June 16, 2008

Severstal Expresses Interest in Esmark

By Harris, Linda

WHEELING - Russia's OAO Severstal has emerged as a new suitor for Esmark Inc., the Chicago-based steel services and distribution company that recently signed a memorandum of understanding with India's Essar Steel Holdings.

Severstal is willing to pay $17 a share for Esmark's outstanding stock, just as Essar is.

The Russian company, however, has the support of the United Steelworkers union, which earlier this week vowed to use its contractual protections to block Essar's buyout bid - reminiscent of Esmark's own battle two years ago to win control of Wheeling- Pittsburgh Steel.

That merger was finalized in 2007 after a bitter, four-month takeover battle: Wheeling-Pitts previous management team had backed a merger with a Brazilian steelmaker, Companhia Siderurgica Nacional, but that plan was derailed when the USW threw its supports to the upstart Esmark.

This time, it's Esmark's management team that is being challenged by the USW's leadership, which contends Esmark breached a right-to- bid provision in its contract when its board of directors agreed in principle to the Essar deal without first giving the union an opportunity to submit an alternative proposal.

USW District 1 Director David McCall has said Esmark's management reached the memorandum of agreement with Essar - agreeing among other things to a financing package plus a $20 million penalty if the deal falls through - without allowing the union its contractually agreed upon time to develop an alternative scenario.

The union also cited a second provision, a successorship clause, that bars Esmark from closing on the deal without the new owner having first negotiated a contract with the USW, and said it would use that power to block the Essar buyout.

But Esmark Chairman and CEO Jim Bouchard denies moving ahead without union involvement, insisting it brought Essar's management team to Pittsburgh "early in the negotiation process to meet with union officials, and we consistently invited the USW's involvement in and support of the Essar transaction."

"The USW is attempting to challenge a transaction which would maximize value for our shareholders and revitalize Wheeling- Pittsburgh Steel and the Ohio Valley," Bouchard said in a prepared statement. "Despite the USW's direct involvement in the sale process of the company since as early as February of this year, the USW has not made or otherwise arranged an offer for the company that is equal to or superior to Essar's proposed transaction."

Neither McCall nor Bouchard could be reached for comment on the Severstal proposal.

For its part, Severstal's management team suggested their company is "best suited to unlock the potential of Esmark's current operations." The acquisition would make Severstal the fourth largest steel producer in the United States and boost product capabilities as well as opportunities for increased profitability, they said.

And unlike Essar, Severstal has what CEO Gregory Mason characterized as the "full and enthusiastic support" of the USW, having already worked out an agreement that satisfies the successorship clause and secured a waiver of the USW's right-to- bid. He said the company could close the deal within 40 days of a merger agreement.

"While we hope to work together with Esmark and its board of directors to negotiate a mutually acceptable merger agreement," he said, "we believe that it is critical to give Esmark's stockholders a chance to decide for themselves and that they will find Severstal's proposal much more compelling than the Essar Steel transaction."

Copyright State Journal Corporation May 30, 2008

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