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The Long Winter of Kaiser Steel : The industrial empire it once anchored is gone, and the firm struggles to survive, beset by an internal battle for control and a hostile economy.

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Times Staff Writer

For the war-weary populace of Southern California, the dedication of Kaiser Steel’s Fontana blast furnace a few days after the Christmas of 1942 was a patriotic extravaganza, even making the front page of the Los Angeles Times.

College students sang. A young radio reporter named Chet Huntley acted as master of ceremonies. And storied industrialist Henry J. Kaiser watched as his bountiful wife Bess, sporting a large orchid, threw the switch to fire up the blast furnace that Kaiser named after her in a sentimental moment.

With that, the first complete steel mill west of the Rockies roared to life.

“It was a glorious event,” recalled Martie Hubble Bernhart, a Burbank resident who attended the dedication with the Pomona College Glee Clubs.

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“Bess came in like a gunboat--with that big bosom and those huge flowers,” she said. “And Henry J. with his big scowl, and he made a speech. With that big scowl, he looked so tycoonish.”

Those were the glory days of Kaiser Steel, founded by Henry J. Kaiser to provide steel for his wartime shipbuilding efforts. Historian Mark S. Foster called Kaiser Steel the “linchpin” of the powerful Kaiser industrial empire that included businesses in aluminum, cement, electronics, automobile manufacturing and health care.

The empire is gone now, although many fragments survive. Henry J.’s massive Fontana steel mill was sold in 1984. And for Kaiser Steel itself, survival has seldom been easy, and in the past few years has become even tougher.

In recent months, Kaiser Steel’s shaky financial health deteriorated further, and the firm became embroiled in a battle for control brought on by the company’s money problems. In the end, Kaiser chairman Monty H. Rial was out, and Minneapolis investor Bruce Hendry had taken his job.

But the battle continues, fueled partly by interest in Kaiser Steel’s remaining assets and partly by the egos of the combatants, observers say.

In the latest developments, cash-strapped Kaiser Steel announced last month that it can no longer afford the health benefits plans for 5,000 retirees, many of whom live in Southern California. Two company directors recently resigned, including former Kaiser Steel Chairman Stephen A. Girard.

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Kaiser Steel has put its coal operations and a small power subsidiary up for sale to raise cash and restructure the company. And Hendry is considering selling Kaiser’s steel-fabricating operations--the company’s last link to the steel industry.

If all those assets are sold, Kaiser Steel would be a real estate company with a waste-treatment plant in Fontana, which it has tried to make the centerpiece of a proposed industrial park. At its peak in the early 1970s, Kaiser employed more than 13,000. The payroll has since shrunk to nearly 1,000 workers.

For his part, Rial contends that he has a financial backer willing to put up $30 million so that the company can restructure. He has offered to put his Kaiser holdings into a trust for the retirees. And he vehemently opposes the sale of any assets while the company’s markets are so depressed.

From the beginning, Kaiser Steel was plagued by limitations. When Henry J. wanted to build a West Coast steel mill in 1940, he was opposed by the Eastern steel giants and their supporters in Washington, said Foster, a history professor at the University of Colorado at Denver who is writing a biography of Kaiser.

Authorization and government financing for the steel mill finally came, but not until three months after Pearl Harbor was attacked. And rather than allowing the steelworks to be built on the coast as Kaiser wished, Washington insisted that the plant be constructed 55 miles inland to protect it from Japanese attack. That resulted in higher transportations costs.

Japanese Competition

After the war, Kaiser faced continued opposition from established steel companies as it tried to expand to serve the postwar consumer economy. Still, the company prospered in the 1950s and ‘60s.

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But the 1970s was a rocky decade as Japanese steelmakers attacked. The Western steel industry was particularly vulnerable to the flood of low-cost steel from overseas.

By the time Kaiser closed its Fontana steelworks in late 1983, it had become the ninth-largest steelmaker in the nation but was widely considered to be one of the weakest companies in the shell-shocked industry.

“There were a lot of mistakes made,” said Elliot Schneider, director of perspective research for Gruntal & Co., a New York investment firm.

“The unions wanted too much. . . . The management gave in too easily,” said Schneider, who began following Kaiser Steel in the 1960s. “It was a question of being fat, dumb and happy.”

The late 1970s also saw the dismantling of the Kaiser empire, which lost some of its spark after Henry J. retired in the 1950s and the second generation took over.

Kaiser Steel was essentially for sale for most of the early 1980s. It attracted a suitor in 1982, but that bid by San Francisco investor Stanley Hiller Jr. fell through.

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The writeoff from the closure of the Fontana steelworks depressed Kaiser’s stock, and the company was ripe for takeover.

Buyouts, Heavy Debt

Corporate raider Irwin Jacobs was the first on the scene. But his offer for the company was bested by one from Oklahoma investor J. A. Frates. (Frates later made an unsuccessful run at Oakland-based Kaiser Aluminum & Chemical, a former sister company of Kaiser Steel.)

Shortly before the deal was to close, Monty H. Rial, a coal man from Colorado, showed up. Rial’s umbrella of companies, called Perma Group, was admitted as a half partner in the transaction, approved by shareholders in early 1984.

The next year, Perma Group of Colorado Springs bought out the Frates group, which made a $40-million profit on the deal. The result of the back-to-back buyouts was a Kaiser Steel heavily burdened with debt.

Then in December, 1985, the bottom fell out of the energy market. The oil industry stopped buying the steel pipe and oil-drilling platforms that Kaiser Steel produces. Coal prices plummeted along with the price of oil and natural gas.

During the months that followed, Kaiser Steel defaulted on most of its loans. Negotiations continue with the company’s bankers. To cut costs, the headquarters was moved from Fontana to Rial’s offices in Colorado Springs.

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The company lost $32.6 million in the first nine months of 1986, much of it from discontinued operations, compared to a $13.2-million loss in the same period of 1985. Coal operations recorded a $9.8-million profit compared to a $400,000 loss in the same nine months of 1985, while steel fabricating narrowed its loss to $2.5 million from $17.3 million.

Last summer Kaiser also failed to make two dividend payments to preferred shareholders and was unable to make a payment into a fund to retire its preferred stock.

Thus, preferred shareholders, who had been the company’s common shareholders before the Frates-Perma takeover, won the right to take control of the board under the company’s certificate of incorporation.

Public Feud

A bitter fight followed. Some preferred shareholders accused Rial of arranging “related-party transactions” that benefited his other companies at the expense of Kaiser Steel. Rial has denied any wrongdoing, noting that the transactions were approved by outside directors.

A settlement was reached in January giving the chairman and chief executive jobs to Hendry, a stockbroker who specializes in buying securities of distressed companies--among them, Erie Lackawanna, of which he is chairman, and then-ailing Wickes Cos.--and waiting for the payoff. Rial remained as a director, and Charles McNeil continued as president and chief operating officer.

Hendry and Rial have traded barbs in the press, culminating with a press conference at which Rial called the cancellation of the retirees’ medical benefits “unconscionable.” Hendry, in turn, called Rial’s financing plan to save Kaiser “a fantasy.”

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Says Rial: “I’m hoping hour by hour that the (Kaiser’s board of directors) will see the light and work to restructure the business. . . . I don’t think this ship can (continue to) flounder without navigation and without a destination.

“Everybody needs to pull together,” he said.

Hendry has said the company has no plans to liquidate or seek bankruptcy law protection, although some of Kaiser’s large creditors have the ability to force the company into bankruptcy.

“The liquidation of the company would be a terrible thing,” Hendry said.

Saving Kaiser Steel “is going to be very difficult,” he said. “There’s so little time left because there’s so little money left.”

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