NEW YORK — By last September, a situation that had been difficult turned desperate.
Staggered by three years of losses, Wheeling-Pittsburgh Steel was in bankruptcy reorganization. Its creditors were in an uproar, and its workers, on strike since mid-July, were burning effigies of Dennis J. Carney, the proud and combative chairman of the seventh-largest U.S. steelmaker.
Liquidation would have been next, but for a surprise maneuver by the company's largest shareholder. On the morning of Sept. 18, Allen E. Paulson wrote three personal checks for $2.3 million in severance pay for Carney and two of his lieutenants.
The move bought their resignations, appeased the union and cleared the way for settlement of the strike.
"Until that moment Paulson had really been a mystery man, off in the shadows," says Paul D. Rusen, who was chief negotiator for the United Steelworkers Union. "Then suddenly he gets up and he's the key player in the game. It was pretty dramatic."
Board Room Battles
It was not the only dramatic moment in the troubled recent history of Wheeling-Pittsburgh, or in the career of soft-spoken, farm-bred Paulson, who made himself nearly half a billion dollars with Gulfstream Aerospace, the second-largest maker of corporate jets.
Wheeling-Pittsburgh's bankruptcy reorganization is the largest ever in the domestic steel industry, and the turmoil accompanying it produced one of the most remarkable board room battles.
Although the company has never had more than 3% of the domestic steel business, its struggles have broad implications.
Some expect that Wheeling-Pittsburgh's Oct. 25 labor settlement will set a pattern for wage concessions when industrywide contract talks begin in early 1986. The agreement cut the company's labor costs, including wages and benefits, 16% to $18 an hour.
If Wheeling-Pittsburgh emerges successfully from reorganization, its leaner cost structure will set a precedent for other domestic producers.
Not least important, Wheeling-Pittsburgh's travail has brought crisis to a federal agency that was set up to provide last-resort pension programs for employees of threatened companies.
The steel company's decision to withdraw from the federal program in favor of a less expensive one is likely to saddle the agency with $475 million in pension obligations, and may threaten its ability to provide pensions for retirees from other companies.
For 63-year-old Paulson, the company's fate has a quite separate meaning. He has watched a 34% stake that he purchased for $50.5 million dwindle to a current market value of about $13 million. If Wheeling-Pittsburgh fails, it will mean not only financial loss, but also a blight on his record of guiding businesses to success.
"It's a matter of pride," he said in an interview that was his first detailed public discussion of the matter. "They've got to make it."
The steel company has been peering into the abyss for some time. Cobbled together in 1968 as a merger of between Wheeling Steel Corp. and Pittsburgh Steel Corp., the company operates 11 mills that stretch along the foot of Alleghany river valleys in western Pennsylvania, West Virginia and Ohio.
In 1978, leadership of the company fell to Carney, a Massachusetts Institute of Technology-trained metallurgist who prided himself on his knowledge of the steel business, and had gained a reputation for a confrontational manner. He bent his best effort to scraping together enough capital to fill Wheeling-Pittsburgh's aging steel and brick buildings with the latest in steelmaking equipment.
Many say he did a masterful job, including the steelworkers who became his bitterest foes. "There's no question we wouldn't be here today if Dennis hadn't done what he did," the steelworkers' Rusen said. "The guy had a genius for keeping the place going."
Twice he persuaded the steelworkers to give ground on labor contracts. Such was his creativity that Carney arranged a federal loan guarantee to cover part of the financing of a $120-million rail mill at Monessen, Pa.--outraging competitors and prompting one U.S. senator, Connecticut Republican Lowell Weicker, to call for a federal investigation of the guarantee.
As well as securing hundreds of millions in bank loans in the late 1970s and early 1980s, Carney was an effective promoter of the company's stock, arguing that a leaner, higher-tech Wheeling-Pittsburgh could earn booming profits in an economic recovery. Those who invested included such financial sophisticates as Lawrence A. Tisch, chairman of Loews Corp., and Carl Lindner, chairman of the American Financial Corp.
Another was Paulson, who had made more than $85 million when Gulfstream Aerospace went public in 1983, and was looking for a way to diversify. He began purchasing Wheeling stock in 1983, and by last year had become the company's largest shareholder.