WARREN Will WCI Steel continue to be independent?

The company maintains that it's not interested in findinga buyer.
By CYNTHIA VINARSKY
VINDICATOR BUSINESS WRITER
WARREN -- A New York analyst who is very familiar with WCI Steel says the Warren mill's chances of emerging from bankruptcy protection as a stand-alone company are "slim, but not impossible."
But Michael Locker, with the business consulting firm of Locker & amp; Associates, reviewed WCI's business plan about a year ago before it filed for Chapter 11 bankruptcy. He said it's unclear whether industry giant International Steel Group might be considering a WCI acquisition.
Locker commented on WCI's future Friday in the wake of ISG's offer to buy the assets of Weirton Steel Corp. in Weirton, W.Va., for $255 million. It would be the fourth major acquisition for ISG since the Cleveland company was created in 2002 by New York financier Wilbur L. Ross, and the announcement renewed speculation that WCI might be ISG's next buyout target.
WCI's position
"There have been lots of rumors, but there's been absolutely no discussion with ISG about selling the company," said WCI spokesman Tim Roberts. "Our intention is to emerge from bankruptcy as an independent company, and that hasn't changed."
He said ISG has not requested financial information or other data that would be a likely precursor of any sales discussions, and he knows of no other companies that have expressed interest.
"Everybody says that," Locker responded. "I'm not saying it may not be true, but the days of small independent steel companies in the carbon area are over, and everybody knows that."
He acknowledged that WCI is unique because of its specialized product mix -- 185 grades of custom and commodity flat-rolled steel -- but the analyst could not cite another steel mill that has emerged from bankruptcy and continued to operate.
"They either disappear or they're gobbled up," he said, citing Alabama-based Gulf States Steel, which closed in 2000; Acme Metals and Bethlehem Steel, which were both bought out by ISG; and Wheeling-Pittsburgh Steel, which has emerged from Chapter 11 but is looking for a buyer.
WCI's plan to emerge as an independent is "not impossible, but it will be very difficult," he said.
Acquisitions
Charles Bradford, an analyst with Bradford Research in New York City, said both ISG and U.S. Steel, the nation's No. 2 and No. 1 steelmakers, respectively, have said they're looking to make acquisitions.
He emphasized the secretive nature of metals buyout talks. WCI has publicly held bonds, he explained, so prospective buyers would want to keep mum about plans to make an offer to avoid causing the price of those bonds to climb.
"We won't find out there's a deal, if there is a deal, until the offer has been made," he said.
Bradford said ISG's plan to buy Weirton Steel probably won't hurt WCI's recovery, however, because the West Virginia steelmaker's main asset is its tin plated steel lines used to make paint cans. That's not a product WCI makes.
Roberts agreed, saying Weirton never has been one of WCI's strong competitors.
Factors
Three factors would likely affect an ISG decision on whether to look into buying WCI, Locker said.
First, WCI's specialty steel products would be a new niche for Cleveland-based ISG, so its owners would have to decide if there's enough sales potential.
Second, WCI's mill needs improvements to stay competitive -- plans call for about $13 million for blast-furnace relining and $25 million to install a new steel slab reheating furnace. ISG would have to determine if the investment in those projects would be worth its while, Locker said.
Finally, the industrywide shortage of coke, a raw material used in steelmaking, must be a factor in a decision to further expand ISG's capacity. The fact that an ISG-owned coke plant operates next to WCI is not an advantage because ISG already uses that coke at its other facilities, he said.
Records filed Friday in U.S. Bankruptcy Court in Youngstown show WCI is continuing to lose money, but the deficit is getting smaller and sales are rising.
The company reported a loss of $256,000 in January on sales of $45.6 million, down from a December loss of $2.38 million on sales of $38.4 million. WCI has lost $19.3 million since it filed Chapter 11 in September, on sales of $184 million.
vinarsky@vindy.com