LIFTING THE MITTAL CURSE

Sparrows Point's Sale is Announced

Finally, good news for Sparrows Point and for the future of American-made steel: The Mittal curse apparently has been lifted.

Congratulations to the Bouchard brothers, Craig and Jim, the prospective owners of the Point, and to Thomas Barnett, chief of the anti-trust division of the Department of Justice, who forced Mittal to sell the plant and will continue to monitor Mittal’s behavior as the sale closes.

Why is this sale important? Because the new owners will utilize Sparrows Point to its full capacity and not manipulate its production to keep domestic prices high, as was the case with Mittal.

Under the jet-setting Lakshmi Mittal, Sparrows Point has been plagued by underinvestment, management turnover, an unexpected six-week outage of its “L” blast furnace, and suspicious cutbacks of hot-rolled coil (HRC), its bread-and-butter product.

Photo of Jim and Craig Bouchard Jim and Craig Bouchard

Craig Bouchard has publicly pledged to run the plant at full tilt and to ship slabs to the Bouchard-controlled Wheeling-Pittsburgh Corp., which operates finishing mills in the Ohio Valley. (Sparrows Point currently supplies slabs to Mittal-owned Weirton Steel in the same area.)

The Point will be owned by four entities, led by Esmark and Wheeling-Pitt, both controlled by the Bouchard brothers. Co-investor CVRD, of Brazil, will supply iron ore to the mill, which has lacked a secure ore supplier for many years, making it vulnerable to spikes in world ore prices. Another co-investor, Industrial Union of Donbass, a Ukrainian steel producer, is seeking a foothold in U.S. markets.

Critically, the man who will be responsible for day-to-day operations is Wheeling-Pitt’s CEO John Goodwin. Goodwin is a seasoned and committed steelman who is well aware of the poor practices at Mittal – he chose not to work for the company when it took over International Steel Group (ISG), where he was chief operating officer, in 2005.

Sparrows Point was founded by two brothers – Frederick and Rufus Wood – back in 1887. Since 1916, the plant has been part of a conglomerate, first Bethlehem Steel, then ISG, then Mittal – all three founded by high-rolling financiers.

A return to greater independence and to a company committed to making steel under a new set of brothers, who cut their teeth in the steel distribution business, has the potential to help ensure the embattled mill’s future. At present, the terms and price of the sale have not been announced, though the price is rumored to be between $1.3 and $1.4 billion. It's impossible to say how the credit squeeze in world markets might affect the sale.

Active oversight by Barnett’s anti-trust division has been necessary to get the deal to this point (a signed contract by Mittal). The sale of Sparrows Point was ordered following Mittal Steel’s takeover of competitor, Arcelor S.A., which gave the former a dominant position in the production of rolled tinplate in North America.

Mittal failed to sell Sparrows Point by May 20, 2007, as ordered by the government, and has since asked for four extensions. The request by DOJ for a court-appointed trustee to oversee completion of the sale reflects the department’s lack of confidence in the seller.

The trustee, appointed yesterday by the U.S. District Court for the District of Columbia, is Joseph G. Krauss, a former Federal Trade Commission lawyer. He will be responsible for making sure that Mittal follows through with the sale in a timely manner.

If all goes well, Esmark should own the Point within 90 days.

Here are excerpts about the sale from the Dundalk Eagle:

Sparrows Point Steel Plant Sale
Greeted with Optimism

By Joseph M. Giordano

August 8, 2007

It’s Mittal no more.

Last Thursday, the newly merged ArcelorMittal steel company announced that its U.S. division is selling its Sparrows Point facility partly to Esmark Inc. and Wheeling-Pittsburgh Corp. The new owners intend to create jobs and use the plant’s steelmaking capabilities to their full extent, according to Esmark spokesman William Keegan.

Esmark co-owner Craig Bouchard took an impromptu tour of the plant on Monday, Keegan said, and announced a few plans that Esmark has for the facility in the future.

The deal is not final and Esmark is a minority shareholder in the venture with Wheeling-Pittsburgh, a Wheeling, W.Va., company Esmark acquired last year. Bouchard plans to run Sparrows Point at full capacity and invest in new facilities, which could lead to more jobs at the plant, according to Keegan.

Chicago-based Esmark was founded in 2003 by brothers Craig and James Bouchard and is a conglomerate made up of the steel companies Ferrostaal, Mars Industries and Meda Steel.

Wheeling-Pittsburgh is a producer of hot-rolled, cold-rolled, hot-dipped galvanized, electro-galvanized, black plate and electrolytic tin plate, according to that company’s Web site.

The majority shareholders in the new venture are Companhia Vale do Rio Doce, a Brazilian iron ore and metals producer, and Industrial Union of Donbass Corp., a Ukranian steel producer, both of which have their own plans for the Sparrows Point site.

The two companies are considering building an iron-ore pellet plant or coking-import facility at Sparrows Point, adding more jobs, according to Keegan.

Bouchard announced that Wheeling-Pittsburgh will annually take about 850,000 tons of slab from Sparrows Point and turn it into steel coils for further sale, Keegan said.

“The sale appears to be the best of possible outcomes,” steel industry expert and former Baltimore Sun reporter Mark Reutter said on Friday. “The Bouchards have a solid reputation in the steel service business. And John Goodwin, CEO of Wheeling-Pittsburgh Steel, is considered to be one of the finest steel-mill operators on the planet.

“If Sparrows Point needs upgrades and improvements, I believe they’ll do it.”

Reutter, who chronicled the birth and death of Bethlehem Steel in his 2005 book Making Steel: Sparrows Point and the Rise and Ruin of American Industrial Might, had one caveat about the new owners.

“Esmark is untested as a steelmaking company,” Reutter said. “The Bouchard brothers have made some shrewd moves to create a small steel empire in the Midwest, and Sparrows Point will increase their range of products and economies of scale.”

From the steelworker union’s perspective, the sale looks like a positive move. “We are looking forward to our growing relationship with Esmark and their commitment to invest in the acquisition,” Leo Gerard, president of the United Steelworkers of America, said in a press release issued Friday. “We have full confidence that the Esmark venture will grow steelworker jobs in Baltimore and fulfill the commitments to the retirees."

John Cirri, president of USW Local 9477, also weighed in on the effect that the sale would have on the approximately 2,500 union members employed at Sparrows Point. “The sale of [Sparrows Point] was at first upsetting because it’s our fourth owner since 2001,” Cirri said. “But it may turn out to be a blessing. We have a great workforce, many upgrades and we still produce great steel.”