Severstal selling Wheeling-Pitt mills and other assets
Retrenchment for the Russian steelmaker, which entered at top of U.S. market in 2008
March 3, 2011 10:00 AM
VWH Campbell Jr./Post-Gazette
Wheeling-Pittsburgh Steel facility in Allenport, Washington County.
By Len Boselovic Pittsburgh Post-Gazette
Russian steelmaker OAO Severstal is selling former Wheeling-Pittsburgh Steel mills as part of a $1.2 billion divestiture, marking a significant retreat from its high-priced foray into the U.S. market.
In addition to the Wheeling-Pitt mills along the Ohio River, Severstal North America is selling a mill in Warren, Ohio, that in a prior incarnation was WCI Steel and a Sparrows Point, Md., mill once part of bankrupted Bethlehem Steel.
Many of the plants have been idled or operated on limited schedules since the recession touched ground in the fall of 2008, shortly after Severstal purchased the properties for $2.2 billion.
The buyer is WCI's former owner, the Renco Group. It will pay Severstal $125 million in cash and take on a $100 million secured note from Severstal.
Renco will also assume $317 million in debt and $650 million in employee-related and environmental liabilities.
Severstal expects to complete the transaction this month following approval by antitrust regulators and ratification of a tentative labor agreement between Renco and the United Steelworkers union.
USW District 1 director David McCall said the union was ready to do whatever it takes "to ensure the profitability of these plants."
"Our workers are ready to focus again on making steel safely and efficiently, as they have in all of these communities for generations," Mr. McCall said.
Tuesday's announcement culminates what industry analysts said were months of negotiations between Severstal and Renco. It comes as U.S. steelmakers are returning to profitability after a long, slow recovery from a recession that began shortly after Severstal completed its shopping spree in the summer of 2008.
U.S. mills are currently operating at 75 percent of capacity. While they are benefitting from stronger order books and prices that have escalated nearly 50 percent since October, their prospects are tempered by sharply higher raw material prices.
Domestic steelmakers' ability to fully capitalize on the higher steel price tags could be compromised as Renco resumes production at the Wheeling-Pitt and Sparrows Point mills, giving steel buyers more options.
Renco's startup schedule could be delayed because of the higher prices it will have to pay for iron ore and coke, said Tony Taccone of First River Consulting in Pittsburgh. Both raw materials are needed to fuel blast furnaces at Wheeling-Pitt and in Maryland that currently are idle.
"While they will have to buy their way back into the market, they'll have an issue with raw materials," Mr. Taccone said.
New York City-based Renco Group's other business interests include the King's Jewelry stores headquartered in New Castle; AM General, the maker of the Humvee; magnesium and lead and material handling equipment.
Renco owned WCI Steel when it filed for bankruptcy protection in September 2003.
Three years later, it agreed to assume responsibility for WCI's underfunded pension fund as part of the steelmaker's court-approved reorganization.
WCI's failure came near the end of a wave of bankruptcies that plagued the domestic steel industry and led to its consolidation. Wheeling-Pitt's operations and Bethlehem's Sparrows Point mill also changed hands as part of the massive restructuring.
Severstal aspired to be one of the consolidators.
Building on its initial position as owner of the former Rouge Steel plant in Dearborn, Mich., it acquired Sparrows Point in May 2008 from ArcelorMittal, the world's largest steel producer, as part of a U.S. Justice Department-ordered divestiture.
It acquired Wheeling-Pitt and WCI three months later.
The divestiture will leave Severstal with the Dearborn mill and another in Columbus, Miss.
Correction/Clarification: (Published March 4, 2011) Wheeling-Pittsburgh Steel has a facility in Allenport, Washington County. A caption in Thursday's section had an incorrect location.