Indian company buying West Virginia steelmaker Esmark
MORGANTOWN, W.Va.—Steelmaker and distributor Esmark Inc. says it has accepted a cash buyout offer valued at about $669 million from India's Essar Steel Holdings Ltd.
Esmark said Wednesday it has agreed to sell for $17 a share -- a 13.5 percent premium over Tuesday's closing price.
The Wheeling-based company's shares rose $1.71, or 11 percent, to close Wednesday at $16.69.
Esmark CEO James Bouchard, in a conference call with investors, put the value of the deal at $1.1 billion, a figure President Craig Bouchard said includes the assumption of $430 million in debt.
If more than 50 percent of the outstanding shares are tendered, a cash-out merger would follow; all remaining shares of Esmark would be converted into the right to receive $17.
Esmark also said it has signed a commitment letter with Essar for a $110 million loan. About $79 million would be used to retire a federal government loan; the balance would bolster liquidity.
Esmark now enters a 52-day "right to bid" period required in the collective bargaining agreement with the United Steelworkers, which has the right to reject any deal that changes control of twice-bankrupt Wheeling-Pitt, the steelmaker Esmark initially seized control of in a proxy fight in the fall of 2006.
Union leaders declined comment Wednesday.
Esmark needed a strategic partner in light of spiraling raw materials and transportation costs, difficulty securing long-term credit and investment challenges, James Bouchard said.
"We believe we have selected the absolute best partner for this company. It's a long, proud tradition. Essar recognizes that," he said. "They have nothing but growth plans for the company going forward. We believe Essar will take Wheeling-Pitt and all the downstream companies at Esmark to the next level."
Hours after its announcement, Esmark reported a fourth-quarter loss of $12.3 million, or $0.76 per share. That compares with a loss of $5.6 million for the same period in 2006, or $1.40 per share.
The company said the loss reflects a non-cash write-off of $9.7 million of "goodwill" at Esmark Steel Services Group, essentially the premium Esmark paid above fair-market value to acquire a string of private steel distributors.
For the year, the net loss was $9 million, or $2.15 per share, compared with a profit of $3.5 million, or $9.71 per share, in 2006.
Net sales for the fourth quarter totaled $313.4 million on 454,000 tons shipped, compared with prior-year sales of $150.2 million on 188,000 tons shipped.
Esmark downplayed its losses and said it has not filed its annual report for 2007 because of the complexity in taking over a large public company.
"Let's not forget this transaction was quite unique and that Esmark Steel Services Group was a small, private entity prior to the business combination," Bouchard said.
The biggest potential winner in the buyout is Franklin Mutual Advisers LLC, which owned 23.7 million shares of Esmark, or slightly more than 60 percent, as of Dec. 31, 2007. As of April 1, James Bouchard owned 1.84 percent, while brother Craig owned 0.28 percent.
Essar Americas President Madhu S. Vuppuluri said he plans to invest in Wheeling-Pitt, which has operations in Ohio, Pennsylvania and West Virginia, to make it a low cost, technologically advanced steel producer.
Esmark's purchase of Wheeling-Pitt was the culmination of a yearlong effort by the Bouchards to add a steel producer to their distribution network, which serves 2,000 customers in the Midwest.
Since the buyout was completed last fall, Esmark has begun restructuring. It sold Wheeling-Pitt's minority interest in Wheeling-Nisshin Inc. and announced plans to shut down a mill in Allenport, Pa., and idle two galvanizing lines in Martins Ferry, Ohio.
The cost of terminations and restructuring moves will total some $42 million over the next few years, James Bouchard said.
Acquiring Esmark is the latest in a string of aggressive North American moves by Essar.
Last June, Essar bought Canada's Algoma Steel for $1.63 billion. It's also building a $1.6 billion steel plant atop an estimated 1.4 billion tons of iron ore reserves in Minnesota.
Essar has also signed an agreement to consider joint projects with Richmond, Va.-based Massey Energy Co., the nation's fourth-largest coal producer.
While Massey Chief Executive Don Blankenship said last week that extensive talks with Essar have yet to result in any projects, the coal company also is expanding.
Essar's offer, unanimously accepted by Esmark's board of directors, is subject to regulatory approvals.
Esmark, previously based in Chicago Heights, Ill. and employs a total of 3,700. With the purchase of Wheeling-Pitt, it's become a producer of carbon flat-rolled products for the construction, container, appliance, converter/processor, steel service center, automotive and other markets.
Essar Global Ltd. has about $10 billion in assets in the steel, energy, communications, shipping and construction industries. It employs about 20,000 people and has operations in India, Canada, the U.S., Africa, the Middle East, Caribbean and Southeast Asia.
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Associated Press writer Tim Huber in Charleston contributed to this report.
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On the Web:
Essar: http://www.essar.com/
Esmark: http://www.esmark.com/
