OAO 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.