International Steel considers Bethlehem takeover
The Pennsylvania based US steelmaker Bethlehem Steel will be examined for a buyout by International Steel Group (ISG) which would lead to a further consolidation in the
US steel industry. Bethlehem Steel, once a major steel maker in the US, filed for Chapter 11 in October 2001, and since then has been operating under US bankruptcy law. The company reported a $13.5 million loss in the month of September this year.
According to reports from the industry, International Steel Group (ISG) of W L Ross Co. LLC is looking to buy Bethlehem Steel, which is currently operating, to which industry experts approach with suspicion, as costs of an operating plant would be a lot higher than a defunct one.
Earlier this year, investment firm W L Ross & Co LLC bought defunct LTV Corp., now called International Steel (ISG), when the company became inoperative, i.e., there were no operational costs like pensions, health care payments for retirees.
Bethlehem Steel's commitments of health care benefits for retirees amounting to $3 billion plus a $3.2 billion pension fund obligation are main drawbacks for any volunteer entity to acquire the company. On the other hand, the federal Pension Fund is reported to be in preparations to relieve the company from such burden soon. According to experts, it is rather easier to wait for a close down before any takeover, taking the costs down ultimately.
Yet, W L Ross & Co states that closing down a plant might be very costly as the furnace has to be cooled or put it on hot-idle which is to run the furnace hot without
production. According to company officials, to keep Bethlehem on hot-idle would cause a $3 million a week besides costs of rehiring workforce and restart the plant thereafter. Such statement indicates W L Ross & Co has no fixed plans to wait for a close down before any takeover.
ISG and Bethlehem signed an exclusivity agreeement to expire in January 6, 2003 allowing ISG 60 days to study the conditions of a possible acquisiton. It seems that Bethlehem can endure until the half of next year without a shutdown, having enough lliquidity to run the business.