Workers at the Sparrows Point steel mill face more uncertainty after a deal to sell the sprawling plant to a group led by upstart steelmaker Esmark Inc. collapsed, reopening a government-supervised search for a new owner.
ArcelorMittal said it canceled the purchase agreement because the prospective buyer, E2 Acquisition Corp., was unable to secure the necessary financing. ArcelorMittal said the court-appointed trustee overseeing the sale would hire an investment bank to help find a buyer.
Craig T. Bouchard, chairman and chief executive officer of E2 and co-founder of Esmark, said yesterday that he is preparing a new bid for Sparrows Point, possibly with new partners.
"The buyer of Sparrows Point needs to find a structure which satisfies Mittal, the Trustee and the United Steel Workers," Bouchard said in an e-mailed statement. "We have been encouraged by the Trustee and the USW to stay active in the process. Therefore, we will do so. We will work with the United Steelworkers for their support and approval of a new transaction."
He declined to reveal the names of his partners until he officially makes a new bid.
The E2 deal, first announced in August, had seemed to put an end to months of anxiety at Sparrows Point after the Justice Department ordered its sale in February. Mittal Steel Co. NV, of the Netherlands, had agreed to a divestiture as part of a consent decree settling antitrust concerns related to its $38 billion merger with Luxembourg-based Arcelor SA. At the time, steelworkers welcomed the purchase by a partnership headed by an American company.
But questions began to arise as talks dragged on. E2 missed a Nov. 30 deadline to close the sale, and its agreements with its partners and financial backers lapsed. At the time, Bouchard said his partners remained on board and blamed ArcelorMittal for the delay. After an extension to Dec. 11 also expired, ArcelorMittal said it was consulting with the trustee on its next step and remained ready to sign off on the deal.
ArcelorMittal said it will continue to operate Sparrows Point until a sale is completed.
"ArcelorMittal will continue to work closely with the DOJ and the court-appointed trustee to satisfy the terms of the consent decree," the steelmaker said in a statement announcing the termination.
The trustee, Joseph G. Krauss, a partner at the Washington law firm Hogan & Hartson LLP, said in an e-mailed statement that "the Order requires me to find a buyer to complete the divestiture as quickly as possible, and that is what I plan to do. We are commencing that effort and will consider all reasonable offers."
Justice Department spokeswoman Gina Talamona said in an e-mailed statement that "other capable buyers are interested in acquiring this important asset."
A sale would give Sparrows Point its fourth owner since 2003.
In addition to Esmark, which recently won control of Wheeling Pittsburgh Steel Corp., E2 included Franklin Mutual Advisers, Companhia Vale do Rio Doce, a Brazilian iron ore producer, and Industrial Union of Donbass Corp., a Ukrainian steel company. Esmark said yesterday that it would have had only a 2 percent stake in the venture but would have been responsible for day-to-day operations.
John Cirri, president of Steelworkers Local 9477, which represents production and maintenance workers at the plant, and David McCall, who oversees negotiations for the Steelworkers nationally, e-mailed a joint statement yesterday reaffirming the union's role under its contract in any sale.
"Our union will continue to insert itself into this bidding and buying process," the statement said. " ... the only acceptable bid will be one that requires long-term profitability and viability for both the company and our members."
The union is planning a conference call on the situation tomorrow.
In a letter last month to Steelworkers officials, Cirri raised concerns about Esmark's plan for Sparrows Point to supply 850,000 tons of steel slab to Wheeling-Pitt. Esmark promised to infuse fresh capital of $50 million to $200 million and reduce Wheeling-Pitt's debt from $525 million to $275 million by year's end.
Meanwhile, Wheeling-Pitt's losses have mounted, according to filings with the Securities and Exchange Commission. For the third quarter ended Sept. 30, Wheeling-Pitt lost $56.5 million compared with a profit of $17.4 million during the same period a year ago. Revenue dropped to $393 million from $482.7 million for the year-earlier period.
Now the company's workers face the specter of layoffs. Ken Aspenleiter, president of Steelworkers Local 1190, said last week that he was told that about 300 jobs would be cut across all of Wheeling-Pitt's facilities in Ohio, Pennsylvania and West Virginia.
Yesterday, Aspenleiter said he was uncertain how the collapse of E2's deal to buy Sparrows Point would affect operations at the facilities he represents.
Shares of Esmark, which began trading after it completed its takeover of publicly held Wheeling-Pitt late last month, fell to a new low yesterday, shedding $2.67 to $9.28 per share.
Unlike Wheeling-Pitt, 118-year-old Sparrows Point is profitable and more efficient than it has ever been. A number of potential bidders expressed interest in the plant, which employs fewer than 2,500 and has the capacity to produce 3.9 million tons of steel annually.
But after a decade of consolidation among the industry, there are very few American companies with enough cash and without antitrust concerns to buy Sparrows Point, said steel analyst Jonathan Anton.
Pittsburgh-based U.S. Steel manufactures too much tin to make a play for Sparrows Point, he said. Charlotte, N.C.-based Nucor may have a hard time developing a relationship with the Steelworkers because none of its workers are unionized, he said. And West Chester, Ohio-based AK Steel may not have the cash to buy Sparrows Point on its own but could be an attractive partner, he said.
"I would really expect foreign buyers to be nosing around it," said Anton, of Global Insight in Washington.
Engineers from Mexico-based steelmaker Altos Hornos de Mexico SA toured Sparrows Point a week ago. The Mexican steelmaker visited the plant earlier this year when Mittal was accepting bids. CSN Brazil, which lost bids to buy both Wheeling-Pitt and Sparrows Point to Esmark, could return to bid again, he said. Russian and Indian companies have also been shopping for North American assets, he said.
Steel analyst Michael Locker, of Locker Associates Inc. in New York, said Esmark's chances of winning Sparrows Point on the second pass will depend on the strength of its partners.
"I'm sure Esmark believes it can still do this deal, but there are several indications that they have a weak position," he said.