Severstal Makes Competing Bid to Acquire Esmark
05/21/2008 - OAO Severstal makes a proposal to the Esmark Board of Directors to acquire all of the company’s outstanding shares of common stock for $17.00 per share in cash.
OAO Severstal has made a proposal to the Esmark Inc. Board of Directors to acquire all of the company’s outstanding shares of common stock for $17.00 per share in cash. In its proposal, Severstal stated that it was also prepared, if necessary, to enter into interim liquidity substitute financing arrangements upon entering into a mutually acceptable definitive merger agreement.
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In its proposal, Severstal said its existing North American operations provide a superior position from which to strengthen and grow Esmark's current assets.
Severstal said the addition of Esmark would help to further unlock the synergistic opportunities between the company’s facilities in Dearborn, Mich., Sparrows Point, Md., and SeverCorr in Columbus, Miss.
The company noted as an example the potential of a steady slab supply from Sparrows Point to substantially increase the utilization of Esmark's hot strip mill, while the supply of wide hot band from Esmark to Dearborn could substantially broaden the customer value proposition of the combined companies.
SeverStal said the potential synergies could be even further enhanced upon successful closing of its recently announced acquisition of WCI Steel in Warren, Ohio, pending necessary regulatory approvals.
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The USW also noted another section of its labor agreement—the "successorship" clause—which provides that Esmark and Essar Steel cannot close their proposed transaction unless Essar Steel enters into a new labor agreement with the USW. In its announcement, the USW stated that it would use such power to block the Essar Steel transaction.
In contrast to the proposed Essar Steel transaction, Severstal says that its proposal has the full support of the USW. Severstal and the USW have entered into an agreement that satisfies the successorship clause of the labor agreement.
Severstal also says that it is well-positioned to optimize Esmark’s value because of its ability to create complementary product lines, geographical alignment and operational synergies. Severstal said it also has developed a highly credible restructuring plan designed to derive maximum value from Esmark, including a 5-year capital improvement plan that carries the full support of the United Steelworkers. According to Severstal, the combined company would become one of the leading North American flat-rolled steel producers.
“While we hope to work together with Esmark and its board of directors to negotiate a mutually acceptable merger agreement, we believe that it is critical to give Esmark's stockholders a chance to decide for themselves and that they will find Severstal's proposal much more compelling than the Essar Steel transaction,” stated Gregory Mason, CEO of Severstal International and COO of OAO Severstal.
Severstal indicated in its letter that its proposal could be consummated within 40 days after entering into a merger agreement with Esmark.
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.
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.
