The Hindu Business Line : Essar hikes offer for Esmark to $19 a share

Mumbai, June 11 Essar Steel has increased its offer to acquire West Virginia-based Esmark Steel by about 12 per cent to $19 a share to out-bid rival suitor Russia’s Severstal steel, which had earlier matched the Indian steel company’s offer. This will increase the acquisition cost from the earlier $1.1 billion to $1.2 billion.

Sources following the development say the battle for Esmark Steel will be intensifying in the coming weeks, as the two rival suitors appear to be gearing up for a bidding duel, reminiscent of the battle between Tata Steel and Brazil’s CSN for Anglo-Dutch steel maker Corus albeit at a lower level.

Ups the ante

Less than 24 hours after Esmark announced that it would consider the offer of Russian steel giant Severstal to match Essar’s earlier bid, the Indian company on Wednesday upped the ante by announcing its intentions of increasing its bid by $2 a share to $19. Esmark’s Chairman and CEO, Mr Jim Bouchard, in a conference call with analysts on Tuesday, had also said that the board will decided whether to accept Severstal’s bid on or before Friday.

In response to this development, Essar put its act together and informed Esmark’s board that “upon execution of the merger agreement, Essar will increase its offer to $19 a share.”

Essar Steel, part of the Essar Global Ltd, which has a current capacity of 8.5 million tonnes with operations out of India, North America, the Middle East and Asia, had entered into a memorandum of agreement with Esmark on April 30, to acquire all the outstanding shares for a cash purchase price of $17 a share.

However, Severstal queered Essar’s pitch when it entered the ring with an offer matching Essar’s. Additionally, the Russian steel maker had the backing of the United Steelworkers Union, which had also threatened to block Essar’s offer.

Another factor that worked against Essar was that Franklin Mutual Advisers, which own about 60 per cent of Esmark shares, was also willing to throw its weight behind Severstal in the light of the union’s backing.

On Essar’s favour is that it had sweetened its initial offer by extending a $110 million loan to Esmark to help the US steel maker “address a potential default.” Essar also proposed a capital expenditure programme of $525 million for Esmark’s Ohio and West Virginia manufacturing facilities over the next five years. Not only that, it had also informed Esmark that it was prepared to recognise the United Steelworkers Union and negotiate a new collective bargaining agreement on an expedited basis.

Along with its increased offer, Essar has urged the Esmark Board “to take all reasonable actions to create a level playing field among the bidders and to allow shareholders to receive maximum value for their shares.”

For Essar, the Esmark buy will significantly help in consolidating its presence in the Americas. It recently acquired the four million tonne Algoma Steel of Canada and Minnesota Steel in the US, which controls vast iron ore reserves.

Greater synergies

Essar has been looking at greater synergies with the Esmark buy, as integrating the West Virginia steel maker to Essar’s North American facilities will ensure security of raw material supply and help in producing diversified and higher quality products.

Essar has targeted a production capacity of 20 million tonnes out of its manufacturing facilities in India, Asia and North America by 2012.

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