Wilbur Ross Seeks Justice and Deals

By Luisa Beltran, CBS.MarketWatch.com
Originally Published on June 24, 2003

For Wilbur Ross, who has been called the king of bankruptcy, the steel industry is an example of all that ails the U.S. economy.

Battered by falling prices and competition from overseas, the once-dominant U.S. industry has shed thousands of jobs, and more than 35 steel companies have filed for bankruptcy protection since 1997. But for Ross, one of Wall Street's top experts in reviving businesses, the dismal situation has created opportunity.

Since April 2002, Ross has acquired the assets of three steel companies - Bethlehem Steel Corp. , LTV Steel and Acme Steel - and has combined them into his International Steel Group. With the $1 billion purchase of Bethlehem last month, he has created one of the largest steel producers in North America, and hopes to use his "workout" expertise to revive what everyone else on Wall Street had written off.

"We are the eraser on Wall Street's pencil," said Ross, who is chairman of International Steel, or ISG. "There are always things going bankrupt."

Ross, who spent 26 years as executive managing director of Rothschild Inc., doesn't mind being nicknamed the "man of steel" or the "king of bankruptcy."

Just don't call him an asset stripper. He doesn't plan to sell, at least not just yet.

"We don't buy things to shut them down and liquidate," Ross said in an interview with CBS.MarketWatch.com. "We buy things to turn them around."

The Hunt

At 65, with decades of Wall Street work under his belt, Ross knows how to find a deal. Every morning at 8 a.m., he and his team of 20 workout professionals, sort through a shopping list of 50 to 75 companies that could collapse over the next year.

His methodology is simple: look for industries that are undergoing a radical change, like telecommunications, steel and health care.

"What we have learned over the years is that companies don't go bankrupt in an isolated mode," Ross said. "Generally, it's an industry wave."

Ross has wielded the knife at his U.S. steel companies, chopping employment by nearly 40 percent to less than 11,000 employees at the combined LTV-Acme-Bethlehem companies.

"Without Wilbur, basically these (remaining) jobs would've been lost," said attorney Lewis Kruger, of law firm Stroock & Stroock & Lavan, who worked with Ross on the LTV deal. "[He] made a great effort to understand the unions, the employees, their needs."

Internationally, Ross also sees opportunity. In May, his investment firm W.L. Ross & Co., announced plans to lead a $300 million buy, along with Goldman Sachs, of Kia Steel Co. of South Korea, which is also in bankruptcy.

But Ross appears to be hitting a stumbling block in South Korea. The Korean government is requiring the Ross-Goldman consortium to put up a deposit before bargaining is to begin. The consortium has also asked for a tax ruling that would allow them to acquire Kia. The Ross-Goldman group has not agreed to put up a deposit and talks with the Korean government have stopped. It is unclear whether they will start up again, a spokeswoman said Tuesday.

In the U.S., Ross maintains that his steel employees are amongst the best paid. He has implemented two bonus reward systems, with the average worker capable of receiving five weeks of extra pay due to productivity gains.

"The steel workers realize that the only good job is with a healthy company, rather than having a glamorous contract with a guy that went bust," Ross said.

Dave McCall, a district director for the United Steel Workers of America, agreed that the ISG employees are well compensated.

"They are also some of the most productive and most talented," he said. "But all those things were put in by virtue of the collective bargaining agreement."

McCall, who was chairman of the ISG negotiating committee, called Ross a "tough and reasonable businessman" who has a great concern for workers.

"He also has a concern for a return on investment," said McCall, who worked for 20 years as a "mill wright" (mill mechanical repairman) for Bethlehem Steel.

However, McCall disputed claims that no one else would have bought Bethlehem or LTV or Acme if Ross had not appeared.

"He was the first one who came in and purchased them, but I don't know if those jobs would've been lost," he said.

But Ross predicts demand will eventually catch up to supply.

He currently controls 360 Networks, Group Telecom and Dynegy Global Communications and has a stake in Level 3 Communications.

Last week, Ross announced his fourth telecom transaction. 360 Networks, which is backed by W.L. Ross, is buying the private line and dedicated Internet business of Touch America Holdings for $28 million. Butte, Mont.-based Touch America filed for Chapter 11 bankruptcy protection on June 19.

"This gives us tier two cities, not the big cities like Chicago or Detroit," Ross said.

Like dot.coms, telecom companies suffered from unrealistic expectations coupled with inexperienced entrepreneurs at the helm during the bubble years. ..

Searching for Justice

But the normally mild-mannered Ross, clad in a typical gray pinstriped suit with blue tie, became angry when talks turned to international trade. In his mid-town Manhattan office, he pushed papers filled with charts and data around on a dark mahogany table showing how steel prices have fallen in the past decade.

"The real reason we are having a recession is that we are importing more than we are exporting," he said, the frustration sounding through his voice.

The one-time writing major from Yale read off the data. After rebounding to more than $360 a ton last year for hot-rolled band steel, prices fell back to nearly $260 in May 2003. He pointed to the 154,000 steel workers that have lost their jobs, fallout from the 39 U.S. steel companies that have filed for bankruptcy in the past six years.

The trade deficit, he said, totals $500 billion a year, representing a 5 percent drag on the economy. Another 2.4 million jobs in manufacturing have been lost since 1998 mostly because of imports, he said.

"Everyone in the world talks about free trade but the problem is that we are the only ones who practice it," Ross fumed. "And everyone else is taking advantage."

Last year, President Bush imposed a controversial steel tariff that is aimed at protecting the U.S. steel industry from a surge of foreign imports. The tariff includes a 5 percent price increase for carbon flat rolled products, the largest category of steel imports.

In March, the World Trade Organization ruled that the tariffs violate international trade. The International Trade Commission, a quasi-judicial agency that enforces trade laws, will submit a report on the tariff's effects to Bush by Sept. 20.

Ross called on the government to change how the WTO makes decisions, where the U.S. has failed to protect itself from illegal imports.

"Our country must take a tougher stand about enforcing the rules," he said. "I am not talking protectionism. Just the existing rules and making people live by them."

The tariffs, he said, are trying to compensate for the many countries that are dumping steel into the U.S. market. With a glut of steel worldwide, many smaller countries are pushing their cheaper steel into the U.S. market.

"American steel companies can compete against foreign ones if it's fair and if it's not government subsidized," he said...

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