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AK Steel Holding Corporation Message Board

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  • jrpalladin jrpalladin Feb 4, 2000 9:36 AM Flag

    who knows

    incredible insights into the Steel industry. I
    disagree with your opinion.

    First, the American
    Steel industry is very sick as evidenced by pretax
    profits in 1999:

    Millions of Dollars: ( ) Means
    Loss

    AKS.........$261
    X...........
    $76
    LTV.........$(170)
    BS..........$(179)
    NS..........$($45)

    The only reason X made a profit is that they are
    substantially overprovided on pensions and took a bunch of the
    excess as profit. In my opinion, if LTV and BS continue
    to generate losses over the next 2 years at the rate
    incurred in 1999 actual, they'll be insolvent and will be
    forced to file for BK. In the fourth quarter alone, LTV
    lost $70 million and have leveraged their balance
    sheet up the yingyang with the acquisition of
    Copperweld which under a best case scenario will be mildly
    accretive.

    And of course if LTV and BS go under,
    there will be many other integrated producers who will
    be forced to pack it in. The only way the Steel
    industry can return to normal RONAs is to increase prices
    substantially. Today's selling levels are probably equivalent to
    levels actually experienced in the mid 1990s while
    inflation has gone up 20% over this time. Productivity
    improvements have offset the inflation.

    So, something
    has to give. Either, the American steel industry
    folds or they return to normal RONAs. My bet is on the
    latter. Detroit needs the integrated steels as badly as
    the integrated steels need Detroit.

    Lastly,
    look at the market valuation of each company's
    stock:

    Billions of
    Dollars:

    X........$2.2
    AKS......$1.0
    BS.......$.9
    LTV......$.4
    NS.......$.3

    AKS is valued at less than 50% of X but generates 3.5
    times the profit. And what's really ludicrous is that
    AKS and BS valuations are roughly the same even
    though AKS generates
    $430 more pretax profit dollars.
    BS is desperate. They just cut their manpower by 500
    people. That's worth $25 million annually so they only
    need another $475 million to get to a marginal RONA
    acceptability level.

 
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