THE TOUGH DEAL THAT SAVED STEEL

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By Newsweek Editors

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Wilbur Ross isn't Superman, but there's no doubt he's Wall Street's Man of Steel. Ross, a veteran bankruptcy player, made a deal last week to sell his International Steel Group at $42 a share--around $4.1 billion--to Ispat International, controlled by London's Mittal family. It's a good deal for people who paid $27 at ISG's initial public stock offering last December. And a fabulous deal for Ross's early investors, who paid $2.76 for their ISG stakes in 2002. That's when Ross bought part of the bankrupt LTV Corp. Going the bankruptcy route let Ross leave behind the costly pension and retiree-health obligations that sank LTV. He later bought parts of bankrupt Bethlehem Steel and three other busted steelmakers. Workers got shortchanged on their retirements, which is awful, but that had already happened before Ross swooped in and bought.

Ross negotiated a favorable deal with the United Steelworkers union--"we want workers to be our friends, not our adversaries," he says--and cut management ranks by 90 percent. "He saved $100 a ton by doing that," says veteran steel analyst Charles Bradford of Bradford Research/Soleil Inc. "That way he could survive when steel sold for $300. With it selling at $700, he's coining money." Credit President George W. Bush's short-lived tariffs--and even more, booming demand from China.

The U.S. steel industry spent years dying. But Ross showed that if you buy cheap, leave obligations behind, make workers your partners and catch some luck, a phoenix can rise from the least promising of ashes. Will the dying airlines be next?

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