Bethlehem managers favor deal


Bethlehem Steel Corp.'s management recommended yesterday that the board of directors approve a deal to sell virtually the entire company to International Steel Group Inc.

Robert S. "Steve" Miller Jr., Bethlehem's chairman and chief executive officer, said the company had reached "an agreement in principle" for the sale of "substantially all" its assets to the Cleveland-based steelmaker, headed by Chairman Wilbur L. Ross Jr.

"Following a thorough review of ISG's proposal, Bethlehem's executive management and its advisers believe that the acquisition by ISG will provide the best value achievable to Bethlehem and will also allow Bethlehem's well-maintained facilities to remain in operation, thereby preserving thousands of jobs," Miller said.

Bethlehem, which is operating under Chapter 11 bankruptcy protection, must still complete an asset purchase agreement that would be submitted to the U.S. Bankruptcy Court within two weeks if the board approves the deal, Miller said. Bethlehem's board will meet Saturday to decide whether to accept the deal, he said.

Miller and Ross declined yesterday to release details of the asset purchase agreement during a conference call with the media. He said the initial offer price of $1.5 billion was still a "ballpark" figure.

A sale to ISG would be a lifeline for Bethlehem, which filed for Chapter 11 in October 2001, and help keep the steelmaker's plants operating, including the Sparrows Point plant in Baltimore County, which employs 3,300.

The company has shed about 1,000 hourly and salaried workers in recent months through layoffs and voluntary retirements at most of its facilities. Company and union officials have warned that more reductions in Bethlehem's 11,000-member work force will be necessary in coming months.

With Bethlehem's steelmaking capacity, ISG would become the largest integrated steel producer in the country, with annual shipments of 16 million tons. The sale would also mark the first movement toward a long-awaited consolidation in the troubled steel industry, which has seen more than 30 steelmakers file for bankruptcy protection in the past six years.

Many experts credit President Bush's steel import tariffs and a new low-cost labor agreement reached by ISG with the United Steelworkers of America union as helping to drive recent moves toward consolidation in the steel industry. Shortly after ISG's offer for Bethlehem, U.S. Steel Corp. and AK Steel Corp. made competing offers for National Steel Corp., another steelmaker in Chapter 11.

ISG's initial offer Jan. 6 was for most of Bethlehem's steelmaking and related assets, such as Sparrows Point and its largest plant in Burns Harbor, Ind.

Under the earlier version of the offer, a holding company would have remained to administer Bethlehem's nonoperating assets and remaining liabilities. But the deal has grown to include many of those assets, which include Martin Tower, the company's corporate headquarters in Pennsylvania.

ISG would also acquire Bethlehem Works and Bethlehem Commerce Center, a pair of retail and commercial redevelopment projects of the company's defunct mill in Bethlehem, Pa., in addition to hundreds of acres of land at other Bethlehem facilities no longer in operation.

"The notion of an ongoing holding company no longer applies," Miller said.

ISG's Ross said the expanded offer would provide a greater measure of certainty of recovery for the creditors, but that doesn't necessarily mean they'll get a greater share. Bethlehem's unsecured creditors are owed about $5 billion.

The revised deal "means a greater certainty of recovery [for the creditors] in that there are fewer variables in the equation than there were in the original proposal," Ross said.

Ross and Miller declined to discuss specific plans for expected reductions in the work force. But Ross said there is a plan to reduce Bethlehem's work force, many members of which have 25 years' service or more, through early retirement inducements. That plan would cost "in excess of $100 million," he said.

Ross' initial offer for Bethlehem included the assumption of certain liabilities, including leasing contracts for operating equipment, contracts and accounts with suppliers, and liabilities attached to Bethlehem facilities' environmental costs. Ross said yesterday that ISG had assumed "somewhat more" liabilities under the revised offer, but did not elaborate.

ISG doesn't have to worry about one major liability - Bethlehem's pension plan, which was underfunded by more than $4 billion - after the federal Pension Benefit Guaranty Corp. moved to take it over in December.

The responsibility for another significant liability - $3 billion in retiree health care costs - will be hashed out in bankruptcy court. But Ross spoke of ISG making unspecified contributions to a union-negotiated benefit trust that would cover retirees' health care costs.

The ISG offer will be subject to a bidding process in bankruptcy court. Miller said yesterday that he doesn't expect a bid to come in for the whole company that would compete with ISG's offer. A sale to ISG could be completed some time in the second quarter, he said.

But, he added, it is "possible that people will submit bids for parts of the business, and if they do, we'll deal with it" in bankruptcy court.

At the end of the press conference, Miller said a sale to ISG "is not the end, it is a new beginning."

Ross remarked: "I just hope that Steve's right, because we're making a hell of a big bet that he is."

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