The commodity king
'I hate the word vulture, " says investor Wilbur Ross, despite the fact that he specializes in making a meal out of what others consider carrion.
Steel, coal, textiles--pick a U.S. industry that seems destined for the scrapheap, and Ross wants a piece of it. But unlike true vulture investors, he doesn't buy distressed companies to liquidate them. "We're in the turnaround business," he says. "If we had a bird, it would be the phoenix, the bird that rises from the ashes."
Ross's fortunes are certainly soaring. Like a modern-day Andrew Carnegie, he cornered the U.S. steel market in the early 2000s through his investment fund, WL Ross & Co., acquiring dying steel mills, including Bethlehem Steel and LTV Corp., for a total of about $2.2 billion. The consolidated company, International Steel Group, became the largest U.S. steelmaker virtually overnight. By purchasing companies that had been stripped of underfunded worker pension plans and forging a new contract with the United Steelworkers, Ross cut enough costs to make ISG profitable. He was also more than a little lucky, buying when steel was less than $300 a ton and selling when prices topped $550 a ton. And he benefited from temporary steel tariffs enacted by President Bush. "The union and Wilbur Ross were the catalyst that not only saved steel jobs," says United Steelworkers international president Leo Gerard, "but saved the industry."
On to coal. In October, Ross agreed to sell ISG to London steel magnate Lakshmi Mittal for $4.5 billion, half in stock and half cash; Ross personally pocketed $300 million. Though he and his partners have a $2.5 billion stake in Mittal's steel empire, Ross has given up any control he had. So he's turned his attention to replicating his success in coal and textiles. International Coal Group was created through the purchase of ailing coal companies, the biggest of which is Ashland, Ky.-based Horizon Natural Resources. Despite industry criticism that he paid too much for his coal assets, Ross seems to love the stuff and is quick to point out that the thermal energy of coal in the United States exceeds that of the world's oil. The fact that coal is in places like West Virginia and Tennessee instead of Nigeria or Iraq also delights him. "We think reliability of supply is a very important factor," he says.
As he did with steel, Ross first got rid of some of the baggage weighing down the coal assets he bought. He selected companies free of environmental liabilities or came to agreements with regulators before buying, paving the way for easier profits in the future.
International Textile Group, perhaps Ross's riskiest enterprise, consists of the assets of bankrupt textile makers Cone Mills and Burlington Industries. Joint ventures in Mexico, Turkey, and India came with those companies, and ITG has since forged an agreement with a Chinese clothing chain to sell apparel to a mushrooming Chinese middle class. "If CAFTA [the U.S.-Central America Free Trade Agreement] goes through," says Ross, "we'll be putting a big denim plant in Guatemala."
"People like us. " Making textiles in the United States sounds crazy given the industry's history of mill closures and layoffs, but Ross insists there will always be some textile businesses here. "But it will only be the people that are very low cost and that also have the best technology," he says. To that end, he's developing fabrics that incorporate nanotechnologies to make clothes that are stain and static resistant.
Ross's investing theory is that trade liberalization will lead to rising living standards in the developing world--and increased demand for commodities. "Hard metals, energy sources, and things of that sort are all going to be very much in demand for quite some time," he says. "Those are industries that have historically not attracted that much capital, haven't been that appealing to hotshot managers, and tend to be very fragmented. For people like us, those are very exciting characteristics."
But just any dying industry won't do. While airlines are certainly distressed and out of favor, and fares are becoming commoditized, Ross hasn't been able to come up with a workable strategy there, so the former airline analyst has stayed away.
Between analyzing airlines for Faulkner, Dawkins & Sullivan in the 1970s and launching WL Ross & Co. in 2000, Ross worked at Rothschild Inc. There, he and his team restructured over $200 billion of corporate liabilities.
Of course, anyone betting on globalization had better have China on the brain, and Ross certainly does. "I think China is the most amazing industrial revolution the world has ever seen," he says. "We're at the very early stages of China's expansion." With its insatiable demand for coal and steel, as well as its massive pool of textile workers and consumers, China figures prominently in his investment strategies.
Ross, 67, admits that he tends to obsess about the Asian giant: "My wife sometimes accuses me of being the Manchurian candidate; she thinks I'm totally brainwashed about China." That's his third wife, by the way. In October, Ross married Hilary Geary, a society writer for Quest magazine--the same month he closed the $4.5 billion deal with Mittal and purchased Horizon Natural. "It was," he says, "a wonderful October."
This story appears in the January 31, 2005 print edition of U.S. News & World Report.