Severstal Matches Offer for Esmark

Company says it has union backing.

Less than a week after agreeing to purchase WCI Steel Inc., OAO Severstal asked the board of directors at steel services company Esmark Inc. to accept its buyout proposal over India's Essar Steel Holdings Ltd. The Russian mining and metals company matched Essar's $17-per-share offer for all assets of Wheeling, W.V.-based Esmark.

Unlike Essar's offer, the Severstal deal has the backing of the United Steelworkers (USW) union, according to Severstal. The USW has demanded that Esmark reject the Essar offer because the agreement violates the union's right to bid provisions contained in its collective bargaining agreement with Esmark and did not satisfy a "succesorship" clause in the union's contract for a new labor deal.

In a letter to board members, Severstal International CEO Gregory Mason says the company has entered into a labor agreement with the USW and that the union has in turn agreed to waive its bidding rights.

"Given the USW's support of our proposal, its rejection of the proposed Essar Steel transaction and the market reaction to the USW's position, and even assuming the enforceability and viability of the Essar Steel proposal (which we believe is untenable), our proposal clearly constitutes a 'superior proposal' under the publicly available terms of the Essar Steel proposal," Mason wrote to board members in a letter dated May 20.

Mason also noted that the combined companies could substantially increase production at Esmark's existing facilities as the company would supply Severstal's North American mills with steel-making materials.

"The potential synergies could be even further enhanced upon the successful closing of our recently announced acquisition of WCI in Warren, Ohio, pending necessary regulatory approvals," said Mason in the letter.

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