May 2, 2008
$1.1 Billion Deal Won’t Save Allenport Steel Mill
By Joe Napsha
Wheeling-Pittsburgh Steel Corp.'s parent firm said Wednesday that a $1.1 billion buyout offer from India's Essar Steel Holdings Ltd. won't save its mill in Allenport in Washington County.Esmark Inc., which merged with Wheeling-Pittsburgh in November, agreed to a $17-a-share offer from Essar that was the best deal among interested buyers, Chief Executive Officer James Bouchard said in a conference call with analysts.
The cash offer pays Esmark about 13 percent more than its closing price Tuesday on the Nasdaq stock market.
Bouchard did not identify any other potential suitors but said Essar's "vision for the company is outstanding."
"They have nothing but growth plans for the company going forward," he said.
That apparently won't include the Allenport plant. Esmark notified the Pennsylvania Department of Labor and Industry on March 31 that it intended to close the site May 31 and eliminate 244 jobs.
Last fall, Bouchard cited the need to reduce costs and said Esmark could cut $20 million in annual shipping costs by investing in a cold rolled mill in Steubenville, Ohio. That would eliminate the need to ship steel produced in Ohio for cold rolled processing at Allenport and then return it for finishing at its Ohio plants in Yorkville or Steubenville.
Esmark, which operated steel service centers before buying Wheeling-Pittsburgh Steel, looked for a buyout because of spiraling costs of raw materials and transportation. The company had difficulty in securing long-term financial commitments, Bouchard said.
Wheeling, W.Va.-based Esmark will get about $668 million in cash in the deal. Craig Bouchard, the company's president, said the assumption of $430 million in debt will push the value of the deal to $1.1 billion.
Essar will provide Esmark with a $110 million loan in mid-May to pay off a federal government loan, he said.
With the cash from the sale, Esmark will be able to refinance Wheeling-Pittsburgh and Esmark loans, plus finance continuing operations, Bouchard said.
When the merger is completed, Bouchard said he would "hand over the reins (of control) to Essar."
Essar is a global steel company whose holdings include the Algoma Steel Co. in Canada and Minnesota Steel LLC, which has 1.4 million tons of iron ore reserves. It plans to make "significant investments into Wheeling-Pittsburgh Steel" to make it a low-cost technologically advanced producer, Madu Vuppuluri, president of Essar Americas, said in a statement.
Esmark enters a 52-day waiting period required in the collective bargaining agreement with the United Steelworkers, which has the right to reject any deal that changes control of twice-bankrupt Wheeling-Pitt.
The USW was upset with Bouchard over plans to close Allenport and eliminate two of three galvanizing lines at its Martins Ferry, Ohio, plant, thus slashing about 340 jobs.
Seeking to save the jobs, the union had entered talks with Russian-owned Severstal North America Inc. and others to pursue a buyout of Wheeling-Pitt. Severstal has a joint partnership with Wheeling-Pitt in sharing ownership of the company's Follansbee, W.Va., coke plant.
Bill Kinney, president of USW Local 1187 at Allenport, could not be reached for comment.
Although Esmark will close the plant in May, a new owner "may have a new vision" for Allenport, or the two galvanizing lines at Martins Ferry, Esmark spokesman Dennis Halpin said.
Despite the buyout, some executives associated with Esmark and Wheeling-Pittsburgh still may move this summer from offices in Wheeling to Marshall, Halpin said. That move had been postponed from this spring.
Also yesterday, Esmark posted a fourth-quarter 2007 net loss of $12.3 million, or 76 cents a share, compared with a net loss of $5.59 million, or $1.40 a share, during the same quarter in 2006.
News of the proposed deal pushed Esmark's stock up $1.71, or 11.4 percent, to close at $16.69.
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