International Steel Group Inc. offered on Monday to buy Bethlehem Steel Corp.'s steel mills and related assets -- including the company's Sparrows Point operation -- and bring the once-mighty industrial giant out of bankruptcy.
ISG, based in Cleveland, valued the offer at $1.5 billion and said it expects negotiations for the purchase to be completed within 10 days.
The offer then would have to be accepted by the Bethlehem Steel board, which will consider it later in January, and also must be approved by U.S. Bankruptcy Court.
Robert S. Miller Jr., Bethlehem Steel's chairman and chief executive officer, said it could take several weeks to review the proposal but hoped for an agreement.
"A combination of Bethlehem and ISG would create a formidable new competitive player in the steel industry, with 16 million tons of annual shipment capacity," Miller said.
In an afternoon conference call, Miller said layoffs would be necessary at the plants "regardless of if the deal goes through or not. There would be a significant reduction in staffing levels, as we go from a traditional labor agreement to a new flexible agreement."
Rodney B. Mott, ISG's president and chief executive, declined to say whether layoffs would be necessary at the Bethlehem Steel plants.
"We are committed to completing this transition while meeting the highest expectations of the customers who rely on the steel produced in the facilities we intend to purchase," he said.
Miller also added that there was a good chance that the company's retirees could lose out in the proposed deal.
Bethlehem Steel filed for bankruptcy protection Oct. 15, 2001. The company has been negotiating with potential buyers or joint-venture partners, as well as trying to reorganize the business to continue as a stand-alone operation.
The company's two largest plants -- Sparrows Point, which employees 3,300 in Baltimore County, and Burns Harbor, Ind. -- are included in the deal, as are its smaller operations in Coatesville and Conshohocken, Pa.
The company work force numbers about 12,000.
Bethlehem Steel was a giant of 20th century industry, once employing nearly 300,000 people to forge steel for skyscrapers and bridges and build ships for World War II. But its plant sprawling along the Lehigh River in Bethlehem hasn't produced steel since 1995.
Miller has said there was "zero chance" Bethlehem Steel would go out of business. But merger negotiations had stumbled over huge obligations to 75,000 pensioners, including retirees and surviving spouses, and 130,000 health-care-plan participants, including employees, retirees and their families.
Potential investors or partners have balked at talking on those "legacy costs," which Miller has estimated at $5 billion.
ISG officials had to recalculate their offer after a federal agency proposed Dec. 17 to terminate the Bethlehem Steel pension plan and take over responsibility for benefits earned to date.
Under the takeover by the U.S. Pension Benefit Guaranty Corp., retirees would continue receiving monthly checks and others who have earned eligibility for pensions would receive benefits on reaching retirement age, but the agency wouldn't be responsible for future pensions.
That meant ISG couldn't count on the pension agency to help bear costs of any early retirements negotiated to trim the Bethlehem Steel work force.
Mott declined to comment on the magnitude of potential job cuts. He said ISG was working on operations plans for each plant but hadn't worked out staffing details.
But Miller said it was good possibility that retirees may not fare well under the deal. "Our current retiree health-care obligation is about $3 billion, and there's no way the Bethlehem estate can support that -- regardless."
In addition, Mott also wouldn't comment on how much of the $1.5 billion value of the offer consisted of assumed liabilities of Bethlehem.
He said those would include some operating leases and contracts, current accounts payable and environmental obligations at the Bethlehem Steel plants.
The company's unsecured creditors, which include retirees, are owed more than $500 million, but they must wait until the company's secured creditors are paid before they can recover their costs.
Bethlehem Steel's total liabilities amount to more than $6 billion, including pension and other retiree benefit obligations.
SunSpot staff contributed to this report.