Russian metals firm OAO Severstal has turned the heat on US steelmaker Esmark for rejecting its $1.24 billion takeover bid in favour of Essar Steel, terming it a "questionable transaction" and demanding that Esmark immediately remove all impediments to its takeover offer.
The Severstal letter could create problems for Essar, which last week agreed to raise its offer to $19 per share -- $2 per share more than the Severstal bid.
Severstal has also asked the Esmark board to eliminate a "poison pill" designed to block Severstal's offer. The company had drawn up a stockholder rights plan that would be triggered if an entity or person attempts to acquire 15 per cent or more of Esmark's common stock.
"We believe that your contemplated transaction with Essar SteelÂ… cannot realistically be consummated, and, thus, will not deliver value to your shareholders. As you know, we are not alone in this belief as our offer is supported, unequivocally, by the United Steelworkers and your largest shareholder. Thus, notwithstanding your negative recommendation, Severstal intends to continue with its plans for a transaction," it warned in its letter to the Esmark's board.
An Essar group spokesperson in Mumbai refused to comment on the issue. The Severstal bid is also supported by Franklin Mutual, which owns 60 per cent in Esmark.
Severstal said in spite of Essar asking the Esmark board to provide a level playing field, it has, in fact, tipped the scales in favour of the Indian company.
"First, in direct conflict with certain contractual obligations owed to the USW, Esmark entered into an agreement with Essar on April 30, 2008 (the "MOA"), with purportedly binding obligations to pay certain termination fees to Essar in the event that Esmark concluded a transaction with any other bidder, including Severstal," it said.
Esmark made this agreement even though Severstal was in active negotiations with Esmark's board, and even though by that time the board was aware that the unions supported a transaction with Severstal and opposed a transaction with Essar, the letter said.
"Rather than exempting a Severstal transaction from any termination fee provisions in your agreement with Essar, your board concluded instead to institute a $22.5 million impediment to a Severstal transaction. This is no level playing field," the company's "disappointed" CEO said.
Likewise, Severstal said Esmark's board's agreement will give Essar discounted shares of $12.5 a share worth $13.5 million as "termination fees".
