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CLEVELAND International Steel Group plans public stock offering

Thursday, November 27, 2003

While other steel companies struggle, ISG forges ahead.
CLEVELAND (AP) -- As the giants fell, International Steel Group Inc. began picking up the pieces: Acme. LTV. Bethlehem. Today, the upstart is the second-largest integrated steel producer in North America.
In the year and a half since it was formed, privately held ISG has made a name and fortune buying bankrupt steel companies for bargain prices, cutting costs and reinventing the companies to produce more steel cheaper than nearly anyone else in the United States.
Now the business world is watching as the company prepares to go public at a time when even more steel companies are crumbling. ISG's $250 million initial stock offering -- the company won't say when it will come -- will either solidify the steelmaker's mark as one of the industry's heavyweights or set it up for the kind of fall it's made its riches from.
Industry experts say ISG's ability to succeed in tough times makes it attractive to potential investors.
"It showed the way, and most people were convinced that there was no way," said Mike Locker, president of Locker Associates Inc. in New York and author of the Steel Industry Update Newsletter.
Nontraditional approach
Bucking steel tradition, ISG pulls back production when it needs to, preventing an abundance of product that pushes prices lower. It keeps costs low by having every worker do every job in the mill instead of specializing. Management was thinned out, getting the powerful United Steelworkers of America on board with ISG.
Mark Granakis, president of Steelworkers Local 979, said the ISG contract is a landmark because of the friendly tone it sets.
Employees now have a say in day-to-day operations and an interest in ISG's success: They get profit-sharing checks at the end of each financial quarter.
"We want to see the company succeed, obviously for our own security but in addition, make a lot of money so they can share that money with us," Granakis said.
Analysts say the friendlier labor relationship is a big plus for ISG.
"They are setting a new pattern in this industry, an industry that is in grave distress," Locker said.
Union support
Leo Gerard, USWA president, said the union appreciates ISG Chairman Wilbur Ross' creative approach despite the pain that sometimes accompanies it, such as dumping pensions and benefits for 82,000 retirees when the company took over LTV.
"ISG and Wilbur Ross, in particular, provided an opportunity to revitalize a company," Gerard said.
Ross said he was unable to answer any questions about ISG because of the company's application with the Securities and Exchange Commission to go public.
Filings with the SEC show ISG posted a $58 million operating profit for the first half of this fiscal year, despite a first-quarter loss of $1.6 million on net sales of $461.7 million. The loss was due to ISG's first payments to the USWA's pension fund and one-time costs related to setting up inventory at new plants.
The company also says it wants to keep adding to its arsenal, started in April 2002 when WL Ross & amp; Co. LLC bought steel giant LTV Corp.
Acme Metals Inc. of Riverdale, Ill., and heavyweight Bethlehem Steel of Bethlehem, Pa., were next. Based in suburban Richfield, ISG has acquired plants in 10 states.
Bankruptcy filings
Since 1997, 41 steel companies have filed for bankruptcy protection. WCI Steel in Warren is one of the most recent, filing its voluntary bankruptcy petition in September. The third-largest industrial employer in the Mahoning Valley with 1,800 workers, WCI is continuing to operate while it works to reorganize its debts. Company officials and a spokesman for its parent company have said they do not plan to sell WCI.
But speculation there swirls, as it does whenever a steelmaker files for bankruptcy protection, that ISG might be waiting in the wings with its checkbook open.