Mumbai: Esmark Incorporated has entered into a definitive merger agreement with Russian steelmaker OAO Severstal after the latter raised its offer to $19.25 a share from the earlier $17 a share, taking its bid value to $775 million.

Severstal, Russia's largest producer of steel, boosted its takeover offer for US steelmaker Esmark Inc by 13 per cent to $775 million.

Severstal's $19.25 a share offer tops a $19-a-share bid from Essar Steel Holdings Ltd, which will expire at midnight of 18 July, Esmark said.

Essar today said it has withdrawn its offer for Esmark. In a statement released today, Essar Group chairman Shashi Ruia, however, said his company remained intent on increasing its capacity and will continue to look for acquisitions.

Severstal has the backing of Esmark's largest shareholder, Franklin Mutual Adviser LLC and its powerful union.

Esmark's board of directors will recommend shareholders to tender their shares, the company said in a separate statement. The transactions are subject to customary closing conditions, Esmark added.

Earlier this year, Severstal bought ArcelorMittal's Sparrows Point steel plant near Baltimore and WCI Steel Inc for a total of $950 million.

Severstal chief executive Alexei Mordashov, who holds 82 per cent stake in the Russian steelmaker, said he was willing to dilute his stake for funding acquisitions.

The Russian tycoon said he was considering bigger buys in the United States to boost steel production.

He said the Sparrows Point plant would provide semi-finished steel slabs to boost production at Esmark, which owns the Wheeling-Pittsburgh steelworks and help widen its range of steel products in the US.