On Tuesday November 20, 2001, LTV Steel Corporation asked a bankruptcy court for permission to halt its operations and sell all its assets to the highest bidder.
It told the court it no longer had enough cash to continue. And it claimed the United Steelworkers union had not agreed to enough concessions to allow the company to qualify for a $250 million federal loan guarantee.
7,500 steel workers were about to lose their jobs.
It was a bad time for U.S. industry. The dot-com bubble had popped, pushing the U.S. economy into recession. And then 9/11 devastated the economy…
To make matters worse, China was flooding the world with its own cheap products. The U.S steel sector — with high labor and pension costs — simply couldn’t compete.
The United Steelworkers union claimed it was still in negotiations with creditors when LTV ownership decided to pull the plug and liquidate the company. Maybe a solution could have been found. But there was no doubt that the steel sector was under assault. And it wasn’t just China…
LTV had been the second-largest American steel company. But upstart mini-mill operator Nucor (NYSE: NUE) had wrested that title from LTV. Its non-union mills that melted scrap into new steel products were cheaper to operate, thus pushing Nucor ahead of LTV… and also pushing Bethlehem Steel to seek bankruptcy protection in September of 2011.
So when a bid emerged to buy out LTV and put 3,000 steel workers back to work, the Untied Steelworkers union jumped to support it.
It was Wilbur Ross who bid $190 million for LTV. His International Steel Group (ISG) took over in 2002. Ross brought in a management team from Nucor, set production targets, and offered bonuses if they were met. CNN Money reports that ISG steelworkers made 20% more than their salaries in bonus money.
And ISG was profitable. It had dropped the time it takes to produce a ton of steel from 2.5 man-hours to less than 1. Now, ISG was producing hot rolled steel at $250 a ton. Global prices were $300 a ton.
Ross and his ISG weren’t done. The United Steelworkers union was in his corner when he bid around $1 billion for Beth Steel. 96% of union members voted in favor of the bid, even though ISG would cut employees from 12,000 to 8,000.
Ross added a few smaller steel companies as well, including Acme Steel and Georgetown Steel.
In only two years, ISG integrated five steel companies to become the largest steelmaker in the U.S. It had an annual capacity of 22 million tons, slightly more than U.S. Steel Corporation’s annual capacity of 19.4 million tons. (Globally, U.S. Steel had 26.8 million tons of capacity.)
In December 2003, Ross took ISG public. At $28 a share, the IPO raised $531 million. Barely a year later, Ross agreed to sell ISG to Arcelor-Mittal for $4.5 billion.
Ross personally made $300 million on that deal. He also made his private equity investors a tidy sum…
Beating Warren Buffett
Then there was the time, in 2001-2003, that Ross beat the great Warren Buffett in acquiring a beaten-down company. Textile company Burlington was suffering from the same issues that afflicted American steel companies: Recession and globalization had crushed sales from $2 billion in 1998 to under $1 billion by 2002.
Ross and his managers had already targeted Burlington as a company on the skids that could be redeemed.
So when Burlington lost $500 million in 2000 and declared bankruptcy, he was ready. He closed his short position and started buying the bonds at 11 cents on the dollar.
He would become Burlington’s largest bondholder. And that gave him the power to reject Buffett’s $579 million buyout offer that would have given bondholders 35 cents on the dollar. Ross eventually took over the company at $614 million in October 2003.
And thus International Textile Group (ITG) was born. It added a couple more struggling textile companies and even sold a Burlington division (Lees Carpet) to Mohawk Carpet for $352 million.
International Textile Group currently trades around $0.20 a share on the OTC market under the ticker ITXN. The market cap is just $3 million, though the company did $613 million in trailing 12-month sales.
Because it’s an OTC stock, the financial statements are not readily available. Still, we suspect Wilbur Ross has recouped his investment here and has most likely made some money.
The Bank of Ireland
Wilbur Ross told Bloomberg that the 10% stake he took in Bank of Ireland (NYSE: IRE) was the best investment he’s made since the financial crisis.
In July of 2011, Ross teamed up with a few other institutional investors and cumulatively bought 35% of the Bank of Ireland. Ross says he paid 36% of book value, which means he was buying stock in the $5 range.
Ross still sits on the board of Bank of Ireland. And at over $19 a share now, his 10% stake is worth nearly three times what he paid for it.
Wilbur Ross is pretty darn good at targeting distressed companies and instigating turnarounds. So it may interest you to know what he’s been buying lately…
Natural Gas: Darkest Before the Dawn?
Wilbur Ross currently owns 18% of a natural gas company that trades around $5 a share. But here’s the thing: He bought 31 million shares at an average price of $14.50.
Yeah, he’s losing money…
Recently, he even averaged down, increasing his stake by 62% at $5 a share. That means he bought another 18.6 million shares for $93 million.
So Ross’ average purchase price has dropped to the $13 a share range. And now we have to ask ourselves: Is it worth a shot buying a $5 natural gas stock that pays 4% a year in dividends and may have the potential to get back to $13?
I am recommending this $5 natural gas stock to my Wealth Advisory readers. I can’t tell you the name here, as they are getting their February issue today, right on time.
But if you’re interested, you can learn more right here.
Until next time,
Until next time,
Briton Ryle
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A 21-year veteran of the newsletter business, Briton Ryle is the editor of The Wealth Advisory income stock newsletter, with a focus on top-quality dividend growth stocks and REITs. Briton also manages the Real Income Trader advisory service, where his readers take regular cash payouts using a low-risk covered call option strategy. He is also the managing editor of the Wealth Daily e-letter. To learn more about Briton, click here.
