Esmark bails on Essar, agrees to Severstal buyout

MORGANTOWN — Russian metals and mining company OAO Severstal announced Wednesday it has an agreement to buy West Virginia-based Esmark Inc. for $19.25 per share. Including the assumption of debt and loans, that puts the value of the deal at $1.25 billion.

Esmark has been at the center of a bidding war between Severstal and India's Essar Steel Holdings. While management had previously labeled Essar's offer superior, the United Steelworkers union was backing a buyout by Severstal.

Esmark issued a statement urging investors to tender their shares to Severstal by midnight July 18. The company's shares closed at $20.47, up 44 cents or 2.2 percent.

"This is an historic day for Esmark, its dedicated employees, the USW and the Ohio Valley," said Esmark Chairman and Chief Executive James Bouchard.

The union did not immediately comment.

Both Essar and Severstal had argued they were best-positioned to create value for Esmark shareholders and secure a stable future for the mills. Esmark has operations in 20 states, including subsidiary Wheeling-Pitt plants in West Virginia, Ohio and Pennsylvania and a plant in Greensville County, Va.

Severstal's offer is worth $775 million, but it has also agreed to assume $400 million in debt and to cover a $110 million term loan from Essar.

Bouchard publicly thanked Essar for its "good-faith efforts" to acquire the company, and for extending the loan at what he called a critical time for Esmark.

Severstal, however, already has a joint partnership with Esmark subsidiary Wheeling-Pittsburgh Steel, a coke plant in Follansbee called Mountain State Carbon. It also has a relationship with the union, which has the contractual right to reject a change of ownership.

The USW invoked its right-to-bid clause and sided with Esmark two years ago in its successful takeover of twice-bankrupt Wheeling-Pittsburgh Corp., defeating a plan to merge with Brazil's Companhia Siderurgica Nacional SA.

Severstal said its agreement satisfies the successorship clause in the USW contract. It also has committed to a five-year capital improvement program that will include optimizing the electric furnace and upgrading the capacity of the hot strip mill.

Severstal said Esmark is a good fit with its operations in Dearborn, Mich., and Columbus, Miss., and with the more recently acquired Sparrows Point mill in Baltimore and the Warren, Ohio-based WCI Steel.

Full ownership of Mountain State Carbon also ensures a long-term supply of coke, a key raw material in steelmaking.

"With Esmark as part of our US portfolio, we're well positioned to provide domestic supply to a market that has a consistent demand for high-quality steel," said Chief Executive Alexei Mordashov.

Severstal is listed on the Russian Trading System and the London Stock Exchange.

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Esmark bails on Essar, agrees to Severstal buyout

Associated Press

Wed Jun 25

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