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OAO Severstal to Purchase WCI Steel

05/19/2008 - OAO Severstal reaches a binding agreement to acquire the outstanding equity of Warren, Ohio, based WCI Steel for a total cash consideration of US$140 million, or about $3.29 per share.

OAO Severstal has reached a binding agreement to acquire the outstanding equity of Warren, Ohio, based WCI Steel for a total cash consideration of US$140 million, or about $3.29 per share.
 
The transaction implies an enterprise value of US$327 million based on WCI’s outstanding net debt as of April 30, 2008. Severstal expects the transaction to be immediately accretive to earnings.
 
WCI's Board of Directors has recommended the transaction to its shareholders, and shareholders representing a majority of WCI's diluted shares outstanding have irrevocably consented to the transaction. The acquisition also has the full support of the United Steel Workers (USW).
 
“During the past few months, the Board of Directors has carefully evaluated strategic alternatives and has concluded that the sale of WCI Steel to Severstal is in the best interests of the shareholders and will enable the Warren, Ohio, facility to prosper in the future,” said Leonard M. Anthony, WCI Steel’s President and CEO. “All of us at WCI Steel are committed to working toward a smooth and rapid transition.”
 
WCI's total annual steelmaking capacity of 1.22 million tonnes is focused on high-quality, custom flat-rolled steel for use in demanding applications. Together with Severstal's current U.S. operations in Dearborn, Mich., Columbus, Miss., and the recently acquired Sparrows Point in Baltimore, Md., WCI will expand the company's North American presence in the high-quality flat-rolled steel segment for the automotive, appliance, furniture, construction and energy markets.
 
WCI's manufacturing facility and product offering is complementary to Severstal's existing U.S. assets. Their combination—together with strong steel-industry fundamentals—will create potential synergies that will allow WCI to add value across Severstal's U.S. platform.
 
“This acquisition is aligned with Severstal's disciplined approach to growing our U.S. business while creating shareholder value,” commented Gregory Mason, CEO of Severstal International and COO of OAO Severstal. “It solidifies our position as the fourth-largest steel producer in the U.S. by raising Severstal's total U.S. capacity to just under 11 million tonnes per year. The addition of WCI to Severstal's family will enhance our custom product capabilities and create opportunities to increase profitability in both the short and long term.”
 
The acquisition is subject to customary closing conditions, including the receipt of all necessary government and regulatory approvals, and is expected to close in late second quarter / early third quarter 2008.
 
OAO Severstal is an international metals and mining company with a listing on the Russian Trading System and the London Stock Exchange. Incorporated in 1993, the company focuses on high-value-added and unique niche products and has a successful track record of acquiring and integrating high-quality assets in North America and Europe. Severstal owns mining assets in Russia, thus securing its supplies of raw materials. In 2007, Severstal produced 17.5 million tons of steel. Revenues were $15.2 billion, EBITDA was $3.7 billion, and EPS was $1.92.
 
As an integrated producer of value-added, custom steel products serving niche markets, WCI Steel emphasizes customer and technical service. WCI Steel currently produces 185 grades of flat-rolled custom and commodity steel products at its Warren, Ohio, facility. WCI Steel focuses on a wide range of custom flat-rolled steel products, including high carbon, alloy, ultra high strength, and heavy-gauge galvanized steel and on developing closer, more responsive relationships with customers. Major customers are steel converters, processors, service centers, construction product companies, and pipe and tube manufacturers.
 
Citi and Raymond James are acting as financial advisors to Severstal on this transaction. Skadden, Arps, Slate, Meagher & Flom LLP is acting as legal counsel to Severstal.
 
Moelis & Co. is acting as exclusive financial advisor to WCI Steel, Inc. McDermott Will & Emery LLP acted as legal counsel to the company, and Kaye Scholer LLP acted as legal counsel to the Special Committee of the Board of Directors.