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The Bottom-Feeder King

Never mind hedge funds. Wilbur Ross gets rich the unfashionable wayin steel plants, textile mills, and other stuff nobody wants.

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Look at all the engineers China is graduating. If China marries its massive labor force to technology, things will be very bleak for this country. In industry after industry, wages are starting to get cut back, fringe benefits are getting cut backlook at the poor airline industrywe’re in danger of exporting our standard of living and importing our unemployment . . . You can’t have much of an economy if people are just flipping hamburgers, trading stocks, and suing each other . . . Are our grandchildren going to dive for coins from cruise ships in the East River?

This jeremiad on the decline of manufacturing isn’t being delivered by a fire-breathing steward in a union hall. Instead, it emanates, in a soft, reasonable monotone, from a short, largely bald man in an impeccable wool suit, seated in a corner office in the shadow of the Seagram Building. An Henri Cartier-Bresson photograph of a French boy holding a wine bottle tilts against one wall.

Wilbur Ross Jr., the Manhattan-based connoisseur of failed companies, was until recently known to boldface cognoscenti as the ex-husband of former lieutenant governor Betsy McCaughey Ross. But in the past two years, Ross, 66, has plunged headlong into the detritus of the industrial heartland and emerged with gold. He’s parlayed a series of ballsy political and financial gambles on left-for-dead assetsmidwestern steel mills, southern textile mills, and Appalachian coal minesinto an empire. Ross’s funds now control 1.2 billion tons of coal reserves and what may soon be the country’s last-standing denim mill. I really think the future of domestic manufacturing is people like Wilbur Ross, says Bruce Raynor, head of UNITE HERE, a union that includes thousands of garment workers.

Are our grandchildren going to dive for coins from cruise ships in the East River? asks Ross.

But Ross, who this fall landed on the Forbes 400 for the first time, has none of the swagger of private-equity barons like Henry Kravis or Teddy Forstmann. He has the agreeable mien of an adviser, accustomed to whispering discreetly into clients’ ears. He gestures gently with age-spot-dappled hands, favors B.S. over the more common bullshit, and disdains the term vulture investor. We’re a phoenix that rebuilds itself from the ashes. Now, newly married to socialite Hilary Geary and giddy over a just-struck deal to sell his steel assets at a huge premium, Ross is ready for his close-up.

Thumbnail bio: Born in Weehawken, New Jersey, 1937, the son of a schoolteacher and a lawyer (Wilbur Ross Sr. became a judge). Attended a Jesuit military school, Yale, and Harvard Business School (noteworthy classmate: James Robinson III of American Express fame). Worked for money-management firms and investment banks. Spent 24 years at the New York office of Rothschild, Inc. Ran Rothschild’s bankruptcy-restructuring advisory practice. Tenacious (or obstreperous, depending on which side of the table you sat) negotiator. In late nineties, started a $200 million fund at Rothschild to invest in distressed assets. As the U.S. bubble began to burst, Ross decided he wanted to invest more and advise less. On April Fools’ Day 2000, the 62-year-old banker raised $450 million to plunge into fallen companies.

Excellent timing. The 20001 rolling stock-market crash, 9/11, and a globally synchronous recession pushed scores of companies into bankruptcy. New Economy highfliers like Enron, WorldCom, and Global Crossing went bust. But so did Old Economy stalwarts in industries like steel and textilesvictims of excess capacity, global competition, and generous union contracts.

Bankruptcy is the Greyhound bus terminal of corporate Americaa dimly lit hall peopled by hard-luck losers, duped lenders, congenital screwups, and, occasionally, powerless victims of vast global forces. And most professional investors regard bankrupt industrial firms as toxic piles; they flee before the crud can soil their Allen-Edmonds wingtips. But Chapter 11 allows those with an eye for damaged goods to gain control of assets on the cheap. Why? Busted companies can reject leases, walk away from debt, terminate health-care promises, and punt pension plans onto the federally sponsored Pension Benefit Guaranty Corporation. Such debt purges can suddenly make crappy business models seem brilliant.

In 2001, when LTV, a bankrupt steel company based in Cleveland, decided to liquidate, Ross was the only bidder. Ross suspected that President Bush, a free trader, would soon enact steel tariffs on foreign steel, the better to appeal to prospective voters in midwestern swing states. So in February 2002, Ross organized International Steel Group and agreed to buy LTV’s remnants for $325 million. A few weeks later, Bush slapped a 30 percent tariff on many types of imported steela huge gift. I had read the International Trade Commission report, and it seemed like it was going to happen, said Ross. We talked to everyone in Washington. (Ross is on the board of News Communications, which publishes The Hill in Washington, D.C.)


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