By Maura Kelly
The Associated Press

CHICAGO - A bankruptcy judge approved the sale of National Steel to U.S. Steel on Monday, despite objections from Middletown's AK Steel, which argued that the bid process was unfair.

The deal approved by U.S. Bankruptcy Judge John H. Squires calls for U.S. Steel to pay $850 million for the Mishawaka, Ind.-based National, which has been under bankruptcy protection since March 2002.

U.S. Steel also agreed to assume $200 million in debt.

"This ice cube is melting, and we need to consummate this sale as quickly as we can if we're going to be able to lock in this kind of value," National attorney Tim Pohl said during a court hearing.

Last week, National Steel's board of directors picked U.S. Steel as the "highest and best" bidder for the bankrupt company after a bankruptcy auction in Chicago.

The choice of U.S. Steel came after the Pittsburgh-based steel maker reached a labor agreement with the United Steelworkers of America and raised its bid for National by $75 million to $850 million.

The agreement would cover 22,000 workers at both National and U.S. Steel and 100,000 retirees.

Under the deal, U.S. Steel has agreed not to sell off parts of its coke, iron ore and transportation assets, thus preserving jobs for union members.

During the hearing, AK Steel attorney Deryck Palmer said it was unfair for National to consider U.S. Steel's bid.

Squires had declared Ohio-based AK Steel the lead bidder in February, but the company failed to secure a labor agreement with the United Steelworkers, a provision required to get the winning bid.

AK Steel had bid $925 million for National, plus assuming $200 million in debt.

"They were allowed to bid less (than AK Steel) and be assured it was a qualified bid," Palmer said. "They lowered their bid to give more money to the union, and that was an unlevel playing field."

Pohl disagreed, saying U.S. Steel had the only viable bid because it had an agreement with the steelworkers' union and AK Steel did not.

"Both these bidders were at the auction. Both had a chance to improve their bid. One did and one didn't," he said. "They (AK Steel) were one of the participants at the auction and they lost."

During the hearing, several hundred steelworkers rallied outside the federal court building in support of U.S. Steel's bid.

They carried signs reading, "No contract, no work."