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Essar Withdraws Esmark Bid
06/27/2008 - Essar Steel Holdings Limited informs the Esmark Board of Directors that it is withdrawing its offer to purchase all of the company’s outstanding shares at US$19 per share.
Essar Steel Holdings Limited has informed the Esmark Inc. Board of Directors that it is withdrawing its offer to purchase all of the outstanding shares of Esmark at US$19 per share. Essar had participated in a bidding process for the acquisition of Esmark on the invitation of Esmark and their financial advisor UBS.
After following all legal procedures and a transparent bid process set by the Esmark Board of Directors and UBS, Essar entered into a memorandum of agreement to acquire the outstanding shares of Esmark for a cash purchase price of US$17 per share, which it subsequently increased to US$19 per share. Essar also extended a US$110 million loan to Esmark, which helped Esmark address a potential default.
An arbitrator subsequently determined (June 22, 2008) that the Essar-Esmark memorandum of agreement violated Esmark’s Basic Labor Agreement with the USW and should be set aside. Essar said that it is disappointed with this decision and believes it is contrary to legal opinions it received on the validity and enforceability of the memorandum of agreement provided by both Esmark and Essar’s legal counsel.
Essar said that it has been in discussion with the United Steelworkers Union (USW) throughout the process. During that time, Essar learned of an understanding between the USW and OAO Severstal, but was at a disadvantage in not knowing the terms of the USW’s agreement with Severstal. Despite Essar’s efforts to reach out to the USW—including offering to assume the Basic Labor Agreement and immediately commence negotiations on renewal of that agreement—the company said that the USW had continued its support of Severstal. This week, right-to-bid was assigned to Severstal as well.
Given the USW’s continued strong support of Severstal and along with Essar’s belief that its $19.00 bid reflects a full and fair value for Esmark, Essar—based on the recent developments—has elected to withdraw from the bidding process. This is also in keeping with Essar’s principled and disciplined approach toward any acquisition.
“Essar’s vision is to be a major steel producer integrated from mining to finished products with a global footprint,” said Shashi Ruia, Chairman of Essar Global, commenting on the development. “Essar will continue to focus on the North America market and remains committed to increase its capacity to about 25 million tons globally by 2012. This will be achieved both through building greenfield projects as well as brownfield development of world-class low-cost assets. Having acquired Algoma and Minnesota Steel last year, Essar will continue to pursue M&A transactions internationally and will look at opportunities consistent with its vision.”
Essar said that its discussions with Esmark’s Board of Directors, management, the USW and all stakeholders were very cordial throughout the entire process. The company also wished Esmark’s Board of Directors, management and employees, the USW, and Severstal the very best going forward.
Essar is a part of the multi-billion-dollar Essar Global Limited (EGL), a diversified business conglomerate operating in the sectors of Steel, Energy, Power, Shipping & Logistics, Telecommunications, Mining & Minerals, and Construction. EGL has a firm value of approximately USD 50 billion and employs 38,000 people worldwide. More than 6000 people of Essar’s workforce are in the Americas.
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. Essar successfully acquired Algoma Steel in 2007, and has increased production from 2.5 to 3.4 million tons/year in just 10 months through a capital expenditure program and improved work processes.
