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20 May 2008 14:43
FOR IMMEDIATE RELEASE
Severstal Proposes To Acquire Esmark Incorporated For $17.00 Per Share In Cash
MOSCOW, Russia - May 20, 2008: OAO Severstal (LSE: SVST; RTS: CHMF; "Severstal"), one of the world's leading metals and mining companies, today announced that it has made a proposal to the Esmark Incorporated (NSDQ: ESMK; "Esmark") Board of Directors to acquire all of the outstanding shares of common stock of Esmark for $17.00 per share in cash.
Severstal is best positioned to optimize the value of Esmark by creating complementary product lines, geographical alignment and operational synergies. Further, Severstal has developed a highly credible restructuring plan designed to derive maximum value from Esmark, including a 5-year capital improvement plan that carries the full support of the United Steelworkers (the "USW"). Together, the combined company will become one of the North American leaders in flat rolled steel products.
Severstal's proposal follows the April 30, 2008 announcement by Esmark of its agreement to be acquired by Essar Steel Holdings Limited and the May 16, 2008 announcement by the USW of its rejection of such a transaction. As part of its announcement, the USW demanded that Esmark repudiate the transaction agreements with Essar Steel, which were entered into in violation of the USW's right to bid provisions contained in its collective bargaining agreement with Esmark. The USW has further indicated that under another section of its labor agreement - the "successorship" clause - Esmark and Essar Steel cannot close their proposed transaction unless Essar Steel enters into a new labor agreement with the USW. The USW stated in its announcement that it will use such power to block the Essar Steel transaction.
In contrast to the proposed Essar Steel transaction, Severstal's proposal has the full and enthusiastic support of the USW. Severstal and the USW have also entered into an agreement that satisfies the successorship clause of the labor agreement.
Gregory Mason, CEO of Severstal International and COO of OAO Severstal, stated "While we hope to work together with Esmark and its board of directors to negotiate a mutually acceptable merger agreement, we believe that it is critical to give Esmark's stockholders a chance to decide for themselves and that they will find Severstal's proposal much more compelling than the Essar Steel transaction."
Severstal indicated in its letter that its proposal could be consummated within 40 days after entering into a merger agreement with Esmark.
Merrill Lynch is acting as lead financial advisor, Citi is acting as financial advisor, and Skadden, Arps, Slate, Meagher & Flom LLP is acting as legal counsel, to Severstal.
Set forth below is the text of Severstal's letter to Esmark's board.
* * * * *
May 20, 2008
Board of Directors
Esmark Incorporated
1135 Market Street
Wheeling, WV 26003
Attention: Mr. James Bouchard
Chairman and Chief Executive Officer
Dear Mr. Bouchard:
While we were disappointed to learn of the acquisition and financing agreements that Esmark Incorporated and Essar Steel Holdings Limited announced on April 30, 2008, we appreciate being invited to continue to consider the acquisition of Esmark. Therefore, we would like to reiterate our strong interest in acquiring Esmark and believe our proposal set forth below is so compelling that it is important to make it public.
Severstal is best positioned to strengthen and grow Esmark's current assets that fit well with our North American operations. The addition of Esmark to Severstal's North American business will further unlock the synergistic opportunities between our facilities in Dearborn, MI, Sparrows Point, MD, and SeverCorr in Columbus, MS. For instance, the supply of slabs from Sparrows Point could substantially increase the utilization of Esmark's hot strip mill, while the supply of wide hot band from Esmark to Dearborn could substantially broaden the customer value proposition of the combined companies. The potential synergies could be even further enhanced upon successful closing of our recently announced acquisition of WCI in Warren, OH, pending necessary regulatory approvals.
Our restructuring plan for Esmark is based on Severstal's extensive experience in the industry, which combined with the United Steelworkers' (the "USW") support, makes us best suited to unlock the potential of Esmark's current operations. This acquisition solidifies our position as the fourth largest steel producer in the US by raising Severstal's current US capacity to 11.3 million tonnes per year. It further improves our product capabilities and brings greater opportunities for increased profitability, thus enhancing value to the benefit of all stakeholders.
We propose to acquire all of the outstanding shares of common stock of Esmark for $17.00 per share in cash. In addition, we are also prepared, if necessary, to enter into interim liquidity substitute financing arrangements upon entering into a mutually acceptable definitive merger agreement.
This proposed transaction is not subject to any financing contingency. Consummation of the transaction would be subject only to customary conditions, including receipt of necessary regulatory approvals.
In stark contrast to the USW's unequivocal position regarding your proposed transaction with Essar Steel, our proposal has the full and enthusiastic support of the USW, and Severstal and the USW have entered into an agreement that satisfies the successorship clause of your collective bargaining agreement. We also have been informed by the USW that it will waive its right to bid provisions in the collective bargaining agreement with respect to our proposal.
We believe our proposal could be consummated within 40 days after entering into a mutually satisfactory merger agreement. As you know, we had substantially finalized the terms of such an agreement, as well as the terms of interim Esmark liquidity financing arrangements, on April 29, 2008.
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.
In addition, we would strongly encourage you to make available to us or file publicly the actual acquisition agreements entered into with Essar Steel as soon as possible.
We look forward to hearing from you and concluding a transaction expeditiously.
Sincerely,/s/ Gregory Mason Gregory Mason CEO Severstal International COO OAO Severstal
About Severstal:
OAO Severstal is an international metals and mining company with a listing on the Russian Trading System and the London Stock Exchange. Incorporated in 1993, the company focuses on high value added and unique niche products and has a successful track record of acquiring and integrating high-quality assets in North America and Europe. Severstal owns mining assets in Russia, thus securing its supplies of raw materials. In 2007, Severstal produced 17.5 million tons of steel. Revenues were $15.2 billion and EBITDA was $3.7 billion. EPS was $1.92.
Forward Looking Statements:
This press release may contain projections and other forward-looking statements regarding future events or the future financial performance of OAO Severstal (Severstal). Forward looking statements are identified by terms such as "expect," "believe," "anticipate," "estimate," "intend," "will," "could," "may" or "might", the negative of such terms, or other similar expressions. Severstal wishes to caution you that these statements are only predictions and that actual events or results may differ materially. Severstal does not intend to update these statements to reflect events and circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events. Factors that could cause the actual results to differ materially from those contained in projections or forward-looking statements of Severstal may include, among others, general economic conditions in the markets in which Severstal operates, the competitive environment in, and risks associated with operating in, such markets, market change in the steel and mining industries, as well as many other risks affecting Severstal and its operations.
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For further information:
Severstal
Dmitry Druzhinin, Investor Relations
Olga Antonova, Public Relations
+7 495 540 7766
Taylor Rafferty
Michael Henson
+1 212 889 4350 (o)
+1 917 902 0767 (m)
John Dudzinsky
+1 212 889 4350 (o)
+1 646 715 2980 (m)
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