Severstal Disappointed by Esmark Actions
By PAUL GIANNAMOREOAO Severstal says Esmark isn't being fair in its dealings with bidders for the steel company.
Severstal expressed disappointment at Esmark Inc.'s rejection of its $17 per share offer and said Esmark tipped the scales in favor of a purchase offer from Essar Steel Holdings Ltd.
Esmark, parent of Wheeling-Pittsburgh Steel Corp., rejected Severstal's offer in favor of Essar's offer Thursday. On Friday, Esmark adopted a "poison pill" shareholder rights package favoring Essar by diluting the purchase rights of Severstal.
Severstal's tender offer expires on June 26. Esmark and Essar plan to begin moving ahead with their deal on Monday.
In a letter to James P. Bouchard, chairman and chief executive officer of Esmark, Gregory Mason, CEO of Severstal International and chief operating officer of OAO Severstal, said Monday he believes the Essar transaction cannot be realistically consummated and noted Severstal has the unequivocal support of the United Steelworkers union and Esmark's largest stockholder, Franklin Mutual Advisers.
"Notwithstanding your negative recommendation, Severstal intends to continue with its plans for a transaction with Esmark because we believe that, ultimately, Esmark's board must acknowledge these same facts," Mason wrote.
He noted Essar had urged Esmark to take reasonable actions to create a level playing field among the bidders, but Severstal said Esmark's board "has in reality tipped the scales in favor of a transaction with Essar in a number of significant respects."
Mason alleges Esmark's recent filing with the Securities and Exchange Commission contains incorrect assertions about circumstances and merits of Severstal's offer.
"While we intend to raise these issues with you more completely at an appropriate time, for now it seems abundantly clear that this filing was designed to unfairly persuade your shareholders to reject Severstal's offer, as opposed to fairly inform them of the merits of their current opportunities," Mason wrote. He said with complete and accurate disclosure, Severstal is confident Esmark's shareholders would choose the Severstal offer, "but we believe your filing has denied them such disclosure."
The USW has filed a grievance expected to be heard today because Esmark entered into a memorandum of understanding with Essar April 30 without allowing the union to present a competing bidder. Esmark has filed a National Labor Relations Board charge that the USW is interfering in Esmark's attempt to be sold to the bidder of its choice.
Severstal said Esmark also attached a breakup fee to the Essar deal, even though it was in active negotiations with Severstal at the time and was aware that the USW supported Severstal and opposed the Essar deal. Severstal said Esmark attached a $22.5 million impediment to a Severstal transaction.
"This is no level playing field," Mason wrote.
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oldsteelmaker
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06-19-08 3:06 PM
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One more point: Since there are two union reps on the board, why didn't THEY point out at the meeting that the contract may affect the deal? Since they served on the board by appointment of the union management, Esmark can claim they HAD union approval of the deal. Why else are they there?
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oldsteelmaker
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06-19-08 3:02 PM
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Paul, when are you going to interview the union boss and ask him why he bothered to put two reps on the Esmark board? His claims seem to indicate he doesn't talk to them, and they don't bother to let him know what happens at meetings. Since there is usually an agenda sent to members before the meeting, all of the Essar dealings should have been no surprise.
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oldsteelmaker
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06-19-08 2:57 PM
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Mason claims the Essar deal won't happen because it isn't well funded. Looking at the size of Essar's other holdings and how they are spending money at Algoma and Minnesota Steel, this claim doesn't hold up. Severstal has plenty of money going out right now, and is more likely to have problems funding the deal. How a $17 a share offer with assumption of debt, and not-too-well defined improvements beats a $19 offer with $500 million of improvements is beyond me. As for the $22 million walk-away payment, that is not unreasonable. Essar made a large, unsecured loan to Esmark. It prevented a default. If you look at what a hard money lender would charge for a bailout loan, that is not a bad fee.
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acmecoke1
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06-18-08 10:30 PM
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Lets look at this clearly. SeverStal just spent millions to take over SeverCorr, the most modern steel mill in the south. They spent millions to rebuild Dearborn's "C" blast furnace and repair Dearborn's "B" furnace (which they blew up), bought Sparrows Point and promised to invest 500 million additional dollars improving Sparrows Point. Thats billions of dollars. Where is poor WPSC going to receive any improvements. They will be last on the ladder if they get anything. Essar has proven their word and success to WPSC. Algoma continues to receive investment and is growing as a steel company and Minnesota Steel also continues to be successful. Essar is also wide based in international shipping, construction, oil and manufacturing industries that will help support the steel industry in slow times. SeverStal is too far committed to other ventures to help WPSC. Their leadership is also full of ex-Soviet supporters of Vladimir Putin. Real nice guys!
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acmecoke1
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06-18-08 10:08 PM
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The Essar deal is far superior in every respect to SeverStal. It would give WPSC ample coke supplies and unlimited source of iron ore that will help drive down production costs. Essar will use all of WPSC while SeverStal will take over the coke plant, hot mill, service centers and shut the rest down. Again, the union reps on the board also supported the Essar deal, so there is truly something underhanded between the rest of the union and the SeverStal leadership. WPSC can use another blast furnace and Essar has the money and the willingness to invest the money to build it. SeverStal has plenty of blast furnace capacity in the United States and certainly does not need WPSC's blast furnace. They own Sparrows Point huge blast furnace, a brand new one in Dearborn (C), rebuilding B furnace in Dearborn and a whole new steel mill (SeverCorr) in the South. It will be no doubt that WPSC will be an afterthought in the SeverStal empire. It will be the last to receive any investment.
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PBrider
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06-18-08 10:26 AM
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When comparing the two companies, this will only make Wheeling Pitt stronger. Essar has a very limited footprint in North America. They have Algoma in Canada and an Iron Ore mine in Minnesota. Wheeling Pitt would become their flagship in North America. I feel that WPSC would become just another cast off in Severstal's empire. Also, Essar has all the Iron Ore that WPSC's blast furnace could want. Rumor has it that they are going to open up another blast furnace at WP. Any sensible person could see it is a way better deal, but then again we are talking about the Union. They lack all the sense.
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oldsteelmaker
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06-18-08 9:35 AM
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Agreed. If they were serious they would match or beat the offer. Why don't the articles point out the two union reps on the board that voted on the Essar loan and other motions. I thought they were there to be the union's watchmen. The Essar deal has more value to the workers because it will require the plants to be modernized. Severstal has several other, newer plants in the States. They can use the hot mill and arc furnace at Mingo and some of the Ferry galvanizing lines, maybe Yorkville, and shut down the rest of the shops. Essar needs the whole package, including a new cold mill, to make their plans work.
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PBrider
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06-18-08 8:22 AM
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Of course they are. They want this company cheap and just want to dismantle it. If they really wanted us, they would up their bid $2 instead of complaining that their deal is better.
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