Changes Coming For W-P
PITTSBURGH — With an infusion of $150 million coming from stockholders and Esmark, Wheeling-Pittsburgh Steel Corp. has breathing room, but work to do in the months ahead.
James P. Bouchard, chairman and chief executive officer of Esmark Inc., which became the holding company of subsidiaries Wheeling-Pittsburgh Steel and Esmark Steel Service Group at the end of the business day Tuesday, offered a look back and a look forward.
“The most urgent need is working with the United Steelworkers to right-size this operation, to accentuate its capabilities and run a very successful company long term,” Bouchard said. “Those are discussions that are going on at the international level and at the local level and it’s really going to determine the future of the company.”
Bouchard and his brother Craig, the president of Esmark, met with reporters between the close of the nine-minute Wheeling-Pittsburgh Corp. special shareholders meeting to approve the merger between Esmark and Wheeling-Pitt, and the start of the first Esmark Inc. board meeting to look at where the company is going.
“We’re presenting the current snapshot of the company as it is today on the current assets and fixed assets of the company. We’re discussing the strategic partners, domestically and internationally, and discussing the status of the Sparrows Point transaction,” James P. Bouchard said.
Esmark’s merger with Wheeling-Pitt is the first reverse hostile takeover in the history of American business, Bouchard said, with the small private company being given board control of the larger public company and then merging the two firms.
“When we first brought it up, it was exciting to think about it, but we were so involved in trying to get the transaction completed and for getting Wheeling-Pitt fixed, we kind of lost track of that. I haven’t really thought about it. I probably will in six months or a year, when it actually did happen today at 9 a.m.,” Bouchard said between Tuesday’s meetings.
In addition, he said, cost savings are another major initiative going forward.
“There is just so much low-hanging fruit to reduce costs in this operation, not only to get it breaking even but profitable. I just see that now sitting right there, waiting for us to accomplish it,” he said.
Bouchard expects the steel market and the economy in general to be a challenge, but the challenge is improved by the opportunity to reduce costs within the next few months.
He described the past year as having happened in a couple of phases.
Esmark’s slate of directors was chosen by Wheeling-Pitt’s shareholders Nov. 17, 2006, and the Bouchards found a company with $11 million in capital and a nearly empty order book when they took office in early December.
“So, keeping Wheeling-Pittsburgh going was the first phase. Then, we got in there, and realized the shortcuts that were taken just to get the electric arc furnace built. We needed the oxygen system, the process controls, the temperature controls, all the stuff we added. We spent about $10 million on the EAF just so we could get it to what its capabilities are,” he said.
Bouchard said the oxygen system will be installed in December or January and then the EAF finally “can run the way it’s supposed to run.” The EAF’s first batch of steel was produced in late 2004.
After making upgrades to the EAF in a July shutdown, Bouchard said, “Then, we decided that if we were to get to the Esmark merger, we should clean up any stuff we can, including aged inventory, scrap, slabs, anything in there that was a nonperforming asset. Let’s get it sized to the marketplace and try to clean the place up. We had the luxury and affordability in knowing that we had a lot of cash coming. If this (merger) wasn’t here, we would have tried to keep bumping along.”
Bouchard said among the “skeletons in the closet” that were cleared was old inventory, some more than two years old.
And going forward will take streamlining of assets.
“We understand why the company was always bumping along. It’s not Monday-morning quarterbacking. It’s difficult when the facilities are dotted all over, up and down the Ohio River. It’s a tough configuration for transportation, logistics, for movement for the steel, which affects the quality issues. It’s more of a challenge for this operation compared with other folks where it is all under one roof, such as Sparrows, or U.S. Steel Mon Valley or Gary or every other plant that is more self-contained than this one,” he said.
The reverse hostile merger required Esmark to get its small, privately held and formerly family-run steel service centers to comply with general accounting principles, comply with federal disclosure rules and to use Securities and Exchange Commission approved accounting firms, then to disclose all that was found.
“The expense of it — just the amount of work to do that was done, to be honest, was much more than I ever even expected. It just took a long time,” Bouchard said. “That’s probably why it’s never been done before.”
Wheeling-Pitt’s headquarters will remain in Wheeling, though Bouchard said the new Esmark Inc.’s human resources and financial executives will work out of new offices in Sewickley, Pa. Mill operations offices will remain in Steubenville and the steel services subsidiary’s offices will stay in Chicago, he said. He anticipates the new Esmark offices in Sewickley will be ready around March and will have about 100 people working there.