Bayou Steel Corporation

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Bayou Steel Corporation

138 Highway 3217
LaPlace, Louisiana 70069
U.S.A.
Telephone: (504) 652-4900
Toll Free: (800) 535-7692
Fax: (504) 652-0272
Web site: http://www.bayousteel.com

Public Company
Incorporated: 1988
Employees: 580
Sales: $253.9 million (1998)
Stock Exchanges: American
Ticker Symbol: BYX
NAIC: 331111 Iron and Steel Mills; 331221 Rolled Steel Shape Manufacturing; 23591 Structural Steel Erection Contractors

Bayou Steel Corporation operates a steel “minimill” at its 287-acre site located next to the Mississippi River 35 miles north of New Orleans at LaPlace, Louisiana, where it also has its corporate headquarters. The minimill is a low-cost, steel production plant that recycles scrap steel, using electric are furnaces to melt the raw steel, casters to process it into new billets (unfinished steel bars), and rolling mills to fabricate various bars and steel shapes from the billets, including angles, channels, flats, standard and wide-flange beams, rounds, and squares. Its products are sold, for the most part, to North American service centers in 44 states, Canada, and Mexico. These centers provide end users with steel parts used in manufacturing and construction. In addition, Bayou Steel occasionally exports both billets and steel shapes to foreign markets.

In addition to its Louisiana facility, which includes Mississippi River Recycling, Bayou Steel owns a rolling mill in Harriman, Tennessee, 37 miles to the west of Knoxville. It operates as a subsidiary, under the name Bayou Steel Corporation Tennessee. The company also maintains branch storage facilities on waterways in Chicago; Catoosa (near Tulsa), Oklahoma; and Leetsdale (near Pittsburgh), Pennsylvania.

Organization and Early Planning: 1979–80

Bayou Steel Corporation came into existence on paper in 1978 when a consortium of foreign investors, led by Voest-Alpine AG, an Austrian firm, began planning the building of a steel minimill designed to re-smelt and reprocess salvaged or scrap steel. Initial plans called for the operation to be located in Texas, in the Houston area, but in 1979 interested Louisiana businessmen convinced the group to build the $120 million facility on a 178-acre tract adjacent to the Mississippi River at La Place, in St. John Parish, north of New Orleans. Voest-Alpine, owned by the Austrian government, was to direct the building of the new plant. The site appealed to the investors because it offered easy convenient access to a waterway, railroad, and highways, and the new company incorporated in Louisiana in 1979.

The projected plans called for modeling the new facility on those operated by Voest-Alpine in Europe. The complex would include a melt shop, which would transform scrap into new steel in furnaces reaching 6,300 degrees Fahrenheit, a temperature produced by an efficient combination of electrical and oxy-fuel burners. From this re-smelting process, the liquid steel would be transported in ladles to continuous-casting machines, where it would be turned into billets, raw steel forms resembling large but rectangular telephone poles cut in 40-foot lengths. Some billets were to be sold in that form, but after the next unit came on line, the rolling mill, much of the steel would be turned into I-beams, U-beams, and various other shapes used in commercial and industrial buildings. Estimates at the time were that the minimill would produce approximately 600,000 tons of steel billets each year.

Breaking ground for the mill in that same year, 1979, the new company planned to employ abut 650 workers, many of whom were already residents of the area. Most of these would be taken from the oil production and allied industry work forces, but, since Louisiana manufactured no steel, some key personnel were to be hired from steel-producing areas in other parts of the country. Plans also called for introducing workers to the process at the new plant but then giving them four weeks of on-the-job training at the Voest-Alpine mills in Austria and a Krupp steel mill in West Germany. The new company’s board of directors was chaired by Zaki Honen, a Paris businessman and investor. Daniel O. Gloven was Bayou Steel’s first president and CEO.

