labels: m&a, steel
Essar Steel to acquire American steelmaker Esmark for $669 million news
01 May 2008

Tata Steel and ArcelorMittal are not the only Indian names in steel (the Mittal connection, not the Arcelor part) making news around the world for their acquisitions. I

Essar Steel Holdings Ltd has announced a $669-million cash buyout offer for American steelmaker and distributor Esmark Inc. Acquiring Esmark would be the latest in a string of aggressive North American moves by Essar.

In 2007 Chicago-based Esmark had formed a joint venture, called E2 Acquisition Corp, along with Brazilian iron-ore producer Companhia Vale do Rio Doce and Ukrainian steelmaker Industrial Union of Donbass Corp to acquire Mittal Steel's Sparrows Point mill near Baltimore, in the US, clearing the way for it to to complete its acquisition of Arcelor SA. (See: Esmark-led group to acquire Mittal Steel's Baltimore plant) 

Esmark said on Wednesday that its board has unanimously accepted a buyout offer of $17 per share, for the company's 39.3 million outstanding shares. The offer is 13.5 per cent higher than Tuesday's closing price. After the announcement of the deal, Esmark's shares rose 12 per cent in mid-day trading.

Esmark said it planned to enter a "52-day right to bid period" required in the collective bargaining agreement with the United Steelworkers. Essar's offer is also subject to regulatory approvals.

Franklin Mutual Advisers LLC, which owned 23.7 million shares of Esmark, or slightly more than 60 percent, as of Dec. 31, 2007, stands to gain most from this deal, monetarily.

Esmark CEO James Bouchard said the company had been in talks with a number of potential partners. The company needed a strategic partner in light of spiraling raw materials and transportation, difficulty securing long-term credit and "investment challenges associated with maximizing steel production capacity," he added.

Esmark had moved to Wheeling, West Virginia, last year from outside Chicago when it purchased Wheeling-Pittsburgh. This marked the culmination of a yearlong effort by Bouchard and his brother Craig to add a steel producer to their distribution network, which serves 2,000 customers in the Midwest. Esmark had obtained control of Wheeling-Pitt in a proxy fight in the fall of 2006.

Twice-bankrupt Wheeling-Pitt had struggled financially for years and was mired in $525 million in debt at the time. Recently, the Bouchards announced plans to lay off workers and shut down some Wheeling-Pitt operations.

However, post-takeover, Essar intends to invest in Wheeling-Pitt, which has operations in Ohio, Pennsylvania and West Virginia, to make it a low cost, technologically advanced steel producer.

The Essar Group has been actively pursuing acquisitions of steel assets abroad with the aim of raising its capacity  to 20 to 25 million tonnes by 2012.  It currently has a capacity for making 4.6 million tonnes of steel in India. In October 2997, Essar Steel Holdings secured anti-trust approvals to complete its acquisition of Minnesota Steel LLC, a US- based steel company with estimated reserves of over 1.4 billion tonnes of iron ore located on the Mesabi iron range in northeast Minnesota.

In June last year Essar  acquired Canadian steelmaker Algoma Steel for $1.74 billion, shortly after  Salzgitter AG of Germany abandoned a potential takeover of Algoma (See: Algoma Steel shareholders approve $1.74-billion sale to Essar Steel), from which  Essar expects to produce 4 million tonnes of steel per annum.

It is also putting up a 2.5-million tonne plant in Trinidad and Tobago.

Additionally, Essar signed an agreement to consider joint projects with Richmond, Va.-based Massey Energy Co., the nation's fourth-largest coal producer, last November.


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Essar Steel to acquire American steelmaker Esmark for $669 million