NEW DELHI (AFP) — India's Essar Steel kept quiet Wednesday on a counter-bid by Russian steel giant OAO Severstal for US steelmaker Esmark Inc that could set the stage for a bidding war.
"We have no comment to make at the moment," Essar Steel general manager B. Ganesh Pai told AFP, a day after Severstal matched Essar's offer of 17 dollars a share for loss-making Esmark, based in Wheeling, West Virginia.
Severstal's cash offer which it valued at 1.24 billion dollars came after a bid in late April by Essar Steel, India's third-biggest steelmaker, was rejected last week by the United Steelworkers union.
The two international steelmakers have both been aggressively seeking to muscle into the lucrative US market.
Severstal, which said it aimed to turn Esmark into "one of the North American leaders in flat rolled steel products," noted in a statement its proposal had the full support of the United Steelworkers.
"Severstal has developed a highly credible restructuring plan designed to derive maximum value from Esmark, including a five-year capital improvement plan that carries the full support of the United Steelworkers," the Russian company said in the statement.
Last Friday, the United Steelworkers declared they would block Essar's proposed purchase of Esmark, contending the company accepted the deal without giving the union enough time to propose an alternative bidder. The union's contract allows it to reject any deal that changes control of the US company.
Esmark shares surged 16.88 percent, or 2.60 dollars, to 18 dollars in US trading on Tuesday following the announcement of Severstal's offer as investors bet on a takeover battle.
"It is critical to give Esmark's stockholders a chance to decide for themselves and... they will find Severstal's proposal much more compelling," said OAO Severstal chief operating officer Gregory Mason in the statement.
Indian industry watchers said Severstal, Russia's largest steelmaker, appeared serious about succeeding in its offer which came during a 52-day "right to bid" period under Esmark's agreement with the union.
Severstal's billionaire majority owner Alexey Mordashov was known for his deal-making ability and deep pockets and the union's backing could also be a good bargaining chip, they said.
Essar Steel is part of energy-to-telecoms conglomerate Essar Global which has around 10 billion dollars in assets.
Esmark, whose board unanimously accepted Essar's offer, said after the Severstal bid its aim was to get the best deal for shareholders.
The company earlier had denied the union's claim it was not given enough notice of the Essar transaction, saying it observed "both the spirit and letter" of the "right to bid" process.
Esmark owns Wheeling-Pittsburgh Steel, a struggling integrated steel mill which makes products for the automotive and appliance sectors. Essar has said it wants to "make significant investments" into the mill "to make it a low cost, technologically advanced steel producer."
Esmark, formed five years ago, swung to a full-year net loss of nine million dollars in 2007 from a profit of 3.5 million dollars the previous year. It had said it agreed to Essar's bid because it faced "spiralling raw material and transportation costs" and was having trouble getting financing.
If Essar's deal with Esmark collapses, the Indian firm has the right to a "break-fee" of 20.5 million dollars plus up to two million dollars in expenses.
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