New owner of WCI plans upgrades, reports say

By Don Shilling

Union leader expects staffing to remain the same under new ownership.

WARREN — Russia’s largest steelmaker plans to upgrade WCI Steel once it takes over operations.

The Warren company said Friday that its board of directors has approved a sale to Severstal, which has been rapidly expanding its U.S. presence. The $139.8 million sale is expected to be completed this fall.

“It’s a great announcement,” said Ed Machingo, president of United Steelworkers of America Local 1375.

He is welcoming reports that Severstal plans to invest millions of dollars in coming years in scheduled maintenance and upgrades. Included is a relining of the Mahoning Valley’s only remaining blast furnace in 2011 and improvements to the finishing department, he said.

That information came from meetings Severstal executives have had with senior USWA leaders. Michael Henson, a company spokesman, confirmed that an improvement plan is in place but didn’t have any details beyond the blast furnace relining.

WCI has invested $56 million in the mill since last year in two major projects —a new furnace and a system for filtering dust.

A sale of the mill has been rumored since WCI emerged from bankruptcy court protection in 2006, so news of investments by a new owner is comforting, Machingo said.

“If they plan on putting money into it, then they plan on running it,” he said.

Last year, Severstal had worldwide revenues of $15.2 billion with earnings from operations of $3.7 billion.

“They are a sound company,” Machingo said.

Another foreign company, Privat Group of Ukraine, recently restarted part of the operations at the former Copperweld Steel mill in Warren, which is now called Warren Steel Holdings.

Machingo said he doesn’t expect much change in staffing at WCI, which has 1,100 hourly workers.

Hanson said he couldn’t comment on employment plans but stressed that Severstal intends to improve mill operations, which will require workers.

He said a management team for the mill will be announced when the deal is completed. Leonard Anthony, a former chief financial officer with ISG Group, was named president and chief executive in December after Patrick Tatom resigned in July.

WCI officials could not be reached to comment, but Anthony said in a news release that the sale is in the best interest of shareholders and will allow the mill to prosper.

WCI’s losses in the past two quarters have totaled $5.4 million, but it said in May that it expected to turn a profit in the second half.

Machingo said he didn’t expect current ownership to retain the mill long term. The owners weren’t actively marketing the mill but made it clear in the industry that they would take offers, he said.

Bondholders assumed control of WCI after a 30-month struggle in bankruptcy court with the former owner, Renco Group of New York. The bondholders were owed $260 million when WCI filed for bankruptcy protection.

Friday’s news release said the company has 42.5 million outstanding shares, and the deal calls for Severstal to pay $3.29 a share, which amounts to $139.8 million. Severstal also will assume $230 million in debt. The deal needs anti-trust clearance from the U.S. Department of Justice.

Hanson said WCI fits in with Severstal’s other U.S. mills. It bought former Rouge Steel in Dearborn, Mich., in bankruptcy court in 2004 and acquired the Sparrows Point mill in Maryland in March from ArcelorMittal.

Like WCI, those mills start the steel-making process by mixing raw materials in a blast furnace. Last year, Severstal opened a new minimill in Mississippi. Minimills make steel by reheating scrap.

Hanson said Severstal’s U.S. mills provide strong coverage in the eastern U.S. by forming a triangle.

He added that WCI complements the Dearborn mill, which was started by Henry Ford to supply his early auto plants. Both of the mills provide custom, flat-rolled steel, but WCI adds a more diverse customer base, he said. The Dearborn mill primarily supplies auto plants, while WCI also serves the appliance, furniture, construction and energy markets.

Machingo said Severstal has agreed to recognize the union at WCI but added that Local 1375’s contract expires in November.

He said he expects joint contract negotiations with the union at Sparrows Point, which also has a contract set to expire.

shilling@vindy.com