Cerillion Regulatory News (CER)

8 Oct 2007 07:11

OAO Severstal08 October 2007 SEVERSTAL 8 October 2007 Dear Celtic shareholder, On 28 September 2007, Severstal Resurs, through its wholly owned subsidiaryCentroferve Limited, announced an all cash offer for Celtic Resources plc of 270pence per Celtic share, which values Celtic at approximately £161 million;significantly higher than the £115 million value of just 11 days previously,when Celtic announced it had been approached regarding a potential offer forCeltic. This letter sets out the background to the offer and why it representsexcellent value for Celtic shareholders. Excellent value • 43.6% premium to volume weighted average share price for the three months to 17 September 2007 • 33.0% premium to price on 17 September 2007 The offer represents a substantial 43.6% premium to the volume weighted averageprice of a Celtic share for the three months to 17 September 2007, the day priorto Celtic's announcement regarding a potential offer approach, a 33.0% premiumto the Celtic share price on 17 September 2007, and a 41.4% premium to thevolume weighted average Celtic share price for the one month to 17 September2007. The offer also represents a 72.0% premium to the volume weighted average priceat which MG Capital, from May to August 2007, sold 149,000 Celtic shares. PeterHannen is Celtic's chairman and also MG Capital's chairman and largestshareholder, but according to Celtic's announcements, "was excluded from theprocedures whereby this decision was made". Barrick Gold Corporation, the world's leading gold producer by market value, hasrecognised the attractiveness of the offer by entering into a Letter of Intentto accept the offer in respect of its 6.6% shareholding in Celtic. • Certainty and significant cash gain from pre-approach Celtic share price The offer represents certainty and a significant cash gain relative to Celtic'srecent share price, whereas in the three year period prior to the offer period(i.e. 17 September 2007), the Celtic Board's confused strategy delivered to youa total return of -48% - a near halving of the share price. In the same period, publicly traded gold companies operating in Russia and theformer CIS region delivered a total return of +43% to their shareholders.Celtic's confused strategy included the reversal on Eureka Mining, firstspinning it off, then buying it back, then selling some of its assets. It alsoresulted in the forced sale of the 50% stake in the valuable Nezhdaninskoye goldmine at a price "not fully realizing the apparent value of the 50% stake in themine" (RBC Capital Markets, 26 June 2006). • The offer and our stakebuilding is supporting an inflated Celtic share price During the 8 trading days from 5 September 2007, when we first approached Celticwith the terms of a possible cash offer, and 17 September 2007, the day beforeCeltic's announcement regarding a preliminary approach that may or may not leadto an offer, Celtic's share price increased from 188.5 pence to 203 pence.Following Celtic's announcement on 18 September, the share price increased from203 pence to 222.5 pence and then to 231 pence on 27 September 2007, the dayprior to the announcement of Severstal Resurs' offer. The Severstal Group already owns 29.7% of Celtic. This significant strategicstake can be used to block any other party from acquiring full control of Celticand could potentially dissuade third parties from making a competing offer. Inthe absence of our offer, or if our offer is not accepted, there is a likelihoodthat the share price of Celtic will fall significantly. Reasons for the unilateral offer On 5 September 2007 Severstal Resurs approached both the Chief Executive Officerand Chairman of Celtic with the terms of a possible cash offer. This proposalwas conditional upon the provision of certain due diligence to the reasonablesatisfaction of Severstal Resurs and the recommendation of the Celtic board ofdirectors. Severstal Resurs reserved the right to waive, in whole or in part,any of these pre-conditions at its discretion. On 18 September the Celtic board of directors rejected Severstal Resurs'proposal and declined to provide the limited due diligence requested. On 27 September Severstal Resurs again approached Celtic's Chief ExecutiveOfficer with a proposed cash offer without due diligence conditions and with aview towards securing a recommendation from the board of directors of Celtic.Celtic decided not to afford its shareholders the opportunity to consider thisoffer, and Severstal Resurs' approach was again rejected. Severstal Resurstherefore felt there to be no grounds for reaching an agreed outcome. Following Celtic's refusal to engage in meaningful dialogue