Startup of Operations and Ensuing Industry Slump: 1981–85

By April 1981, as the first plant shop, the melting facility, neared completion, the company had hired and begun the training of the first 100 employees of the projected work force necessary to run the operation. The melting process of scrap steel began in July of that year. Almost immediately the operation ran into some serious problems, the main one being soaring energy costs spurred by the rising cost of oil. As Gloven noted, the structure of power schedules had a punitive effect on steel producers and, nationwide, its effect was taking a grave financial toll on that industry. Relocation of Phase II, including the building of another furnace and continuous-casting machine, was considered, which would have meant the loss of about 250 jobs in the La Place area. Still, by the end of 1981, the company had hired and trained 560 workers in its projected force of 650.

Despite the relative efficiency of the Bayou Steel facility, the company could not manage a profitable operation in its early years. It lost $60 million in 1982, $46 million in 1983, and $47 million in 1984. As a result, in September of 1984 the company began laying workers off, letting 150 go and reducing the pay and benefits of the remaining employees. By 1985, by closing down one of its two melting furnaces, it had reduced its production capacity to 50 percent. The grim truth was that another year of such losses would have forced the plant to close. The situation angered the workers and caused Gloven and his personnel director, Ben Wolverton, to resign.

In fact, Bayou Steel had begun operating at the worst possible time. The high energy costs made it extremely difficult for the steel industry in the United States. It could not compete with foreign steel makers, who began flooding the American market with a cheaper product. By 1985, there was in fact serious doubt that the entire steel industry in the United States could survive the impact of the much cheaper foreign steel, even such state-of-the-art and efficient operations as that built by Voest-Alpine. Furthermore, at Bayou Steel, starting in 1984, when the move was narrowly defeated, efforts were being made to unionize the employees, a move that would inevitably escalate the company’s production costs. Yet, despite the difficulties, in July of 1985 the company again fired up its second melting furnace, rehired some workers, and commenced plans to restore its full operating capacity. In May of that year it had begun to show a net operating profit. Moreover, by the summer it was in contract arrangements with LTV Corp., a Pennsylvania steel mill, which under the terms of the one-year agreement would purchase up to 17,000 tons of steel billets per month.

Sale of Company and Marginally Profitable Years: 1986–92

Faced with the uncertainty of the industry’s future and workers’ unrest at its mill, in 1985 Voest-Alpine undertook to pull out of the American market by selling the company. In 1986, R.S.R. Corporation, a lead-smelting firm based in Dallas and in large part owned by Howard Meyers, purchased the facility. Under the name Bayou Steel Acquisition Corporation, R.S.R. acquired all of the capital stock of the original investors for $75,343,000 and merged with the existing company. Meyers was convinced that the reprocessing of scrap steel would become the most profitable sector of the steel industry and indicated that he chose Bayou Steel because of its location, quality of its employees, and its state-of-the-art equipment.

On May 26,1988, in Delaware, Bayou Steel was reincorporated under its current name. Thereafter it went public for the first time. It also achieved a profitable year, thanks in part to the decline in global oil prices. When recession set in, however, exacerbated in Louisiana by those falling oil prices, the company’s sales once again started to slide downward. In 1992, they had dropped off by 43 percent, and the company was once more losing money.

Labor and Legal Difficulties and Purchase of Tennessee Valley Steel: 1993–96

In 1993, a crippling labor dispute led to a strike by the now-unionized workers at the LaPlace minimill. Acrimonious and litigious, it would last 42 months. Various efforts to negotiate a settlement failed, inducing the company to hire temporary workers to operate the mill at reduced capability. During the bitter strike, the unionized workers charged Bayou Steel with unfair labor practices and, in 1996, the year the strike ended, the National Labor Relations Board filed a complaint against the company for its refusal to recognize Local 9121 of the United Steelworkers of America International (USWA). The company had been fighting the strikers with countersuits and charges, including a racketeering complaint against USWA. It also sought to block unemployment compensation for the striking workers.

