Sago mine is part of financier's lucrative buyouts


Published: Sunday, January 8, 2006 at 6:01 a.m.
Last Modified: Saturday, January 7, 2006 at 11:31 p.m.
For the 12 men who died in a West Virginia coal mine this week, the Sago mine was a place to earn a hard living. But for billionaire Wilbur Ross and other early investors in mine owner International Coal Group Inc., Sago is one part of a financially lucrative commodities play.
Over the past several years Ross, a New York-based bankruptcy expert and financier, has generated huge profits by investing in such distressed industries as steel, textiles and, most recently, coal.
The elegantly structured and well-timed leveraged buyouts Ross periodically engineers are a long way - both geographically and intellectually - from the hilly coalfields of West Virginia. The 67-year-old Ross is strictly a dealmaker, and he hires experienced industry executives to manage the operations his group purchases.
Still, the tragedy at the Sago mine underscores the fact that blood, as well as sweat, is frequently part of the work environment in the grimy, old-fashioned industries where Ross has found gold. And workplace danger is particularly acute in underground coal mining, Ross' most recent investment field.
Ross is best known for assembling and later selling at a big profit the nation's biggest steel company (which he dubbed International Steel Group) from the ruins of bankrupt and near-bankrupt steelmakers.
After starting a fund to buy distressed companies in 2001, Ross began purchasing troubled steelmakers like LTV Corp., which had been laid low by billions of dollars in health-care and retirement obligations owed to tens of thousands of retired steelworkers.
As they passed through bankruptcy, LTV and other steel makers shed those "legacy costs." Typically, the quasi-federal Pension Benefit Guaranty Corp. assumed the companies' pension obligations, and the bankruptcy court allowed the steelmakers' retiree health-care promises.
Ross had no involvement in any of those wrenching actions. But the financier was quicker than anyone else to figure out that, once freed of their legacy costs, financially troubled companies such as LTV, Bethlehem Steel and Acme Steel could once again be competitive in the global steel industry.
Indeed, by rolling up several U.S. steel companies into International Steel, Ross reopened shuttered plants and put thousands of unemployed union steelworkers back to work. The timing was exquisite: soon after the LTV purchase the Bush administration imposed import restrictions and U.S. steelmakers began to enjoy stronger prices. Later, China's growing appetite for steel sent the long-moribund U.S. steel industry into a mini-boom.
In December 2003, Ross and his investor group exploited the positive trend by taking ISG public; just eight months later, ISG agreed to be acquired for $4.5 billion by Netherlands-based Mittal Steel.
In early 2004, as the U.S. textile industry continued to crumble in the face of low-cost imports, Ross' WL Ross & Co. investment vehicle created International Textile Group to pluck the operations of textile-industry giants Burlington Industries and Cone Mills out of bankruptcy. On the question of Ross' high-risk foray into textiles, most observers figure the jury is still out.
Then in October 2004, Ross moved into yet another out-of-favor Old Economy industry: his investing group paid $786 million for the assets of an Asheville, Ky., coal-mining company known as Horizon Natural Resources, and created International Coal Group.
Horizon operates mines in West Virginia, Kentucky, Indiana and Illinois. Ross' buy-in came only after a bankruptcy court judge released Horizon from its promise to pay health-care benefits to its retirees.
Even as he was benefiting from a resurgence of the battered steel industry, Ross was betting with the Horizon deal that a stronger global economy will keep upward pressure on energy demand, and on coal prices.
The Ross group had initially paid $3.39 a share for their International Coal holdings, according to Securities and Exchange documents. To fund the acquisition of more mining operations, International Coal went public, at $11 a share, through an offering that formally closed only a few weeks ago.
Ross, who is chairman of the company but isn't involved in operating management, and his group currently controls a nearly 13 percent stake in the company.

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