WL Ross & amp; Co. has the money and management team needed to bring back the steel mills, an expert said.
By DON SHILLING
VINDICATOR BUSINESS EDITOR
YOUNGSTOWN -- A judge approved selling nearly all of LTV Steel to a New York investment company at a price that analysts say is a bargain.
WL Ross & amp; Co. received authority this morning to pay $127 million in cash -- $80 million for LTV steel plants and $47 million for inventory.
LTV is valuing the deal at $194 million, however, because it includes $67 million for assuming responsibility for its letters of credit and substantial savings created by the ownership transfer. Ross also is assuming $200 million in environmental work and other liabilities.
Before issuing his ruling, Judge William Bodoh of U.S. Bankruptcy Court in Youngstown said he would not rule on the business judgment of LTV picking Ross, only that it followed the law in doing so.
LTV said it picked Ross after a private auction Wednesday. Ross officials have said the new owner intends to employ 3,000 of LTV Steel's 7,500 workers.
Tony Taccone, a partner with First River Consulting in Pittsburgh, said the cash payment is low considering it includes LTV's integrated steel mills in Cleveland and Indiana Harbor.
LTV's mills have the capacity of producing about 8 million tons of steel a year, so Ross offered about $40 per ton of capacity.
Taccone said no one builds an integrated steel mill these days, but building a minimill would cost about $400 per ton of capacity. For one-tenth of that cost, Ross would receive LTV's integrated mills, which are capable of producing high-quality steel, he said.
Integrated steel mills would be much more expensive to build because they use a blast furnace and other equipment to make steel from scratch, while minimills make steel from scrap.
Not such a good deal: John Tumazos, an analyst with Prudential Securities Research in New York, said the price sounds like a good deal for Ross, but not for others involved in LTV's bankruptcy proceedings.
"If I were a creditor, I'd be going bonkers," he said.
Tumazos said he wouldn't be surprised to see another company offer a higher bid, even if it comes during today's hearing in U.S. Bankruptcy Court.
If there was no higher bid, he said, it could mean that the equipment at LTV steel mills hasn't been maintained well while LTV was struggling the past couple years or there are environmental issues that are scaring off bidders.
Ross has agreed to buy LTV's two mills in Cleveland, one steel mill in Indiana, a finishing plant in Illinois, a coke plant in Warren, a lime plant in Grand River, a pellet terminal in Lorain, two railroads, LTV Steel Technology Center in Independence, and LTV's interest in L-S Electrogalvanizing in Cleveland.
The company said it didn't know where headquarters would be.
LTV still is trying to sell its LTV Copperweld unit, which employs about 120 in Youngstown.
Success: Taccone said he thinks Ross has a good chance of operating the LTV Steel plants successfully if the deal is approved by the judge.
He said Ross is a well-funded company that has experience in turning around troubled companies and has assembled a strong management team led by Rodney Mott, who has worked for Nucor Steel and U.S. Steel.
"Mott is a bonafide flat-rolled steel guy," Taccone said.
The new owner will face the challenge of finding customers who abandoned LTV during its bankruptcy and negotiating a money-saving contract with the union, he said.
Ross will likely find customers because the domestic market needs more steel now.
Steel supplies have been down because importers have been curtailing shipments in advance of a ruling on steel tariffs expected next week by President Bush, he said. Importers have been reluctant to send shipments because Bush may approve higher tariffs, he said.
Also, the stopping of production at LTV mills in December had some users scrambling for steel, he said.
Mark Parr, an analyst with McDonald Investments in Cleveland, said the industry is starting to show signs of a supply shortage. That is happening partly because of a reduction in imports and partly because the economy seems to be stabilizing, he said.
Ross said that it intends to produce about four million tons of steel with LTV's mills, which would be about half of their capacity.
Regarding a labor contract, Taccone said Ross' preliminary talks with the union indicate the two sides may be able to reach an agreement. The United Steelworkers of America and Ross say they have reached an agreement to negotiate a contract.
Mike Rubicz, who represents coke plant workers as president of USW Local 1375, said it's too early to talk about how the coke plant would be restarted or how many people would be employed. It used to employ 200 before it was placed on hot idle.
Rubicz said he's pleased LTV picked Ross because it was the only bidder to tell area officials that it planned to restart the plant.
He said he remains cautious, however, until a deal is finalized. Union leaders thought the plant had a buyer a few weeks ago only to learn in court that the deal had unraveled.