Point owner makes formal bid for Esmark

May 31, 2008|By Bloomberg News

OAO Severstal, Russia's largest steelmaker and the new owner of Sparrows Point, made a formal offer of about $670 million to buy Esmark Inc., whose bid to buy the Baltimore County steel mill fell apart last year.

Severstal will offer $17 in cash for each Esmark share in an offer that ends at midnight June 26, the company said yesterday in a statement.

Severstal, based in Cherepovets, Russia, indicated May 20 it was considering the $17 per share offer for Wheeling, W.Va.-based Esmark that matched an earlier bid by India's Essar Steel Holdings Ltd.

The bid by Severstal, which is trying to expand its U.S. footprint, comes three weeks after it closed on its $810 million acquisition of Sparrows Point. It also agreed recently to buy an Ohio steelmaker.

Esmark led a group of investors in a deal to buy Sparrows Point, but it never closed because the company couldn't secure the financing.

Severstal is counting on the backing of the United Steelworkers union to win control of Esmark, owner of the Wheeling-Pittsburgh Steel Corp., a financially struggling steel plant

Severstal wants to buy Esmark because it would allow the company to offer a greater range of steel products in the U.S. and also allow synergies among the plants that the Russian company owns in the U.S. Supplying semifinished steel slabs from Severstal's Sparrows Point plant might help boost output at Esmark, the company has said.

Under the union's collective bargaining agreement with Esmark, the company is unable to close the Essar deal without union support, Severstal said in the statement. The union has said that the proposed transaction with Severstal would be better for the union.

"As a member of the board of directors, I find today's announcement interesting," Esmark President Craig T. Bouchard said yesterday in an e-mailed statement. "Given the price at which the shares have been trading, as a shareholder I find the announcement uninteresting."

If a deal with Severstal were to be completed, it would bring Sparrows Point and the Wheeling-Pittsburgh plant under the same ownership. Esmark had hoped to use Sparrows Point to ship cheap slab to Wheeling-Pitt and boost its business.

Mumbai-based Essar offered to buy Esmark on April 30 for $17 a share in a transaction that also included a $110 million loan. Esmark said it needed a partner to continue its operations because soaring raw material and transportation costs had led to difficulties in securing funding.

Severstal, the fourth-largest steelmaker in the U.S., is adding production capacity in the nation, where a shortage of the metal has pushed prices to records. Severstal said this month that it would buy Warren, Ohio-based WCI Steel Inc. for $140 million.

"Headline dollar amounts cannot be the end of the analysis," Franklin Mutual Advisers LLC, Esmark's largest shareholder with a 60 percent stake, wrote in a letter to the company's board May 21. "The USW's opposition to the Essar transaction will be difficult, if not impossible, to overcome. We urge the board of directors and management to maximize value, to move expeditiously to conclude an agreement with Severstal and bring this opportunity to Esmark shareholders."

Severstal has added as much as 12 million metric tons of steelmaking capacity in North America and Europe in the past four years, Chief Operating Officer Gregory Mason said recently.

Sun reporter Andrea K. Walker contributed to this article.

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