on a potentialoffer, after the acquisition of an initial 22% interest in Celtic SeverstalResurs received unsolicited approaches from several shareholders requesting thatit extend the opportunity to other shareholders to exit at similar values. Thisincluded East Guardian Opportunity Fund, from which Severstal Resurs purchased afurther 4.6% of Celtic on 20 September 2007. On 28 September 2007, Severstal Resurs acquired 3.1% of Celtic from DWSInvestments and in the open market, taking its ownership stake in Celtic to29.7%. The total percentage of Celtic shares in respect of which support for theoffer has already been expressed is 36.3% including the letter of intent insupport of the offer from Barrick Gold. In light of Severstal Resurs' desire to increase its ownership in Celtic beyondthe current level, and approaches from Celtic shareholders to Severstal Resursto extend its offer to all shareholders, Severstal Resurs has therefore decidedto pursue the transaction on a unilateral basis so that all Celtic shareholdershave the opportunity to benefit from this significant cash premium. In the event Severstal Resurs does not reach the 80% acceptance level requiredfor compulsory acquisition, the Severstal Group, as the largest singleshareholder, intends to run Celtic as a subsidiary in accordance withSeverstal's own strategy, subject to regulatory requirements and minorityshareholder rights. Support the Severstal Resurs offer You will no doubt have read Celtic's announcement issued in the early morninghours of 28 September regarding a bid approach by an unnamed third party, aswell as their subsequent announcement rejecting our offer. However, to date, noother offer has emerged, and Celtic has admitted that "no details of the bid areknown" with respect to this supposed third party approach. You should be disappointed by your board's lack of consideration of our offer(your board issued its rejection statement a mere 33 minutes after our offerannouncement) and its failure to embrace a value-creating transaction byrejecting an offer by Severstal Resurs that is public, is fully financed, is ata substantial premium, and is in cash. The Celtic directors are unnecessarilyplacing your money at risk by not recommending that you accept Severstal Resurs'attractive offer. Your board has demonstrated that it values its continuedindependence above shareholder value. Attached to this letter is the full text announcement of the firm intention tomake an offer under Rule 2.5 of the Irish Takeover Panel Act 1997, TakeoverRules 2001 to 2006 (the "Irish Takeover Rules") setting out the detailed termsof the cash offer. Additionally, in the very near future, and in any event nolater than 26 October 2007, you will receive the offer document in relation toour offer for Celtic and instructions on how to accept the cash offer. Istrongly encourage you to carefully read both documents and ACCEPT the SeverstalResurs offer. Yours Sincerely, Roman Deniskin On behalf of Centroferve Limited OTHER INFORMATION Morgan Stanley & Co. Limited ("Morgan Stanley") is acting as exclusive financialadvisor and Freshfields Bruckhaus Deringer and Arthur Cox are acting as legaladvisors to the Severstal Group on the transaction. The directors of Centroferve and the directors of Severstal acceptresponsibility for the information contained in this letter save that the onlyresponsibility accepted by the directors of Centroferve and by the directors ofSeverstal for information relating to Celtic, which has been compiled frompublished sources, has been to ensure that such information has been correctlyand fairly reproduced or presented (and no steps have been taken by thedirectors of Centroferve or the directors of Severstal to verify thisinformation). To the best of the knowledge and belief of the directors ofCentroferve and the directors of Severstal (who have taken all reasonable careto ensure that such is the case), the information contained in this letter forwhich they accept responsibility is in accordance with the facts and does notomit anything likely to affect the import of such information. Morgan Stanley is acting exclusively for Centroferve and Severstal Resurs and noone else in connection with the Offer and Morgan Stanley will not regard anyother person as a client in relation to the Offer and will not be responsible toanyone other than Centroferve and Severstal Resurs for providing the protectionsafforded exclusively to its clients or for providing advice in relation to theOffer, the contents of this letter or any transaction or arrangement referred toherein. The Offer will not be made, directly or indirectly, in or into any jurisdictionwhere it would be unlawful to do so, or