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Friday, October 04, 2002

By Len Boselovic, Post-Gazette Staff Writer

Independent Steelworkers Union President Mark Glyptis speaks in reverent tones about the "fabric of the ESOP," the employee stock ownership plan that made Weirton Steel the nation's largest employee-owned company when it was formed in 1984.

	Millwright Don Lamp shows his confidence on Sept. 23, 1983, that Weirton Steel employees would vote to purchase the plant from National Steel Corp. under and employee stock ownership plan. The workers approved the plan that day, and National Steel turned over operation of the plant in January 1984. (Post-Gazette photo)

Eighteen tough years later, the fabric looks more like a loincloth.

Employees and other shareholders of the long-troubled steelmaker are being asked to make it easier for Weirton to issue $50 million to $100 million in stock and use the proceeds for acquisitions. Because Weirton's current stock is valued at only $20 million, the new shares would give outsiders controlling interest in the steelmaker.

In short, after a reorganization eliminated 13 percent of their jobs and an industry collapse pulverized the value of their shares, employees are being told that if Weirton is to survive, it won't be as their company.

"We value the ESOP and we value the fabric out of which it was woven," said Glyptis, union president since 1991.

"But in order to be a survivor at the end of the day, the status quo is not going to get you there."

Although Weirton is still touted as an employee-owned company, the capital intensive nature of the steel industry forced workers to relinquish 100 percent ownership long ago. Weirton offered stock to the public in 1989 and again in 1994 to finance mill improvements. The sales reduced employee ownership to 42 percent of the company's voting stock.

Weirton President John H. Walker has received high marks from industry analysts for restructuring without taking the steelmaker into bankruptcy, where more than two dozen steelmakers have sought refuge the last three years from cheap imports, falling prices and high costs. Weirton has lost $611 million over the last five years and would have lost even more if not for a $170 million gain from the 1999 sale of part of its investment in MetalSite, an online steel venture that ultimately collapsed.

Since last year, Walker has negotiated concessions from workers, bondholders and vendors. Finding a strategic investor for the cash-short steelmaker is the final step of his plan to make Weirton less vulnerable when the cyclical industry heads into its next downturn.

The steelmaker's major product is tin-coated sheet used in food cans and other containers. Weirton now accounts for about 25 percent of domestic production and would love to add to that share, but Walker says it needs more flexibility to do so. That's why it's seeking approval to bring in outside investors for strategic acquisitions.

Its healthier competitors already are using mergers and acquisitions to boost their businesses. U.S. Steel, for example, raised its share of the tin market to 40 percent last year when it bought bankrupt LTV Steel's tin mill business. The assets of two other bankrupt tin producers, Bethlehem Steel and National Steel, are among those that eventually may be auctioned off.

Without a wad of cash to make its own bid for the Bethlehem or National assets or other opportunities that may come along, Weirton's executives say the steelmaker must change its charter and bylaws. "It's all about being ready if and when an opportunity presents itself," said Senior Vice President Mark E. Kaplan.

The changes would give Weirton's board of directors authority, under certain circumstances, to issue stock to new investors who would bankroll an acquisition. The board could act only if the new investors would end up with a controlling interest in Weirton; the new investors recognized the union's right to represent workers; and the transaction involved a steel-related business.

The proposals would require approval by 80 percent of Weirton's shareholders. Moreover, 90 percent of the board's nine members -- including Glyptis and one other union-nominated director -- would have to approve the transaction. "One person on the board could stop that from happening," Glyptis said.

The union president says he would only give his consent to issuing new stock if the acquisition improves job security and protects the pension and health-care benefits of workers and retirees.

"What we're looking for is the long-term viability of this company," Glyptis said.

Walker says the changes don't affect requirements that if someone wants to buy all of Weirton's existing shares, 80 percent of Weirton's shareholders would have to approve the sale.

The proposals would increase Weirton's number of authorized common and preferred shares from 57.5 million to 275 million. Additionally, the employee-owners are being asked to exchange preferred shares they received in 1989 for common stock. The preferred shares, which carry 10 votes per share to the common's one vote per share, account for about half of the employee's stake in Weirton.

Employees aren't the only Weirton stockholders who are upset. One private investor who asked not to be identified predicted the proposals would be voted down because they would dilute shareholders who have already suffered enough.

Weirton shares closed yesterday at 43 cents.

For the time being, Weirton's business is on the mend. Walker's cost cutting and rising steel prices narrowed Weirton's first half operating losses to $69.8 million, vs. a $102.8 million operating loss in the first half of last year. Sales were off 1 percent to $487 million while shipments fell 2 percent.

The proposed changes were outlined in a preliminary proxy statement submitted to the Securities and Exchange Commission Sept. 18. The agency has 30 days to review the proxy, after which a final proposal will be sent to shareholders.

"Obviously, there are an awful lot of questions that people have," Walker said.

Weirton hopes stockholders will vote before Thanksgiving. But given what's at stake and the SEC's busy agenda, "It may slide into the first part of December," Walker said.