Severstal wants Esmark shareholders to decide between Severstal, Essar Steel offers

By Lisa Kerner

Charlotte, N.C., June 17 - OAO Severstal said it will continue with its plans for a transaction with Esmark Inc., citing the support of the United Steelworkers and Esmark's largest shareholder, Franklin Mutual Advisers, LLC.

In a June 16 letter to Esmark's board, Severstal accused Esmark of denying its shareholders full disclosure in regards to the Severstal offer.

"We believe Esmark's shareholders should be allowed to choose between the questionable transaction with Essar Steel Holdings Ltd. that you support, as opposed to the real value that will be delivered through the Severstal offer," Severstal said in the letter.

According to Severstal, Esmark's board has "tipped the scales in favor of a transaction with Essar" in a number of ways, including adopting a poison pill, entering into an agreement with Essar Steel despite its contractual obligations to Severstal and giving Essar Steel a three-day window to match competing offers.

Severstal asked Esmark's board to eliminate the termination fees and deal-matching provisions in its Essar Steel agreements, to eliminate the poison pill and to present Esmark's shareholders with an "unvarnished and unbiased account of the opportunities available to them through a transaction with Severstal."

In the letter, Severstal, a Moscow-based metals and mining company, said it believes its offer for Esmark provides "compelling value" for the company's shareholders and that Esmark's contemplated transaction with Essar Steel cannot be realistically consummated.

It was previously reported that Esmark's board of directors adopted a stockholders rights agreement that the company said is designed to help stockholders receive the highest value for their shares in connection with the sale of Esmark.

The plan does not apply to existing stockholders who own 15% or more of Esmark's existing common stock, unless they acquire additional shares in an amount equal to or greater than 0.25% of Esmark's outstanding common stock, a prior news release noted.

On June 11, Esmark subsidiary Wheeling-Pittsburgh Steel Corp. filed a charge under the National Labor Relations Act against the USW alleging multiple violations of federal labor law in connection with the union's attempts to block the proposed acquisition of Esmark by Essar Steel.

The union denied the claims.

While Essar Steel and Severstal both initially offered $17 per share for the Wheeling, W.Va., steel producer, the USW rejected Essar Steel's offer.

Essar Steel, as part of its increased offer for Esmark of $19 per share, is prepared to recognize the USW, assume the basic labor agreement and negotiate a new collective bargaining agreement on an expedited basis, Essar Steel said in an earlier news release.

Essar Steel is a flat carbon steel manufacturer based in Essar, India.

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