Anton said.

What ISG gets

In Bethlehem, ISG would get two of the largest and most modern steel-producing facilities in the country.

Bethlehem's Burns Harbor plant is a major supplier of automobile-grade steel and employs a highly skilled work force.

Sparrows Point recently went through more than $650 million in upgrades and has a new cold-rolling mill that makes precision-thickness steel for containers, furniture, construction and appliances.

Beth Steel, founded in 1904, bought the Sparrows Point mill from Maryland Steel Co. in 1916. At its peak during World War II, the company employed more than 300,000 people, about one-sixth of them at its mills and shipyards at Sparrows Point.

Yesterday, ISG's Mott called Sparrows Point an "attractive facility," noting its location at a deep-water port and the cold-rolling mill.

End of name

A sale to ISG would probably spell the end of the Bethlehem Steel name on the Baltimore industrial scene in the near future, even though Sparrows Point would continue operations.

Mott said yesterday that ISG had no plans to use the name and that it would remain the intellectual property of a holding company left after an asset sale that would be made up mostly of nonoperating assets and liabilities.

ISG, which is majority-owned by Ross and his New York investment firm, W.L. Ross & Co., was formed in April to buy the assets of LTV Corp. That Cleveland-based steelmaker had partially shut its plants and thrown more than 10,000 people out of work before Ross' firm bought its steel-making assets for about $325 million in a bankruptcy court auction.

Under ISG, the plants were opened with a vastly reduced work force. ISG, which employs 2,750 workers, reached a labor agreement last month with the United Steelworkers of America union that was hailed as a model for the steel industry and closely tied worker compensation to company productivity and profits.

Labor pact

ISG, Bethlehem and union officials have said a similar labor agreement is being pursued in the case of Bethlehem's workers and could be reached by the end of this month.

"ISG's purchase of all of Bethlehem Steel's operating assets will be a crucial step in saving many of the steelworker jobs that are at risk of being wiped out if Bethlehem's bankruptcy ever leads to a liquidation like the one that devastated workers and retirees at LTV Steel," said union President Leo W. Gerard in a statement yesterday about ISG's offer.

"We need fewer American steel companies, not less steel-making," he said.