Bankrupt companies add to steelmaker's success
The company has received criticism from investors.
CLEVELAND (AP) -- Like a seasoned shopper digging through clearance bins, International Steel Group Inc. has made bargain-hunting a way of life.
In business for just two years, the company has catapulted to the top of the industry by buying bankrupt steelmakers at bargain prices, cutting costs including retirees' pensions and reinventing the companies so they can produce more steel cheaper than nearly anyone else in the United States.
LTV. Acme. Bethlehem. The former steel giants have all been saved by Cleveland-based ISG.
ISG has been criticized by some investors for taking on heavy debt and questioned by some analysts who are skeptical that its cost-cutting plan will work at plants many consider not worth saving. But overall, ISG has gotten a positive response.
"ISG has been pretty successful, more successful than any time in the past," said Mary Beth Deily, an associate professor of economics at Lehigh University who follows the industry.
ISG has succeeded at "dealing with the union and getting everybody on board and moving ahead and getting the workers to kind of buy into what sacrifices they have to make to keep this capacity running," Deily said.
Offer for Weirton Steel
Certainly, it convinced bankrupt Weirton Steel Corp., which was gasping for its last independent breaths when ISG swooped in last week with a $255 million buyout offer.
Weirton Steel, the small company across the Ohio River in West Virginia, had fought fiercely for years to stand on its own. It was once the largest American company wholly owned by its workers, although that ownership has since dwindled to about 21 percent.
"Without question," Weirton union president Mark Glyptis said of ISG's offer, "I view this as a godsend."
Glyptis, who heads the 2,700-member Independent Steelworkers Union, knows that if the sale is approved by a bankruptcy court, Weirton will follow the ISG model, shedding costs through job cuts and benefit reductions for retirees.
The deal makes sense for ISG, too, said Michael Locker, a New York steel analyst. He said ISG would acquire one of the nation's largest tin-plate mills, continue to gain market share, seize more control of steel prices and solidify its role as a major player in consolidation.
Some have doubt
Still, some analysts doubt ISG can afford to keep a promise to keep most of Weirton's operations open long-term because of problems getting raw materials and long-standing inefficiencies that may be beyond repair.
Charles Bradford of Bradford Research/Soleil Securities Corp. says Weirton is in an undesirable geographic location because it's far from the Great Lakes region, where ore is mined.
"Weirton has to put it on a train and ship it, and that adds to its costs," he said. "This is basically a mill that should have closed decades ago."
Analysts say they'll be watching to see how much new debt ISG takes on once the Weirton deal is completed. ISG recently paid down a big chunk of its $750 million in debt with proceeds from its $462 million December initial stock offering.
An infant in an industry that dates to the 1800s, ISG could have the capacity to become the country's top producer of integrated steel, meaning steel made from raw materials, supplanting U.S. Steel.
Analysts say ISG has succeeded so far because of its new approach. Bucking a tradition of continual steel output, ISG pulls back production when demand drops, preventing an abundance of product that pushes prices lower.