Out of the Forge and into the Fire
Just two years ago, John D. Correnti was America's man of steel. As vice-chairman and CEO of Nucor Corp. (NUE ), he ran a company that had grown from a two-bit maker of steel joists into the industry's new champion. Already No. 1 when measured by market capitalization, the Charlotte (N.C.) company was on the verge of muscling past the industry's historic leader, USX's U.S. Steel Group (U ), in earnings. Correnti had an expansion program that would put Nucor ahead in tonnage, too, as he took the $4 billion business into more and more product lines.
Today, Correnti is in exile in Alabama, struggling to salvage Birmingham Steel Corp. (BIR ) from bankruptcy and restore his own good name. In June, 1999, after 3 1/2 years at the top of Nucor and 19 years with the storied company, Correnti was fired in a boardroom coup led by H. David Aycock, a longtime Nucor director who in 1991 had lost his job as president to Correnti. Six months later, Correnti signed on at Birmingham as chairman and CEO.
Correnti just might pull off this rescue mission. The 54-year-old chief executive is still regarded as one of the best managers in the steel industry, and he retains a following on Wall Street. Birmingham Steel also has assets: It is the nation's largest maker of reinforcing bars (rebar), the steel rods used to strengthen concrete in buildings and roadways, and its electric-furnace mini-mills are among the most efficient anywhere. Moreover, Birmingham's creditors know they risk losing out entirely if they plunge the company into bankruptcy. "If they work with John, he might be able to get that thing turned around," says Keith E. Busse, president and CEO of Steel Dynamics Inc. and a former Nucor executive.
Despite these advantages, many analysts and rivals consider Correnti's effort a long shot. Birmingham's troubles are daunting: Buried in debt, the company is losing money and is unable to pay its looming bills. Worse, the American steel industry is in its deepest contraction in 20 years. Already, a quarter of the nation's steelmaking capacity is in bankruptcy; red ink courses through the industry today like molten metal. "I think John has been heroic to keep Birmingham afloat this long," notes analyst John Tumazos of Sanford C. Bernstein, "but it was too late before he started."
FEATHER. Why did Correnti take the job? For one, he confides, it was the first job he was offered. He also relished the challenge. "People said to me: `Correnti, if you can turn this around, that'll be quite a feather in your cap,"' he recalls. But once he sat down in Birmingham's headquarters in December, 1999, and got a chance to dig into the books, he admits that he, too, began wondering whether he had made a huge mistake. "I felt like the dog that caught the car: Now what do I do with it?"
Birmingham has lost money for six consecutive quarters, including a $23.2 million loss in the period ended Mar. 31. Hammered by cheap imports, cost overruns at new plants, high energy prices, and recently weakened demand for its low-end commodity goods, the 1,800-employee company has posted a quarterly profit only twice in the last three years. Sales peaked in 1998, at $1.1 billion, and are now running at an annualized rate of just $640 million. Its furnaces and rolling mills are operating at 68% of capacity, while its average sales price has fallen 4% in the past year.
The sorry marketplace for steel isn't Correnti's only problem. Birmingham is laden with $750 million in long-term debt and lease obligations, the legacy of a badly executed expansion in the 1990s. Meantime, its equity has shriveled to almost nothing. Birmingham shares, which closed at more than $20 as recently as 1997, fetched $2.75 when Correnti took over. Today, they sell for $1.20, after sliding as low as 60 cents in early April. With a market cap of $37 million, Birmingham has an absurd debt-to-equity ratio of 20 to 1. "We're broke," admits James A. Todd Jr., the steelmaker's vice-chairman and chief administrative officer. "The interest cost alone is killing us."
Correnti can't afford to wait for a market rebound to lift prices and sales volumes. Next Apr. 1, Birmingham's $270 million revolving credit line comes due, along with $26 million in principal payments on other debt. Birmingham's cash on hand today? Not even $1 million. A default would empower any one of Birmingham's six dozen creditors to shove the steelmaker into a Chapter 7 bankruptcy and liquidation.
Still, Correnti is an upbeat salesman. His optimism comes from his father, Nicholas, who sold insurance for MetLife Inc. (MET ), outside Rochester, N.Y. After 31 years in the industry--Correnti started at U.S. Steel in 1969 fresh out of college--he has survived hard times. This time, he swears, will be no different.
Correnti thinks he can beat the clock by "Nucorizing" the company. Like Nucor, Birmingham had always linked wages to production targets, giving employees an easy-to-understand incentive to hustle. Management also had invested in state-of-the-art equipment. Now, Correnti is using a Nucor approach to push responsibilities down the chain of command and to measure managers against one another so they can learn what works. "He's a no-nonsense guy," says J.T. McArdle, general manager of the company's flagship mini-mill in Birmingham. "His attitude is: `Just tell me what you're going to do. Then do it."' With the compression of management layers, the head count at Birmingham's headquarters is down by one-third, to 92 people, saving the company $2 million a year.
The CEO is also fixing the money-losing ventures he inherited. Reaching back to his old lieutenants at Nucor, Correnti brought in a new team of managers to complete the startup of Birmingham's newest mini-mill, in Cartersville, Ga. He expects the $210 million rebar mill to be profitable by yearend. And he has closed plants his predecessors bought or built, including a $270 million automotive wire-and-rod mill in Cleveland and a $230 million melt shop in Memphis that had fed raw steel slabs to the Cleveland mill. Correnti figures the closings will save Birmingham $42 million a year.
FATAL FLAW. His next step: selling the shuttered facilities so he can pay off a chunk of Birmingham's debt and gain some leverage with creditors to negotiate new terms on the remainder. Chief Financial Officer J. Daniel Garrett has a September deadline to refinance its debt to $400 million or less. Then Birmingham may be able to reenter the merger-and-acquisition game and grow. "When this thing is done," Correnti declares, "it'll be like taking a team from the bottom of its division to the Super Bowl."
Industry veterans say there's a potentially fatal flaw in Correnti's restoration effort, however: No one can afford the properties today--at least at the prices Correnti needs to get. At one point, he did come close. Last September, Birmingham signed a contract to sell the Cleveland and Memphis mills for $267 million. But the deal collapsed in March because the buyer could not get financing. Correnti concedes he has not gotten anywhere with anyone else since then because the steel market and overall economy have worsened. And competitors can empathize. "The banks just don't want to talk to you," notes AmeriSteel Corp. President and CEO Phillip E. Casey.
Regardless of what happens to Birmingham Steel, some steel veterans argue that it may be time for Correnti to get out of the industry. With his CEO resume and skill set, he could find work elsewhere easily, they say. Besides, as analyst Tumazos points out, "the steel business is a hard way to make money." Even for a former Superman.
By Michael Arndt in Birmingham, Ala.