Bethlehem Steel Corp. said yesterday that it signed a $1.5 billion deal for its assets to be bought by a Cleveland rival, and awaits bankruptcy court approval next month to complete the sale.
International Steel Group Inc. intends to buy all of Bethlehem's steelmaking operations, including its Sparrows Point plant in Baltimore County, interests in several Bethlehem joint ventures and hundreds of acres of surplus property.
The price tag includes $1 billion in cash, with the $500 million balance in the assumption of debt and other liabilities, said Wilbur L. Ross Jr., ISG's chairman, in a telephone interview yesterday. Those liabilities include environmental, employee, tax and lease obligations, ISG said yesterday in a separate statement.
Steel industry experts view Bethlehem's sale to ISG as the best chance for keeping its steel mills open and saving thousands of jobs in several states. ISG's purchase of Bethlehem, which has operated under bankruptcy protection since October 2001, would create the largest maker of steel from raw materials in the country, with annual shipments of 16 million tons.
Ross, who heads New York-based W.L. Ross & Co. LLC, ISG's largest investor, said the steelmaker secured $1 billion in financing for the acquisition and working capital.
The financing includes two term loans totaling $700 million that will be used to pay off Bethlehem's secured debt of roughly that same amount, Ross said. ISG also has access to a $300 million revolving credit facility it will tap for working capital and to pay off additional Bethlehem debt, Ross said.
Ross' investment firm secured the financing from UBS Warburg LLC, Goldman Sachs Credit Partners LP, and CIT Group/Business Credit Inc. The Bethlehem deal would be the third acquisition of a steel company for Ross, who launched ISG early last year with the purchase of the bankrupt LTV Corp.'s steel mills. In October, ISG bought Acme Steel Co., a sheet mini-mill in Illinois.
As part of the Bethlehem deal signed late Wednesday, privately held ISG would issue "a small amount" of equity stakes to former Bethlehem creditors, Ross said.
A Bethlehem spokeswoman said the company planned to file the terms of the deal - known as an asset purchase agreement - with the U.S. Bankruptcy Court in Manhattan late yesterday. Bethlehem's board unanimously approved the sale Feb. 8.
With the agreement signed, Bethlehem begins a mandatory waiting period for other potential suitors to come forward. Under bankruptcy court guidelines, other companies could make competing offers for Bethlehem's assets, company officials said.
An April 22 hearing date in the U.S. Bankruptcy Court in Manhattan is scheduled, with the court expected to rule on ISG's offer, company officials said.
Robert S. "Steve" Miller Jr., Bethlehem's chairman and chief executive officer, said during a conference call yesterday that no other companies have shown an interest in Bethlehem. But, he said, "it's conceivable that a group of bidders each interested in pieces could make a better bid."
Miller said that the deal would close shortly after bankruptcy court approval in April and that a holding company would remain to wind up administrative functions related to the bankruptcy estate.
Bethlehem, which has about 11,000 employees, including 3,300 at Sparrows Point, warned last month that as many as 3,000 to 4,000 people could lose their jobs under ISG ownership.
But ISG and the United Steelworkers of America union, which represents about 80 percent of Bethlehem workers, disputed that figure, saying final decisions on staffing levels have not been made.
Miller and Ross said yesterday that ISG's plan for a $100 million "transition assistance program" for current workers remains a key part of the deal. The program will provide lump-sum payments to workers who take early retirement and will be used by ISG as a way to pare the work force, they said.
"I'm very satisfied that despite all the odds we managed to keep the plants open and operating ... and we didn't let customers down," Miller said. "At the same time, I'm very disappointed that I could not do a better job for our retirees."
Last month, Bethlehem announced that it would ask the bankruptcy court for permission to terminate retiree health care obligations by March 31, after declaring it could no longer afford the $20 million monthly expense.
But the Steelworkers decried the planned termination. The union and other retiree groups have fought to extend the termination date as they work to find affordable health care coverage for Bethlehem's retirees.
Yesterday, the union said it had reached a "last minute" agreement with Bethlehem to extend COBRA coverage - which allows participants to pay for benefits at the lower rates of a group policy under a group policy - beyond March 31.
The union said the group rates would "protect retirees from the astronomical rate increases that would likely occur if the company had not agreed to maintain its COBRA obligations."
ISG officials have also said there are plans to put a percentage of profits into a union-negotiated trust fund that will be used to finance retiree health care benefits.
In addition to the Sparrows Point complex, ISG plans to acquire Bethlehem's largest steel mill in Burns Harbor, Ind.; other steel plants in Steelton, Coatesville and Conshohocken, Pa.; a mining company in Minnesota; and steel finishing plants in Ohio, New York and Indiana; and joint ventures in Illinois, Indiana, Mississippi and Florida.
ISG is also buying essentially all of Bethlehem's non-operating assets, including Martin Tower, Bethlehem's corporate headquarters building in Bethlehem, Pa.