Indian steelmaker Essar Steel Holdings Ltd. said it would buy U.S. steel producer and distributor Esmark Inc. in a cash offer of $17 a share, deepening its global reach and providing it with a large integrated steel producer and customer base in the U.S.
The total value of the deal is about $1.1 billion, according to Esmark officials. If the deal goes through, Essar Steel — a unit of Essar Global Ltd. — will own Wheeling-Pittsburgh Steel, a 2.5-million-short-ton integrated steel mill in West Virginia, and a Midwest distribution network.
Along with the cash payout to shareholders, Essar Steel agreed to lend Esmark $110 million to refinance debt and provide needed liquidity.
The deal continues the aggressive expansion by cash-rich Essar Steel, which last year bought Canada's Algoma Steel Inc. for $1.6 billion and iron-ore reserves in Minnesota for $1.65 billion, and this month broke ground on a 2.5-million-metric-ton mill in Trinidad. Essar Steel had been looking for an integrated producer in the U.S. and bid for the Sparrows Point steel mill in Maryland but was beat out by Russia's OAO Severstal.
The move rescues Esmark, which was unable to make Wheeling-Pittsburgh profitable despite high steel prices and demand. “With spiraling raw material and transportation costs, difficulty securing long-term financing commitments and the investment challenges associated with maximizing steel production capacity, we were convinced that a strategic partner such as Essar Steel was the best possible solution for the long-term prospects of the company moving forward,” said James P. Bouchard, chairman and chief executive of Esmark.
Wheeling-Pittsburgh, which made hot- and cold-rolled steel products for the appliance and automotive markets, was a high-cost steel mill that survived in part because of the backing of powerful West Virginia lawmakers Robert C. Byrd and Jay Rockefeller, who lobbied for emergency loans to and trade protections for the steelmaker in the name of saving union jobs. Essar Steel said it plans to make Wheeling-Pittsburgh a more cost-effective operation, although it didn't elaborate on how it would reduce operating costs.
“We plan to make significant investments into Wheeling-Pittsburgh Steel to make it a low-cost, technologically advanced steel producer,” said Madhu S. Vuppuluri, president of Essar Americas.
Chicago-based Esmark bought Wheeling-Pittsburgh last year, with plans to close high-cost blast furnaces and use Wheeling-Pittsburgh steel to supply its steel-distribution centers in Ohio, Illinois and Indiana.
Source: WSJ