Key Dates:

1978:: Company is incorporated as a jointly owned venture of Voest-Alpine, an Austrian company, and other European investors.
1981:: Work is completed on the Bayou Steel minimill in La Place, Louisiana.
1986:: Voest-Alpine sells its facility to R.S.R. Corp., a lead-smelting company based in Dallas, Texas.
1988:: Bayou Steel is reincorporated in Delaware and goes public.
1993:: Steelworkers Local 9121 begins strike against Bayou Steel on March 21.
1995:: Company purchases the Tennessee Valley Steel Corporation of Harriman, Tennessee.
1996:: Agreement is reached with Steelworkers Union ending 42-month strike on September 26.
1998:: Merger attempt with Northwestern Steel & Wire Co. fails.

The dispute led to various additional legal problems for the company, including allegations that its mill violated safety standards and was emitting illegal levels of toxic flue dust. It also had to fight to maintain tax breaks it had enjoyed since first locating in Louisiana.

An agreement ending the strike finally was reached on September 23, 1996. Under its terms, the company withdrew its complaints against USWA for racketeering made to the National Labor Relations Board. In return, the union dropped its charges of unfair labor practices against the company. Contract negotiations with Local 9121, representing the La Place mill workers, involved concessions on both sides. Pension hikes, overtime and vacation pay, bonuses and health care plans were put in place for workers, but the terms also implemented a pay-for-performance program and permitted Bayou Steel to contract out. The company had to lay off about two-thirds of 310 hourly workers who had been hired to replace striking union workers.

Despite its labor and legal problems, during the strike period Bayou Steel expanded its operation, primarily in response to the fact that industry prospects were rapidly improving in the mid-1990s. By 1995, the company logged net sales of $185.8 million, up 15.5 percent from the previous year. It also negotiated a buyout of the bankrupt Tennessee Valley Steel, a mini-mill located in Harriman, near Knoxville, on a 198-acre site. The $30.5 million acquisition provided the company with another mill and a stocking facility on the Tennessee River. The plant, with its annual production capacity of 200,000 tons of billets, was reorganized as a subsidiary of Bayou Steel under the name Bayou Steel Corporation Tennessee (BSCT). In addition, the company created a new division, Mississippi River Recycling, which operated an automobile shredder at the main facility at LaPlace, described as “the first step in Bayou Steel’s strategic plan to backward integrate into scrap processing in order to control raw material availability and to reduce cost.”

Improving Prospects and Future Expectations: 1997–99

Although the steel market has remained both unpredictable and volatile, Bayou Steel has fared well since its labor and some of its legal problems were solved in 1996. The market in 1997 and 1998 was strengthened, thanks to the general health of the national economy and a growing demand for steel billets and structural shapes. For the year ending September 30, 1998, because of lower prices for scrap steel and increased sales, the company’s gross profits rose to a record $40.15 million. Encouraged by the industry’s health, in 1998 the company attempted a merger with Northwestern Steel & Wire Co. of Sterling, Illinois, but negotiations broke down at the eleventh hour when a final agreement over the price and concessions could not be reached.

In 1998, Bayou Steel’s president and COO, Jerry Pitts, noted that the increasing demand for billets and shapes assured the company’s short-term health, despite some of the company’s niggling problems that have impaired production plans, including ongoing litigation over alleged violations of environmental regulations and such unanticipated difficulties as the power outages that have plagued the Louisiana operation and forced the company to purchase billets to meet demands for its structural shapes and the fire in the Tennessee bar rolling mill that in 1997 forced a brief suspension of its operations. Long-term health was less certain, however. There were too many influencing factors outside the company’s control, chief among them the cost of energy and scrap steel on the global market. These were favorable for Bayou Steel in the last years of the 1990s, but they are rather mercurial and could rise to the company’s disadvantage within a relatively short period of time. With its shredder operation and plans for additional ways of assuring a steady supply of scrap steel at a price under its control, however, the company was taking positive steps to reduce the impact of deep market fluctuations.