The Renco Group has just announced that it signed a purchase agreement to buy Sparrows Point and two other steel mills from Severstal North America in a transaction estimated at $1.2 billion.
The sale — which culminated following weeks of secret negotiations as reported exclusively by The Brew — represents a huge loss to Severstal, which purchased the three steel mills and related facilities for about $2.4 billion in 2008, including $810 million for Sparrows Point alone.
Renco will be the fourth owner of the Baltimore County steel plant in eight years, following the bankruptcy and liquidation of Bethlehem Steel.
The latest sale follows an especially tumultuous period under Severstal’s ownership, where the steel mill has experienced numerous production problems and a loss of its traditional customer base.
Sources today told The Brew that Renco expects to restart “L” blast furnace and other now-idled production units once the deal is finalized later this month.
The plant, however, will face numerous challenges getting production up to capacity and turning a profit in a very competitive industry.
Headquarters for Steel Group
It was also announced today that Sparrows Point will become the headquarters of the newly created RG Steel, a subsidiary of Renco Group.
Ari Rennert, president of Renco and son of founder Ira Rennert, said this morning: “The formation of RG Steel will created a dynamic, service-oriented company with strategically located facilities led by newly appointed president and chief executive office, John Goodwin.”
Goodwin was formerly chief operating officer of International Steel Group (ISG), which owned Sparrows Point between 2003 and 2005.
In addition to Sparrows Point, today’s agreement calls for RG Steel to purchase Severstal Warren in Warren, Ohio and Severstal Wheeling in Wheeling, WVa, as well as a 50% interest in Mountain State Carbon and Ohio Coatings Co.
The purchase will give RG Steel about 7.5 million tons of annual steelmaking capacity, making it one of the largest integrated steel operators in the U.S.
A spokesman for Maryland Gov. Martin O’Malley said the sale is “very good news.”
“The governor has been very involved in finding a way to save jobs at the plant and respect the dignity of workers who have made lifetime careers there and this (sale) appears to do just that,” Saun Adamec, the governor’s press secretary.
Adamec also hailed the news that the company overseeing the three plants is going to be headquartered locally: “that’s more good news for Maryland.”
Employees Asked to Report to Work
Currently, about 850 steelworkers – or half the unionized force – are on layoff at Sparrows Point. It is not known how many workers will return to their jobs.
Maintenance employees told The Brew that they are being asked to report back to work.
Renco also confirmed this morning an earlier Brew report that it signed a labor agreement with the United Steelworkers (USW) and agreed to keep wages at Sparrows Point at their present level, which are about $3 an hour less than the national pattern contract.
Completion of the sale to Renco is dependent on regulatory approval in Washington. Renco is a privately owned holding company with stakes in numerous mining and other manufacturing industries.
- Mark Reutter can be reached at [email protected]
Here’s text of the press release sent out this morning by Severstal North America:
Severstal North America Sells Warren, Wheeling, and Sparrows Point Facilities
DEARBORN, Mich. March 2, 2011 – Severstal North America, a subsidiary of OAO Severstal, today announced that The Renco Group, Inc. has signed a definitive agreement to purchase Severstal’s operations at Warren, OH, Wheeling, WV, and Sparrows Point, MD. The transaction is expected to close in March 2011, and is subject to customary closing conditions, including expiration or early termination of the Hart-Scott-Rodino waiting period.
As transaction consideration, Severstal will receive $125 million in cash, a $100 million secured note, and the repayment of $317 million of third-party debt at closing. Renco will also assume various Severstal financial liabilities including employee-related and environmental liabilities totaling $650 million.
The Renco Group, Inc. is a family owned, private holding company that makes long term investments in companies across a range of industries including mining, mineral recovery, metals production / fabrication, defense, and automotive supply industries.
“The sale of Warren, Wheeling, and Sparrows Point marks a strategic refocusing of our North American operations,” said Sergei Kuznetsov, CEO of Severstal International. “The sale of these assets will enable Severstal North America to evolve into a stronger and more focused organization that is better able to serve our North American customers,” Mr. Kuznetsov concluded.
Evercore Partners is acting as Severstal’s financial adviser, and Skadden, Arps, Slate, Meagher & Flom LLP are acting as Severstal’s legal advisers.
– Test of press release today from Gov. O’Malley’s office:
RG Steel LLC to return, retrain and retain nearly 2,000 steelworkers in Maryland
ANNAPOLIS, MD (March 2, 2011) – Governor Martin O’Malley issued the following statement today on Severstal’s agreement to sell its Sparrows Point steel plant to RG Steel LLC:
“The announcement today that RG Steel Inc. has agreed to purchase the Sparrows Point mill from Severstal US Holdings LLC holds the promise that the plant’s long tradition of manufacturing and steel production – and of providing jobs with family-supporting wages – will continue.
“For generations, Sparrows Point has been a major employer and a significant economic asset for the State. We welcome RG Steel and its headquarters to Maryland and stand ready to help the company and the United Steelworkers return, retrain and retain nearly 2,000 steelworkers in Sparrows Point.”