Can John Correnti Save Birmingham Steel?
American steel is in a world of hurt these days. Walloped by cheap imports and slumping demand, the industry is losing money on almost every ton of steel it pours. Already, a quarter of the nation's steel-making capacity is in bankruptcy. Among the latest to tumble into Chapter 11: LTV, Northwestern Steel & Wire, Georgetown Steel, and Wheeling-Pittsburgh Steel. John D. Correnti's job is to keep Birmingham Steel's name off that casualty list.
Just two years ago, Correnti was America's man of steel. As vice-chairman and chief executive of Nucor Corp., 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 steel industry's historic leader, USX's U.S. Steel Group (USX ), 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 Alabama, struggling to salvage Birmingham Steel -- and his own good name. In June, 1999, after 19 years at Nucor, with three-and-a-half years at the top of the storied company, Correnti was fired in a boardroom coup led by a longtime Nucor director who had lost his job as president to Correnti in 1991. Six months later, Correnti signed on at Birmingham as chairman and CEO.
Yes, Correnti could pull off this rescue mission. The 54-year-old chief executive is still widely regarded as one of the best managers in the steel industry and retains a following on Wall Street. Birmingham Steel also has assets: It's the nation's largest maker of reinforcing bars, 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," predicts Keith E. Busse, who is president and CEO of Steel Dynamics and a former Nucor executive.
Despite these advantages, many analysts and competitors consider Correnti's effort a long shot. Buried in debt, the company is losing money and is unable to pay its looming bills. "I think John has been heroic to keep Birmingham afloat this long, but it was too late before he started," notes analyst John Tumazos of Sanford C. Bernstein. Adds Busse: "It's just a tough time because everybody's in trouble."
So 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, adding: "Everybody has an ego." 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. Says Correnti: "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 for the quarter ending 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 over 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 an ill-timed and badly executed expansion by the company's managers in the '90s. Meantime, its equity has shriveled to almost nothing. Birmingham shares, which closed at more than $20 as recently as 1997, fetched $7.25 when Correnti was hired. Today, they're barely worth $1, after sliding as low as 60 cents in early April. With a market cap of less than $35 million, Birmingham has an absurd debt-to-equity ratio of 20 to 1. "We're broke," admits James A. Todd Jr., the steelmaker's 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? Close to $1 million. A default could empower any one of Birmingham's six-dozen creditors to shove the steelmaker into a Chapter 7 bankruptcy and liquidation.
Still, Correnti is as upbeat as a salesman, an optimism he traces to his father, Nicholas, who was an insurance agent for MetLife Inc. outside Rochester, N.Y. In his 31 years in the industry -- Correnti began at U.S. Steel in 1969 as a civil engineer fresh out of Clarkson University -- he has survived hard times. This time will be no different, he swears.
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 benchmark managers against one another so they can learn what works -- and what doesn't.
"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.'" By compressing 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 also has been working to fix 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 now expects the $210 million rebar mill to be profitable by yearend.
As for the other facilities his predecessors bought or built, he has given up on all of them, including a $270 million automotive wire-and-rod mill in Cleveland and a $330 million melt shop in Memphis that had fed raw steel slabs to the Cleveland mill. By closing the plants, Correnti figures Birmingham will save $60 million a year.
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 faces a September deadline to refinance its debt to $400 million or less. Then, he says, Birmingham would be able to reenter the merger-and-acquisition game and grow. "When this thing is done, it'll be like taking a team from the bottom of its division to the Super Bowl," he declares.
Industry veterans say there could be one flaw in Correnti's restoration effort: 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 couldn't get financing. Correnti concedes he hasn't made progress with any other potential buyers since then because the steel market, along with the overall economy, has worsened. Competitors empathize with Correnti. Notes AmeriSteel President and CEO Phillip E. Casey: "The banks just don't want to talk to you."
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 easily find work elsewhere, they say.
Besides, as analyst Tumazos points out: "The steel business is a hard way to make money." Even for a one-time Superman.
By Michael Arndt in Birmingham, Ala.
Edited by Patricia O'Connell