Steelmakers in merger talks

December 4, 2001 Posted: 1833 GMT

NEW YORK (CNN/Money) -- At least four of the country's largest steel companies are pressing the U.S. government and the United Steelworkers union to help bring about a consolidation of the domestic steel industry to take on foreign competition, U.S. Steel and Bethlehem Steel Corp. said Tuesday.

"Our vision is to develop a growth-oriented, world competitive steel company with a global reach," said Thomas J. Usher, chairman of U.S. Steel's parent company, USX (X: up $0.70 to $16.86, Research, Estimates).

Robert S. Miller, chief executive of Bethlehem Steel (BS: up $0.06 to $0.42, Research, Estimates), said at least four companies have been involved in preliminary discussions, though he and officials of top domestic producer U.S. Steel declined to identify the other companies taking part.

"What I see coming out of it is a company that has the size and strength to compete in the global steel market of the future," said Miller.

Bethlehem Steel, the No. 3 U.S. steel producer, filed for Chapter 11 bankruptcy protection on Oct. 15.

Any consolidation would require a labor agreement allowing reduced employment costs, reduced operating costs, increased productivity and government help with health-benefit and pension costs that hamper the industry, U.S. Steel and Bethlehem Steel said.

At Bethlehem, for example, these include health care costs for 130,000 beneficiaries, made up of 13,000 active workers, 74,000 retirees and their dependents. Potential merger partners are reluctant to take on the so-called "legacy" costs.

U.S. Steel said the implementation of steel import restrictions favored by President Bush would be required if such a consolidation plan were to proceed. The U.S. International Trade Commission is scheduled to vote Friday on remedies it will recommend to the Bush administration to help companies recover from damage caused by low-priced imports.

Analysts called U.S. Steel's announcement good news.

"It's a very positive development, since we've been talking about the need for consolidation for a long time,"' said Michael Gambardella, a senior metals analyst at J.P. Morgan. "The U.S. steel industry is the most fragmented in the world, and one of the major impediments to consolidation is the large legacy obligations that these companies have." 

The U.S. steel industry has been struggling for several years because of cheap imports, weak domestic demand and spiraling costs. The top five steel producers have more than $10 billion of un-funded pension and health care obligations, Gambardella said.

Miller said it would take at least until the middle of 2002 to complete such a complex merger, resulting in a company with a capacity to produce about 30 million tons of steel a year.

That would far exceed the more than 17 million-ton capacity of U.S. Steel, the top U.S. producer, though it would still be dwarfed by the 50 million- ton capacity of the pending merger of France's Usinor, Luxembourg's Arbed and Spain's Aceralia to form the world's largest steelmaker, Miller said.

"They are not far along at all in terms of their detail; it's a concept discussion," said Miller. "The threshold question is government willingness to come to the party."

Unions would have to agree to more steel industry job reductions to cut costs, with the trade-off being better job security, Miller said.

The companies have had discussions with key administration officials, including the Commerce and Treasury secretaries and trade officials, as well as at least a dozen senators and representatives from steel-producing states, said Miller, who as a top Chrysler executive in the 1980s helped secure a federal loan guarantee that kept the automaker in business.

The steel companies received encouraging feedback from government officials, Miller said. "It would be premature to say they have totally bought the program that we are promoting," he said.

--from staff and wire reports