Esmark calls Point suit 'frivolous'

It will fight charges over sale of plant

May 10, 2008|By Andrea K. Walker | Andrea K. Walker,Sun Reporter

Esmark Inc. said yesterday that it will "vigorously defend" against what it calls a "frivolous" lawsuit filed against the steel company by ArcelorMittal for failing to complete a $1.35 billion purchase of the Sparrows Point steel mill in Baltimore County.

Wheeling, W.Va.-based Esmark said in a news release that it was "surprised and disappointed" at the lawsuit, which seeks more than $540 million in damages in the Supreme Court of the State of New York.

The deal between ArcelorMittal, the world's largest steelmaker, and E2 Acquisition Corp., a joint venture established by Esmark to buy Sparrows Point, was canceled in December after the buyer was unable to secure financing. ArcelorMittal is also seeking damages from E2.

ArcelorMittal subsequently sold the plant to Russian steelmaker OAO Severstal for $810 million in an auction process overseen by a court-appointed trustee. The steel company was ordered by the U.S. Justice Department to sell Sparrows Point because of antitrust concerns over the production of tin plate.

Sparrows Point has the capacity to produce 3.6 million tons of steel a year. It employs 2,500.

In its suit, ArcelorMittal said that Esmark "deliberately concealed" that it was running into problems with financing even after boasting about being able to get financing despite the tight credit market. ArcelorMittal said it found out about the money issues from the United Steelworkers, and not Esmark or E2.

The suit alleges that shortly after signing the purchase agreement, Esmark alienated its equity partners by attempting to use Sparrows Point as an economic crutch to prop up Wheeling-Pittsburgh Steel Corp., a financially struggling steel plant that Esmark had won control of in a proxy fight. An agreement for Sparrows Point to supply Wheeling-Pitt with steel slab at below-market prices violated Esmark's stockholder agreement with its investors.

"It was exactly the type of below-market self-dealing transaction forbidden by the stockholder agreement," the suit said.

An Esmark spokesman wouldn't answer questions regarding the lawsuit, referring a reporter to the company's news release.

"The company does not provide comment on litigation," said the spokesman, Dennis Halpin.

In its news release, the company said ArcelorMittal's lawsuit was without merit because the acquisition agreement was with E2 and not Esmark. Esmark also said ArcelorMittal hurt the deal by never coming to a labor agreement with the Steelworkers union. It also said ArcelorMittal failed to meet "various conditions" required for the deal to close. Halpin said yesterday that he could not specify the conditions.

ArcelorMittal said it is seeking damages because it was forced to sell the plant at a substantially lower price because market conditions had changed. It also wants to recoup costs it incurred from putting Sparrows Point on the market a second time, including fees for the trustee and advisers.

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