WILBUR ROSS TAKES A HONEYMOON
By Nicholas Stein

(FORTUNE Magazine) – Among the magazine clippings that line the walls of Wilbur Ross's Manhattan office is a Business Week cover from last December that asks, "Is Wilbur Ross Crazy?" It's what a lot of people were thinking a couple of years ago, when the 66-year-old financier snapped up LTV, Bethlehem, and other moribund U.S. steel companies. Last month Ross answered the skeptics with a resounding no, selling his International Steel Group (ISG) to Britain's Mittal Steel for $4.5 billion in cash and stock. He salvaged an astounding $2.5 billion profit from an industry most people had long ago resigned to the scrap heap, and personally made around $300 million. Ross sat down with FORTUNE's Nicholas Stein to talk about the sale, the future of steel, and his next big play--coal.

Why sell now?

We weren't looking to do a transaction. Our earnings [at ISG] are good, the cash flow's good, we have no bank debt. We were actually looking to expand internationally. As I got to understand the Mittal business better, I came to the conclusion that for us to recreate what it had done would take at least five to ten years. People have viewed this as us exiting [the steel business]. We're not. We and our limited partners [at Ross's private-equity firm, WL Ross] are getting $2.25 billion worth of stock in the combined company. That's the biggest investment we've ever made.

The new company, Mittal, will be the largest steel corporation in the world. What are its prospects?

I believe this company will create a sea change in the international steel scene much like the one we created in the domestic. We should be able to drive the costs down further, and help foster the consolidation I think is inevitable in the global steel industry. Some 40% of all steel crosses a national border before it is consumed. So there is a logic to being a global company. There are some businesses where it makes sense to be small; steel is not one of them. It's hugely capital-intensive. And you have trade barriers coming down. The big customers for our products--car and appliance manufacturers--are becoming global.

China is the world's largest consumer of steel, but Mittal has no real presence there. What are your plans?

I think you will see consolidation in China. There are something like 10,000 steel companies in China, most of which are tiny, inefficient, horribly polluted things. As China starts to get ready for the Olympics, they are enforcing pollution regulations, which will put a lot of steel companies out of business. Mittal wants to be in China, for sure. And we will be. It makes no sense for the world's biggest steel company to have no presence in the world's biggest steel market.

Is there a concern that now that the company is more global it will move jobs outside the U.S.?

We made a deal with the union that no imports are going to come in to displace American jobs. If we are out of steelmaking capacity and we still have demand, then we will import steel. The one fear I have about the steel industry is that if America loses its manufacturing base of companies that consume steel, there won't be any need for steel.

In a move reminiscent of ISG, you made a number of coal acquisitions recently and formed the International Coal Group. What do you like about coal?

Coal is the cheapest way to generate electricity. We think concern over high energy costs will move more people to coal. The U.S. has more BTUs of coal on reserve than the whole world has BTUs of oil. Coal is very important to our balance of payments, to lowering energy costs, and from a national-security point of view, it's a lot easier to protect a coal mine than a pipeline running 1,000 miles across a desert. But there are naysayers who think we overpaid for our coal assets. That's okay. We'll see in a year or so who's right.

You recently got married [to third wife, Quest magazine society writer Hilary Geary]. What was a tougher deal to close, that or ISG?

The marriage is more fun. That was the important closing. But because of the ISG deal, we weren't able to do a honeymoon. So the ISG deal is my honeymoon, at least for the moment.