The New York Times The New York Times Business January 24, 2003  

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New Bidder Tops U.S. Steel Offer for National

By TIMOTHY L. O'BRIEN

The AK Steel Holding Corporation began a bidding war yesterday for the National Steel Corporation, offering $825 million for the company, topping an earlier bid of $750 million from U. S. Steel.

The steel industry, run down by decades of decline, struggling with rising pension and health care costs and facing stiff competition from overseas competitors, is littered with the husks of bankrupt companies like National. More than 25 steel companies are in bankruptcy, and analysts say a consolidation wave is sweeping the industry. Five years from now, analysts predict, only about five major steel companies will be left in the United States, with companies like AK, based in Middletown, Ohio, and U. S. Steel, based in Pittsburgh, expected to be among the survivors.

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In addition to $825 million in cash, AK's bid includes the assumption of $200 million in liabilities. U. S. Steel's bid, announced on Jan. 9, consists of $650 million in cash, $100 million in stock and the assumption of $200 million in liabilities.

In trading on the New York Stock Exchange yesterday, shares of AK Steel fell 35 cents, or 4.6 percent, to $7.25. U. S. Steel fell 37 cents, or 2.3 percent, to $15.97.

"This represents a superior bid for the assets of National Steel and a strategic acquisition for AK Steel," Richard M. Wardrop Jr., AK Steel's chairman and chief executive, said. "The National operations would further diversify AK Steel's rich product mix to include tin mill and construction market products and present the opportunity for significant cost-based synergies."

U. S. Steel, the largest steel company in the country, said it remained a bidder for National, which is based in Mishawaka, Ind., and filed for Chapter 11 bankruptcy protection in March 2002.

"We do have a signed agreement with National Steel that has been approved by the boards of both companies," said John Armstrong, a spokesman for U. S. Steel. "We continue to believe that our bid for National is in the best interests of all the stakeholders."

Mr. Armstrong said bankruptcy procedures allowed for other bidders so creditors could obtain the best price for National's assets. He said he was not surprised that a rival bid had surfaced.

Nonetheless, some analysts said that AK Steel had been slow to enter the fray.

"I find the bid very interesting because AK has talked about wanting to buy assets and then has waited for others to bid first," said Daniel Roling, a metals analyst with Merrill Lynch in New York. "By making the bid now, they're only driving the cost of the bidding up. If they really wanted to buy this, why didn't they do it six months ago?"

AK Steel said its offer was subject to regulatory and bankruptcy court approval, as well as the negotiation of a new labor contract with the United Steelworkers of America, which represents most of National's hourly employees.

AK's bid does not include the assumption of pension and other benefits for retirees; the company has taken a rigid stance in other recent labor negotiations. In December, it ended a bitter three-year lockout of union workers at one of its plants in Ohio.

AK's bid "presents an opportunity for AK Steel and the U.S.W.A. to forge a constructive new labor agreement that helps ensure that a consolidated U. S. steel industry remains competitive," Mr. Wardrop said.

The union said it intended to examine AK's offer, along with U. S. Steel's bid, while continuing to work with National's management and creditors on a stand-alone reorganization plan.

"Reaching a constructive agreement with AK Steel would be extremely difficult," said Leo W. Gerard, president of the union, "given the number of unresolved issues resulting from AK's three-year lockout of 600 of our members in Mansfield, Ohio."






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