Severstal matches Essar bid for Esmark

Russia's Severstal makes rival bid for Esmark.
Russia's OAO Severstal made a rival bid for U.S. steel company Esmark Inc on Tuesday, days after the steelworkers' union threatened to block an offer from India's Essar Steel Holdings for Esmark. Severstal, a mining and metals company, said its proposal was worth $1.24 billion and was backed by the United Steelworkers union (USW). Under an agreement with the company, the union can come up with an alternative deal. Chicago-based Esmark, which acquired U.S. steelmaker Wheeling-Pittsburgh last year, valued the bid at $1.1 billion. Bill Keegan, a spokesman for Esmark, said the company was reviewing an offer letter from Severstal. He said the offer was similar to one from Essar -- $17 per share and the assumption of $400 million debt. Keegan said Esmark's material agreement with Essar "is now subject to a competing bid, which we will entertain." "Essar and Severstal are both excellent global companies and Esmark CEO Jim Bouchard will be reaching out to Severstal (International CEO) Gregory Mason to discuss the offer and how to provide the greatest value for shareholders and the future of the Ohio Valley," he said. Wheeling-Pittsburgh is a big employer in the steel-making area. In April, Esmark said it agreed to material terms of an offer from Essar. But last Friday the USW demanded that the company repudiate the deal, asserting it was in violation of the union's collective bargaining agreement. Under the agreement, the company cannot sign a deal and arrange financing without first providing the union with appropriate notice and an opportunity to bring forward an alternative proposal. Under another section of the USW labor agreement -- called the Successorship Clause -- Esmark and Essar cannot close the proposed transaction until Essar has entered into a collective bargaining agreement with the union. The USW told the company it would use that power to block the Essar deal. Just prior to the Severstal bid being made public Tuesday, Esmark responded to the USW saying it had honored the provisions of the collective bargaining agreement. "The USW is attempting to challenge a transaction which would maximize value for our shareholders and revitalize Wheeling-Pittsburgh Steel and the Ohio Valley," Bouchard said in a letter to the union. "Despite the USW's direct involvement in the sale process ... the USW has not made or otherwise arranged an offer for the company that is equal to or superior to Essar's proposed transaction" Bouchard said. He urged the USW to join talks with Esmark and Essar to complete the transaction. In a statement issued in Moscow, Severstal said: "In contrast to the proposed Essar Steel transaction, Severstal's proposal has the full and enthusiastic support of the USW." "Severstal and the USW have also entered into an agreement that satisfies the successorship clause of the labor agreement," the Russian company said. "While we hope to work together with Esmark and its board of directors to negotiate a mutually acceptable merger agreement, we believe that it is critical to give Esmark's stockholders a chance to decide for themselves and that they will find Severstal's proposal much more compelling than the Essar Steel transaction," said Severstal's Mason. Severstal indicated in its letter that its proposal could be consummated within 40 days after entering into a merger agreement with Esmark. "The combined company will become one of the North American leaders in flat rolled steel products," it said. Severstal currently has steel operations in Dearborn, Michigan; Columbus, Mississippi, and recently acquired the Sparrows Point plant in Maryland.