WL Ross Eyes IPO For Steel Platform –

WL Ross & Co. is considering an initial public offering of steel platform company International Steel Group that could raise as much as $400 million, said sources familiar with the deal. The turnaround firm recently hired Goldman Sachs and UBS Warburg as joint bookrunners in the proposed IPO.

As previously reported in Buyouts (01/20/2003), ISG offered to buy Bethlehem Steel Corp. for $1.5 billion. Nearly a month later, on Feb. 5, Bethlehem agreed in principle to ISG’s offer, although the deal is still subject to the approval of Bethlehem’s board of directors and the support of the bankruptcy court.

In a statement, Bethlehem Chairman and CEO Robert Miller said he believes the acquisition “will provide the best value achievable to Bethlehem and will also allow Bethlehem’s well-maintained facilities to remain in operation, thereby preserving thousands of jobs.”

One source stressed that ISG intends to float itself in a public stock sale even in the unlikely case that the Bethlehem deal is blocked. While the source indicated that “market conditions” would determine the actual size of the offering, it is expected that the IPO would represent “a very small portion of the company… and WL Ross would still control ISG.” The IPO, the source said, “could occur as early as June,” although that too will be determined by market conditions.

WL Ross began the ISG platform with its February 2002 acquisition of LTV Corp. (Incidentally, that deal won Buyouts’ Public-to-Private and Middle-Market deals of the year awards-see story, pg. 34). He paid $325 million for the assets, plus unspecified costs associated with the assumption of environmental liabilities. After subsequently naming the new company International Steel Group, and hiring former Nucor executive Rodney Mott to head ISG, the firm then paid $65 million to acquire Acme Steel.

With the acquisition of Bethlehem, ISG will become the largest steel company in North America with shipment capability of 16 million tons. The deal will give ISG steelmaking facilities in Burns Harbor, Ind.; Sparrows Point, Md.; and Steelton and Coatesville, Pa. ISG will also take over Bethlehem’s finishing plants in New York, Pennsylvania and Ohio, among other assets and joint ventures.

Bethlehem, which has been in business for more than 150 years, has been under bankruptcy protection since October 2001. In the latest fiscal year, Bethlehem reported a net loss of $700 million, improving on its 2001 deficit of $1.9 billion. Sources close to the deal expect the transaction to close by April.

U.S. steel companies, with the help of the Bush Administration-imposed tariffs, appear to be on the mend based on the latest figures available, and Goldman Sachs, in its “Steel Scraps Monthly” research note, indicated, “We see a turn ahead for U.S. pricing, as imports fall and demand rises.”

“Seasonal factors should boost demand in the spring, while low prices in U.S. markets are causing import levels to diminish. Imports may not be sufficient to satisfy even soft demand,” Goldman added. If the IPO does happen in June, as planned, it appears that the conditions could be ripe for a successful offering.

The IPO market, meanwhile, has struggled, with 2002 among the weaker years for public offerings. In all there were a total of 97 IPOs that were floated last year, which raised $26.8 billion, versus 2001, when there were 107 IPOs that generated a total of $38.99 billion.