by use of the mails, or by any means orinstrumentality (including, without limitation, telephonically orelectronically) of interstate or foreign commerce, or by any facility of anational securities exchange of any jurisdiction where it would be unlawful todo so, and the Offer will not be capable of acceptance by any such means,instrumentality or facility from or within any jurisdiction where it would beunlawful to do so. Accordingly, copies of this letter and all other documentsrelating to the Offer are not being, and must not be, mailed or otherwiseforwarded, distributed or sent in, into or from any jurisdiction where it wouldbe unlawful to do so. Persons receiving such documents (including, withoutlimitation, nominees, trustees and custodians) should observe theserestrictions. Failure to do so may invalidate any related purported acceptanceof the Offer. Notwithstanding the foregoing restrictions, Centroferve reservesthe right to permit the Offer to be accepted if, in its sole discretion, it issatisfied that the transaction in question is exempt from or not subject to thelegislation or regulation giving rise to the restrictions in question. This letter does not constitute an offer to sell or an invitation to purchase orthe solicitation of an offer to purchase or subscribe for any securities. Anyresponse in relation to the Offer should be made only on the basis of theinformation contained in the document to be sent to shareholders detailing theterms and conditions of the Offer (the "Offer Document") or any document bywhich the Offer is made. This letter, including information included or incorporated by reference in thisletter, may contain 'forward-looking statements' concerning the Offer, Celtic orits Group and the Severstal Group. Generally, the words 'will', 'may', 'should','could', 'would', 'can', 'continue', 'opportunity', 'believes', 'expects','intends', 'anticipates', 'estimates' or similar expressions identifyforward-looking statements. The forward-looking statements involve risks anduncertainties that could cause actual results to differ materially from thoseexpressed in the forward-looking statements. Many of these risks anduncertainties relate to factors that are beyond the companies' abilities tocontrol or estimate precisely, such a future market conditions and thebehaviours of other market participants, and therefore undue reliance should notbe placed on such statements. Neither Centroferve nor Severstal assumes anyobligation in respect of, nor intends to update, these forward-lookingstatements, except as required pursuant to applicable law. Any person who is a holder of one per cent. or more of the Celtic shares mayhave disclosure obligations under Rule 8.3 of the Irish Takeover Rules,effective from 18 September 2007. The Offer will be made in the United States pursuant to an exemption from the UStender offer rules provided by Rule 14d-1(c) under the US Exchange Act. Notice to US holders of Celtic shares: The Offer will be made for the securities of an Irish public limited companywhose shares are listed on the AIM market in the UK and is subject to Irish andUK disclosure requirements, which are different from those of the United States.The Offer will be made in the United States pursuant to applicable US tenderoffer rules and otherwise in accordance with the requirements of the IrishTakeover Rules. Accordingly, the Offer will be subject to disclosure and otherprocedural requirements, including with respect to withdrawal rights, offertimetable, settlement procedures and timing of payments that are different fromthose applicable under US domestic tender offer procedures and law. The receipt of cash pursuant to the Offer by a US holder of Celtic shares may bea taxable transaction for US federal income tax purposes and under applicable USstate and local, as well as foreign and other tax laws. Each holder of Celticshares is urged to consult his independent professional adviser immediatelyregarding the tax consequences of acceptance of the Offer. It may be difficult for US holders of Celtic shares to enforce their rights andany claim arising out of the US federal securities laws, since Centroferve andCeltic are located in non-US jurisdictions, and some or all of their officersand directors may be residents of non-US jurisdictions. US holders of Celticshares may not be able to sue a non-US company or its officers or directors in anon-US court for violations of the US securities laws. Further, it may bedifficult to compel a non-US company and its affiliates to subject themselves toa US court's judgement. In accordance with normal Irish and UK practice and pursuant to Rule 14e-5(b) ofthe US Exchange Act, Centroferve or its