Future Is Looking Brighter at Republic : Buyout: The former LTV Steel division, acquired by management and Steelworkers Union members, expects $800 million in annual sales.
With one quarterly report under its belt, the largest employee buyout in the history of the United Steelworkers union--the purchase of LTV Steel Co.'s bar division--is showing signs of success.
The former LTV division, now known as Republic Engineered Steels Inc., was sold to 4,900 former LTV employees in five states in a deal that closed last Nov. 28 after union members approved a contract with a seven-year no-strike clause and some pay increases.
Republic is the nation’s largest producer of high-quality bar and specialty steel products used in car making, off-highway equipment manufacturing and aerospace.
Union and salaried workers paid $20 million for the operation and an estimated $165 million for the inventory. The union has an 80% stake and the salaried workers 20%.
The company’s quarterly report for its first 34 days of operation showed earnings of $999,000 on sales of $46.9 million. Annual sales are expected to be about $800 million.
“Needless to say, we are all very excited about our prospects,” said Republic President Russell Maier, who 30 years ago joined the former Republic Steel Co., which was merged with Jones & Laughlin to former LTV Steel in 1984.
Joseph Coyle, president of District 27 for the United Steelworkers in Canton, said the union was concerned that an outside buyer of the division would borrow so much money it would not have anything left to invest.
“We were keeping track of the kinds of people who were interested. We learned the only viable bidders were leveraged buyout people, the kind of people who would come in and put a limited amount of money down,” said Coyle.
Leveraged buyout specialists generally use profits of the company to pay down debt associated with a takeover.
In view of such a prospect, the employee stock ownership plan came forth, said Coyle.
“The advantages, if it could be done, was the money coming in wouldn’t be used to pay off a huge debt,” Coyle said. “It would be used to invest in the company.”
Coyle and others at the union’s international level discussed the idea with local presidents and decided to take their idea to the salary employees of LTV’s bar division.
“We knew we had to have a good management,” Coyle said. “Banks don’t loan money to unions. They loan money to people who know how to run a business.”
The union employees paid for their $16-million share by cashing out LTV stock they accumulated through a 1986 contract agreement, and the salary employees provided $4 million by taking a two-year cut in pay.
“It’s ours now,” said Maier, who was president of LTV’s Flat-Rolled and Bar Co. “It isn’t some guy’s from an investor house on the East or West Coast.”
Company representatives said tax breaks under an ESOP should help leave the company with the resources to invest $400 million to $500 million for modernizations at plants in Massillon and Canton, Ohio; Beaver Falls, Pa.; Williamatic, Conn.; Gary, Ind., and Chicago over the next several years.