U.S. Steel, Bethlehem Discuss Industry Consolidation

At least four of the country's largest steel companies are talking about merging into one, pressing the government and the United Steelworkers union to help bring about the combination, officials of three of the companies said Tuesday.

"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 Robert S. Miller, chief executive officer of Bethlehem Steel, which filed for Chapter 11 bankruptcy protection on Oct. 15.

U.S. Steel, Bethlehem Steel and Wheeling-Pittsburgh Steel are among the companies involved in discussions. Other potential partners weren't identified by steel executives.

"It's a good solution to the industry's problems, and it fits the direction that the government is saying they want the industry to go," said Jim Kosowski, spokesman for Wheeling-Pittsburgh Steel Corp., which filed for bankruptcy last fall.

Among other large producers, Nucor Corp. and LTV, which is also in bankruptcy, didn't immediately return calls for comment.

A consolidation would require a labor agreement that would reduce employment and operating costs and increase productivity, and government help with health-benefit and pension costs plaguing the industry, U.S. Steel and Bethlehem Steel said.

At Bethlehem, for example, those 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 steel import restrictions favored by President Bush also are essential if a consolidation were to proceed. The U.S. International Trade Commission is scheduled to vote Friday on recommendations to the Bush administration to help companies recover from damage caused by low-priced imports.

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 be nearly double the more than 17-million-ton capacity of U.S. Steel, the top U.S. producer, though still 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.

U.S. Steel spokesman John Armstrong said the negotiations were in the form of "mostly confidential discussions."

"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 further steel industry job reductions to cut costs, with the trade-off being better job security, Miller said.

The United Steelworkers union supports consolidation to help the industry survive but union officials disputed the need for job cuts.

"Any restructuring must preserve the jobs of the workers who have made sacrifice after sacrifice in order to keep the industry alive," said Leo W. Gerard, the union president.

Union spokesman Marco Trbovich said the industry has already been "downsized in the worst way possible: 28,000 jobs have been lost, 13 million tons of capacity have been lost and 27 companies have gone into bankruptcy over the past 15 months."

A large merger could raise antitrust issues, Miller acknowledged, though he said "we believe that ... this would pass muster from an antitrust standpoint."

Michael F. Gambardella, an analyst with J.P. Morgan, said steelmakers must consolidate to stay in business. "The U.S. steel industry is the most fragmented steel industry in the world," he said.

Gambardella said a major obstacle will be the health and pension obligations that potential merger partners don't want to assume, costs he said total more than $10 billion for the top five U.S. steel producers.

Nevertheless, he said, "I think the possibility of consolidation happening is high because something has to give, with the large number of companies in bankruptcy. There is just too much at stake."

The companies have had discussions with key administration officials and at least a dozen legislators 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.

Though feedback was encouraging, Miller said, "It would be premature to say they have totally bought the program that we are promoting."

In early afternoon trading on the New York Stock Exchange, shares of U.S. Steel's parent company, USX Corp., rose 69 cents to $16.85 while Bethlehem Steel shares were up 6 cents at 42 cents.