nominees, or its brokers (acting asagents), may from time to time make certain purchases of, or arrangements topurchase, Celtic shares outside the United States, other than pursuant to theOffer, before or during the period in which the Offer remains open foracceptance. These purchases may occur either in the open market at prevailingprices or in private transactions at negotiated prices. Any information aboutsuch purchases will be disclosed as required in Ireland and the UK, will bereported to a Regulatory Information Service of the UK Listing Authority andwill be available on the London Stock Exchange website,www.londonstockexchange.com. Sources and Bases of Information (i) The value of the entire issued and to be issued share capital of Celtic isbased upon 55,827,026 Celtic Shares in issue and 3,705,506 Celtic Sharesissuable to Celtic Warrantholders under Celtic Warrants with an exercise priceat or below the Offer Price as at close of business on the last business dateprior to the release of the Rule 2.5 Announcement. Information relating to theshare capital of Celtic is based on figures in Celtic's annual report for 2006,being the latest available annual report, and on filings registered with theCompanies Registration Office in Dublin since that report. (ii) The price of Celtic shares has in each case been sourced from the DailyOfficial List of the London Stock Exchange, and represents the price or thevolume weighted average price, as the case may be, for the relevant periods oron the relevant dates (iii) Unless otherwise indicated, the information relating to Celtic in thisletter has been extracted from Celtic's annual report for 2006 and subsequentpress releases on Celtic's website (www.celticresources.com) as well as RNSreleases. (iv) Information relating to the reaction of Celtic and the Celtic board toSeverstal Resurs' offer have been extracted, without material adjustment, fromthe RNS announcement issued by Celtic at 12:14 pm on 28 September 2007 and fromthe Bloomberg news update, "Severstal Raises Celtic Resources Bid to $327Million (Update 1)" at 8:51 am (New York time) on 28 September 2007. (v) Information on shareholder returns for publicly traded gold companiesoperating in Russia and the former CIS region is based on a marketcapitalisation weighted index comprising KazakhGold Group, Peter Hambro Mining,Highland Gold Mining, High River Gold Mines, European Minerals and Polyus Goldfor the period 17 September 2004 to 17 September 2007. (vi) The information, and quotation, relating to Celtic's sale of the 50% stakein Nezhdaninskoye gold mine has been extracted from the RBC Capital Marketsreport of 26 June 2006, without material adjustment. (vii) The information relating to Severstal in this letter has been extractedfrom Severstal's annual report for 2006 and IPO prospectus dated 8 November2006. (viii) The information relating to Severstal's iron and coal reserves isextracted from the IMC report "Audit of Iron Ore and Coal Reserves for CJSCSeverstal-Resurs" dated August 2006, prepared in accordance with JORC reportstandards. About Severstal Resurs and Severstal: In 2006 Severstal's Mining division produced 5.4 million tons of coalconcentrate, 2.2 million tons of coking coal, 2.1 million tons of steam coal,9.5 million tons of iron ore pellets and 4.5 million tons of iron oreconcentrate. The reserves and resources of the company were estimated to be 1.8billion tonnes of iron ore as at 1 January 2006 and 0.7 billion tonnes of coalas at 1 April 2006. Severstal Resurs also owns a number of scrap metal yards inthe Northwestern, central and Southern parts of Russia. Severstal is an international steel producer with a listing on the RussianTrading System and the London Stock Exchange. Incorporated in 1993, the companyfocuses on high value-added and unique niche products and has a successful trackrecord of acquiring and integrating high-quality assets in North America andEurope. Severstal's mining assets in Russia are securing its supplies of rawmaterials. In 2006 Severstal produced 17.6 million tonnes of steel and hadrevenues of US$12.4 bn, PBT of US$1.8 bn and EPS of US$1.27. For Further Information, please Contact: Jon Simmons, Ben BrewertonFD LondonPhone: +44 207 831 3113Email: jon.simmons@fd.comben.brewerton@fd.com Peter BacchusManaging DirectorMorgan Stanley & Co. LimitedPhone: +44 (0) 77899 43482Email: peter.bacchus@morganstanley.com Dmitry DruzhininOAO SeverstalPhone: +7 494 540 7766Email: druzhinin@severstalgroup.com Leonid Solovyev, Anna ShumaylovaFD MoscowPhone: +7 495 795 0623Email: leonid.solovyev@fd.comanna.shumaylova@fd.com This information is provided by RNS The company news service from the London Stock Exchange