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A century after J.P. Morgan consolidated steelmakers into U.S. Steel, the industry is looking at the possibility of another round of mergers. But this time around, consolidation hinges on an unprecedented government bailout of crushing steel industry pension obligations. Still, on the day after news broke that USX-US Steel Corp. and Bethlehem Steel Corp. were talking merger, many in the industry reacted with guarded approval. USX shares closed up $1.31, or 7.73 percent, at $18.26 while BethSteel shares rose $0.28, or 59.5 percent, to close at $0.75. “Rationalization is needed. There’s too much capacity, and unless that changes, the steel industry is going to continue to suffer,” said Alan McCoy, vice president at AK Steel Holding Corp. in Middletown, Ohio. “There’s a need for consolidation. But more importantly, [U.S. steelmakers] have to become more fit and learn how to make steel more cheaply,” added Fred Schweizer, vice president and general manager at Special Metals Corp., a New Hartford, N.Y., producer of nickel alloys. While Pittsburgh-based USX would only say that it is talking to other steel companies, BethSteel, based in Bethlehem, Pa., admitted it was discussing a merger with USX and hoped also to hammer out a new pact with the industry’s largest union. The United Steel Workers of America, which represents 180,000 workers in the industry, has already lined up behind the proposed move. “This is a step in the right direction, but something needs to be done with the high cost of retiree benefits that have been promised over the years,” said Joe Crawford, vice president of administration at Roanoke Electric Steel Corp., a Roanoke, Va., maker of reinforced steel bars and specialty steel sections from recycled scrap. Others agree that the biggest impediment to consolidation, which would eliminate some of the industry’s current overcapacity, would be the hefty pension obligations of steelmakers whose retired workers were members of USWA. USX and BethSteel are hoping that the U.S. federal government would step in and underwrite the costs of paying retirees’ pension and health benefits. But no one’s betting this will happen. At the White House, the response was guarded. “The president is aware of the serious issues facing the steel industry,” said a White House spokeswoman. “Regarding the USX proposal, we haven’t seen all the details, but we’re listening to people on all sides of the issue within the industry.” A spokesman for the Pension Benefit Guaranty Corp., which guarantees payment of basic pension benefits, said he is not aware of any instance in which an entire industry handed over its pension responsibilities to the government. “We guarantee individual plans. We don’t underwrite plans on an industrywide basis,” he said. PBGC, a quasi-government agency, receives no funds from general tax revenues and is financed largely by insurance premiums paid by companies that sponsor pension plans and by PBGC’s investment returns. In 1986, steelmaker LTV Corp. dumped billions of dollars of pension obligations on the PBGC when it filed for bankruptcy. LTV came out of bankruptcy in 1993, after a long struggle with the PBGC, only to file again in Dec. 2000. The company is discussing liquidation. The steelworkers’ union also refuses to give any ground on reducing the benefits themselves, pointing out that the pensions due to retirees were earned. “The pension payments are a contractual obligation,” said Marco Trbovich, USWA’s assistant to the president. He said that the steelmakers’ pension burden is actually comprised of deferred wages of steel workers. As a result, the USWA said it will not agree to any call for eliminating pension payments. “This would mean the union would be abdicating its responsibility to its members. And we have no intention of doing that,” Trbovich said. Even if the U.S. federal government wants to help, not everyone in the steel industry think it’s a good idea. “We take a dim view of any government bailout,” McCoy said. “We were the only steel company to oppose this. The government should not be the bank of last resort for a bad business model.” Copyright (c)2001 TDD, LLC. All rights reserved.

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