The Ternium steel group is actively seeking to buy Sparrows Point, The Brew has learned. The Argentine company, controlled by Italian industrialist Paolo Rocca, joins three other parties previously identified in media accounts as bidders for Sparrows Point.
With the Baltimore County mill barely working and more than 800 union employees laid off, the United Steelworkers Union (USW) is pressing Severstal to sell the facility by the end of the year.
A source cautioned that the Ternium bid should be considered a long-shot, since it arrived after the other bids were submitted.
In Ternium’s favor, however, is Alexei Mordashov’s reported dissatisfaction with the other offers. Representatives of the Russian billionaire, who owns Severstal, have hinted that the company may keep Sparrows Point idled until either steel prices rebound or higher bids are received.
Following the first round of bids submitted by October 22, Ternium executives inspected the Baltimore mill on the ground and in helicopter flyovers, sources told The Brew. They outlined to union representatives their plan to fire up the “L” blast furnace, which Severstal idled in July.
“They promised to run our primary to fullest capacity,” said one source. (“Primary” refers to the plant’s steel-making furnaces.)
Another source said, “They liked L furnace. They were amazed that in its condition it wasn’t running.”
Access to Raw Materials
With mills in Mexico, Guatemala and Colombia as well as Argentina, Ternium specializes in the same flat-rolled products that are produced at Sparrows Point. If a sale went through, the Baltimore mill would add 30 percent capacity to Ternium, making it one of the largest steelmakers in the Western Hemisphere.
Sources said Ternium has access to abundant iron ore deposits in Argentina, Brazil and Mexico that are sorely needed by Sparrows Point, whose competitiveness has been hobbled by its dependence on expensive ore from Canada and from “spot” markets. Iron ore is the highest cost item of steel-making.
“They have raw material and money. We have tinplate. They send the raw materials up and we send high-quality American steel down,” said a source, outlining the company’s business plan as explained to Point officials.
The company’s Argentine subsidiary has entered into a joint venture to build an ocean-side steel mill 175 miles north of Rio de Janeiro. The facility could ship steel slabs or processed ore directly to Sparrows Point.
Ternium was founded by Paolo Rocca. He is the grandson of Agostino Rocca, a prominent ally of Benito Mussolini whose family emigrated to Argentina after the Italian Fascist regime collapsed.
The family retained close business contacts in Italy and took control of Dalmine, now Tenaris, a leading steel tube maker. In 1992, the family purchased a majority stake in Somisa, the Argentine state steel firm, when it was privatized.
The company acquired its present name (a combination of the Latin words for “three” and “eternity”) in 2005 when Paolo Rocca consolidated Hylsa of Mexico and Sidor of Venezuela with the Argentine company.
After Venezuelan President Hugo Chavez nationalized the Sidor branch in 2008, Ternium negotiated a $1.65 billion settlement for its stake in the firm. As of last week, Venezuela still owed a balance of $255 million, plus interest, according to Ternium.
Ternium’s interest in Sparrows Point comes after the close of the first round of bids for Sparrows Point and two other mills, Severstal Warren and Severstal Wheeling.
Alexei Mordashov was reportedly dissatisfied with the bids, which he believed undervalued the properties. Mordashov paid $810 million for Sparrows Point in 2008 and spent an additional $1.6 billion, including debt, for Severstal Warren and Severstal Wheeling.
All three mills are represented by the USW. David McCall, the chief union negotiator, has called a single sale the most equitable way to find a reliable buyer, much to the chagrin of many Sparrows Point employees who believe their mill is a candidate for a stand-alone deal.
Ternium reportedly bid only on Sparrows Point. Investment groups previously identified as placing bids on all three plants are the Renco Group, Optima Fund Management with Metinvest Holding, and Aurora Capital Group.
Renco Group is controlled by 76-year-old Ira Rennert. The New York billionaire financier owned Severstal Warren (then called WCI Steel) between 1988 and 2003, when the company failed to repaid $300 million in junk bonds and declared bankruptcy. Rennert tried to regain control of the company in bankruptcy court, but failed. Eventually it was sold to Severstal.
Optima Fund, a minority stakeholder in WCI, unsuccessfully bid for the property in 2008. The offshore hedge fund was incorporated by Mordechai Y. Korf and Uri Laber of Miami. The fund has teamed up with Metinvest, a Ukrainian mining group that supplies iron ore and coke to steel companies. Metinvest’s main stakeholder is controlled by Rinat Akhmetov, described by Forbes magazine as Ukraine’s wealthiest businessman.
Like Ternium, the Metinvest group has been seeking entry into North American markets through the purchase of steel or mining subsidiaries.
A final investor eyeing the properties is Aurora Capital, a Los Angeles-based group that buys midsized industrial companies as investments. Earlier this year, Aurora purchased four steel service centers from Severstal for an undisclosed sum.
USW officials have expressed frustration at the lack of disclosure by Severstal about how the sale is progressing.
The slow pace comes at a time when layoffs are increasing at Sparrows Point. More than 800 workers were on forced furloughs last week and that number is expected to rise to between 1,000 and 1,200 workers by Christmas.
Nearly the entire “primary side” workforce of 550 is currently on layoff. Some workers with high seniority have “bumped” to the tin mill, which is the only operation now running fulltime at the plant.
Reach Mark Reutter at firstname.lastname@example.org.