×
Home Companies Industry Politics Money Opinion LoungeMultimedia Science Education Sports TechnologyConsumerSpecialsMint on Sunday
×

Essar Steel may have to raise bid for Esmark

Essar Steel may have to raise bid for Esmark
Comment E-mail Print Share
First Published: Thu, May 22 2008. 01 02 AM IST
Updated: Thu, May 22 2008. 01 02 AM IST
Mumbai: Essar Steel Ltd’s attempt to acquire US-based steel maker Esmark Inc. could be scuttled after rival Russian firm OAO Severstal matched its price and said it had the support of the United Steelworkers, or USW, a union of steel workers in the US and Canada, to push the deal through.
OAO Severstal on Tuesday offered $17 for each Esmark share and said the union has cleared its proposal. The USW has a deal with Esmark, which expires on 1 September, in which the union has the right to veto any deal that changes management control.
“In contrast to the proposed Essar Steel transaction, Severstal’s proposal has the full and enthusiastic support of the USW. Severstal and the USW have also entered into an agreement that satisfies the successorship clause of the labour agreement,” Severstal said in a statement.
An Esmark spokeperson in West Virginia, US, said the company has received the Severstal offer and its board would consider it.
“We are not in a position to comment at the moment,” an Essar spokeperson said. The firm is expected to take a decision on the deal next week, according to people close to the development.
The union had said last week Esmark and Essar would not be able to close their transaction unless Essar had a new labour agreement with USW. Essar had agreed on 1 May to buy Esmark for $670 million, with the total value of the deal at about $1.1 billion, including $430 million in debt.
“At this moment, Severstal’s offer is superior since they have union support, unless Essar raises its offer. Given the union support for Severstal’s offer, I do not expect Essar to complete the deal,” said an analyst, who covers metals for a domestic brokerage, on condition of anonymity.
USW had also supported the Russian company’s acquisition of Warren, Ohio-based WCI Steel Inc. for $3.29 a share, or $370 million.
USW representatives were not immediately available for comment.
Last week, USW had said it would not allow Esmark to complete the deal with Essar, saying the deal violates the union’s contract with Esmark. “The USW’s rights under the right to bid clause clearly prohibit the company from entering into these agreements, and we will take whatever action is necessary to protect these rights,” David McCall, a USW director, had said in a letter to Esmark.
In a response to the stance taken by the USW, Esmark chairman and chief executive officer James P. Bouchard on Tuesday said, “The Esmark proposed transaction was unanimously approved by the company’s board of directors.’’ Bouchard had also urged USW to join the discussions with Essar and Esmark to complete the deal.
In a statement on Tuesday, Severstal said it is best positioned to optimize the value of Esmark by creating complementary product lines and other initiatives. Further, Severstal has developed a highly credible restructuring plan designed to derive maximum value from Esmark, including a five-year capital improvement plan that carries the full support of the USW, the statement added.
Esmark shares gained nearly 17% on Tuesday to close at $18 on the Nasdaq.
The shares were nearly 6% above the offer price from both Essar and Severstal, suggesting that investors were expecting a higher bid from the bidding companies.
Comment E-mail Print Share
First Published: Thu, May 22 2008. 01 02 AM IST