Severstal Wins Bid For Esmark
Essar withdraws bid following Severstal’s agreement of a $775 million cash deal.
June 26, 2008
Essar Steel Holdings Limited withdrew its bid for Esmark Incorporated Wednesday, in light of Russia-based OAO Severstal’s higher bid and an announcement yesterday that Severstal and Esmark entered into a merger agreement. The acquisition is valued at approximately $775 million in cash.
The merger agreement and Essar’s consequent withdrawal of its offer mark the likely conclusion of what has been a two-month bidding war, during which Essar increased its offer from 17 dollar to 19 dollar a share, and Severstal subsequently raised its own bid to $19.25 per share.
Severstal was able to achieve the support of United Steelworkers Union, as Essar struggled unsuccessfully to win union support, a major setback in the contest to acquire West Virginia-based Esmark. According to the successorship clause of Esmark’s bargaining agreement with the USW, it was necessary for either bidder to arrange a satisfactory agreement with the union.
On the decision to withdraw from the bidding process, Shashi Ruia, chairman of Essar Global said, “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.”
Severstal also entered into an agreement to purchase Esmark's $110 million term loan from Essar Steel.
Chief executive officer of Severstal, Alexei Mordashov, said, “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. 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."
Severstal is a listed metals and mining company based in Russia. Incorporated in 1993, the company’s 2007 revenue was $15.2 billion.
Esmark is a listed steel manufacturer based in Wheeling, West Virginia. Esmark shares closed Wednesday at 20.47 are opened at $19.14 on Thursday morning.
Essar Steel is an arm of Essar Global Limited, a construction, oil and gas production company based in Mumbai, India. The company, which employs 38,000, is owned by the Ruia family.
Merrill Lynch is lead financial advisor in the deal. Citi is financial advisor for Severstal, and Skadden Arps is the company’s legal counsel.
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