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Essar Steel Considers Upgrading its Offer for Esmark

06/09/2008 - Essar Steel Holdings informs the Esmark Board that it will consider a potential increase to its $17-per-share offer to acquire Esmark, but says it is seeking information on arrangements between Severstal and Esmark shareholder Franklin Mutual Advisers.

Essar Steel Holdings Limited has informed the Esmark Board of Directors that it was ready to consider a potential increase to its April 30, 2008, offer to acquire Esmark Inc. Essar said that it would consider making an increased bid after it had obtained additional information from Esmark.
 
The company sent a letter to the Esmark Board of Directors specifically seeking information on “any arrangements or understanding” that Severstal may have had with Franklin Mutual Advisers, LLC, an institutional shareholder of Esmark, whom Essar understands has agreed to tender their shares into the Severstal offer.
 
In its letter, Essar also urged the Esmark Board to “recognize its continuing obligations under the Memorandum of Agreement, dated April 30, 2008—and in particular Esmark’s agreement to enter into the Merger Agreement upon the expiration of the Right to Bid period provided in Article Eleven, Section D of the CBA.”
 
Essar’s April 30 offer, the result of a transparent bidding process, led to unanimous acceptance by the Esmark Board, and, ultimately, a memorandum of agreement between the two companies for Essar to acquire Esmark at an estimated enterprise value of USD 1.1 billion.
 
To support the deal, Essar immediately extended a USD $110 million loan to Esmark that was to help the company address a potential default. As part of the acquisition strategy, Essar has also proposed a capital expenditure program of USD $525 million for Esmark’s Ohio and West Virginia manufacturing facilities over the next five years.
 
Essar Global Limited (EGL) is a diversified business corporation with a balanced portfolio of assets straddling the manufacturing and services sectors of Steel, Energy, Power, Telecommunications, Shipping, Ports & Logistics, Mining & Mineral Resources, and Construction. EGL has an enterprise value of approximately USD 50 billion and employs 30,000 people worldwide.
 
Essar Steel is a global producer of steel operating out of India, North America, the Middle East and Asia. It is a fully integrated flat carbon steel manufacturer—from iron ore to ready-to-market products. It has a current capacity of 8.5 million tonnes, which is expected to rise to about 20 million tons by 2012 with the company’s expansion in India, Asia and North America. Essar successfully acquired Algoma Steel in Sault Ste Marie, Canada, in 2007, where following a capital expenditure program and incorporating improved work processes, it has increased production from 2.5 to 3.4 million tons/year in just 10 months.
 
Esmark Inc. is a vertically integrated steel producer and distributor, combining steel production capabilities through both blast furnace and electric arc furnace technologies with the just-in-time delivery of value-added steel products to a broad customer base concentrated in the Ohio Valley and Midwest regions.