Severstal Enters Merger Agreement to Acquire Esmark
06/26/2008 - OAO Severstal enters into a definitive merger agreement to acquire Esmark at an increased purchase price of $19.25 per share in cash at a total equity value of approximately $775 million.
OAO Severstal has entered into a definitive merger agreement to acquire Esmark Inc. at an increased purchase price of $19.25 per share in cash at a total equity value of approximately $775 million
Under terms of the agreement, Esmark's Board of Directors will recommend that Esmark's shareholders tender their shares to Severstal. Esmark's majority shareholder has entered into an agreement with Severstal to tender its shares in Severstal's tender offer.
Severstal also has entered into an agreement to purchase Esmark's aggregate $110-million term loan facilities from Essar Steel Holdings Ltd., and is also announcing extension of the expiration date of its tender offer for Esmark shares to July 18, 2008. In addition, Severstal also has entered into an agreement that satisfies the successorship clause of the United Steelworkers' collective bargaining agreement.
Severstal has also detailed an operating and restructuring plan with a five-year capital investment program that is designed to derive maximum value from Esmark. Specific operational improvements are to include optimizing EAF production; upgrades to enhance the quality and capacity of the hot strip mill; and improvement of downstream operations. The company also plans to leverage synergies and geographical alignment between all of its North American assets.
"We're pleased that Esmark's Board of Directors has recognized the value of our offer and has recommended our proposal to its shareholders,” said Alexei Mordashov, CEO of OAO Severstal. “In addition to creating value for Esmark's shareholders, this acquisition positions Severstal as one of North America's leading integrated steel companies.
Severstal expects the acquisition to play a critical role in its North American industrial strategy as it utilizes its management expertise and experience to successfully unlock Esmark's potential. Upon successful completion of the tender offer and the merger, Severstal would acquire all of Esmark's businesses, including Wheeling-Pittsburgh Steel Corp., Esmark Steel Services Group, Inc., and the remaining 50% ownership of the joint venture Mountain State Carbon, a blast furnace coking coal production facility in West Virginia.
“This deal is an extension of the progress that began with our acquisition of Rouge Industries in 2004 and that has continued through to our recent purchases of Sparrows Point and consistent with our agreement to purchase WCI Steel,” said Mordashov. “With Esmark as part of our US portfolio, we're well positioned to provide domestic supply to a market that has a consistent demand for high quality steel.”
According to Severstal, the combined company creates one of North America's leading producers of flat rolled steel and expands Severstal's product offerings to its customers. The company expects to realize substantial synergies with its current U.S. operations in Dearborn, Mich., and Columbus, Miss. The addition of Esmark also offers significant operational and financial synergy potential with the recently acquired Sparrows Point facility in Baltimore, and Warren, Ohio, based WCI Steel (pending closure). In addition, full ownership of Mountain State Carbon would increase the company's vertical integration within the U.S. market and further solidify its raw material supply base.
“Severstal has the skills and experience to achieve the industrial synergies from our North American plants,” said Gregory Mason, CEO of Severstal International and COO of OAO Severstal. “This transaction benefits not only Severstal and Esmark, but all stakeholders and most importantly the people, the core of our company, and their communities.”
Under terms of the merger agreement, Severstal will amend its tender offer to increase its offer price to $19.25 per share and Esmark will amend its Schedule 14D-9 to include the Esmark Board of Director's recommendation that Esmark shareholders tender their shares to Severstal pursuant to the amended tender offer. A revised offer to purchase will be distributed to Esmark shareholders, and the scheduled expiration date for the amended tender offer is July 18, 2008, unless extended. The offer and related transactions contemplated by the merger agreement are subject to the satisfaction of customary closing conditions.
Merrill Lynch is acting as lead financial advisor, Citi is acting as financial advisor, and Skadden, Arps, Slate, Meagher & Flom LLP is acting as legal counsel, to Severstal. MacKenzie Partners, Inc. is acting as Information Agent for the tender offer.
OAO Severstal, an international metals and mining 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.
Severstal International is an operating division of OAO Severstal comprising North American and European segments.
