US Steel Tries Maneuver in National Steel Bidding

February 6, 2003 ( - US Steel Corp. may have taken a temporary step backwards in its bid to buy the assets of ailing National Steel Corp., but don't count the steel giant out of the game.

By not trying to top a competing bid for National from AK Steel Corp. in US Bankruptcy Court now, US Steel is hoping to eventually hammer out a labor contract with the United Steelworkers of America and then top the AK Steel bid for National, according to a Wall Street Journal story. AK Steel’s offer includes $925 million in cash and $200 million in assumption of liabilities (See AK Steel Makes National Steel Purchase Bid ). US Steel offered $650 million in cash, $100 million in stock and the assumption of $200 million in liabilities.

By giving up bankruptcy court high-bid status to AK Steel, US Steel is also giving up the right to be named lead bidder by the bankruptcy court and the ability to enjoy the rights that go with that. If, as expected, the court gives that distinction to AK, then AK becomes the lowest bidder for National’s assets. All others would have to top AK Steel’s proposal by at least $2 million.

However, should National Steel decide to sell itself to any other company, it would have to pay $15 million to AK Steel. Basically, that means that a rival would have to better AK Steel’s offer by at least $17 million, the combination of the breakup fee and the overbid fee.

There is, however, one way US Steel wouldn’t have to top the AK Steel bid. If AK Steel can’t negotiate a new USWA labor contract by March 17, its offer becomes invalid and, along with it, the $15 million breakup fee and the $2 million overbid fee.

US Steel, which has a relatively positive relationship with the union, is counting on its ability to agree on a contract and AK Steep’s inability to do the same. AK Steel has had a strained relationship with the steelworkers after a bitter three-year lockout of union members at its Mansfield, Ohio, plant that ended in December.

Both US Steel and AK Steel are keenly interested in National Steel to take advantage of synergies — and cut costs — and to expand their markets in construction, autos and tin plate.

Also this week, Bethlehem Steel announced it had worked out a sale deal with ISG (See  Bethlehem Steel – ISG Sale Deal Reached) .