MORGANTOWN, W.Va. - Steel producer and distributor Esmark Inc. rejected a $670 million takeover offer from Russia's OAO Severstal on Thursday, calling it an inadequate and inferior bid.
Esmark's announcement came 24 hours after India's Essar Steel Holdings Ltd. sweetened the pot by $80 million, raising its bid to $19 per share or $750 million.
While Esmark's management had endorsed Essar's initial bid in late April, the United Steelworkers union partnered with Severstal on a counteroffer.
Esmark also announced Thursday it expects second-quarter earnings of 35 cents to 45 cents per share, a significant improvement over the first-quarter loss of 40 cents per share.
Its shares finished up 1.65 percent for the day, closing at $20.31 on Nasdaq.
A statement from Esmark's board of directors said it was not convinced Severstal could close the deal. The board also decided Severstal's offer was not in the best interests of shareholders and urged them not to sell their shares to the metals and mining company.
"We continue to invite bidders, including Severstal, to provide a superior proposal to that of Essar," Esmark's Chairman and Chief Executive Officer James Bouchard said.
Severstal representatives did not immediately comment.
Even before raising its bid this week, Essar had extended a $110 million loan to Esmark to avoid a potential default. It also announced Wednesday it would invest $525 million in capital improvements in Esmark's Ohio and West Virginia plants over the next five years.
Both Essar and Severstal claim they are best-positioned to create value for Esmark shareholders and secure a stable future for the mills. Esmark has operations in 20 states, including subsidiary Wheeling-Pitt plants in West Virginia, Ohio and Pennsylvania and a plant in Greensville County, Va.
Both bidders also have agreed to assume $400 million in debt.
Esmark, meanwhile, said it has filed a grievance against the USW over its opposition to the Essar deal. The National Labor Relations board complaint accuses the union of abusing worker-protection contract provisions to improperly try to block the sale.
The union fired back Thursday, dismissing the complaint and comments from President Craig Bouchard as "a pathetic attempt to drag his loyal employees down with him as his business plan fails."
The union's current contract, which expires Sept. 1, has two relevant clauses.
The right-to-bid provision requires the company to give the union time to produce a counteroffer to a proposed change in ownership. The successorship clause effectively gives the union the right to reject any deal that changes control of the company, requiring that the USW approve a collective bargaining agreement before a transaction is concluded.
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