According to sources, Essar has already indicated its willingness to recognise the union, assume the basic labour agreement and negotiate the new contract as soon as possible. An Essar spokesperson said the company has always been in touch with USW and does not want to comment more on it.
On June 13, West Virginia-headquartered Esmark introduced a defence measure, commonly known as a poison pill, against Russian steel major OAO Severstal's hostile takeover plans with the support of the union. Esmark now has the right to issue more shares to existing shareholders if a hostile acquirer buys more than 15 per cent of Esmark's outstanding shares and, therefore, dilute the holding of the hostile acquirer.
The issue started in late April when Essar made an offer of $17 a share, or a total equity valuation of $670 million. Essar got the support of the management but failed to garner the support of the USW. The union has complained that Esmark accepted Essar's offer without giving it an adequate notice or the chance to put forth an alternative. Later, it rejected Esmark's decision to be acquired by Essar, saying Essar will have to agree to a new labour agreement with the union before it will extend its support to the bid.
Under an existing agreement with Esmark, the union has the right to come up with an alternative deal in the event of a takeover.
The management endorsed the initial Essar offer but the union partnered Severstal and the company came up with a matching offer. On June 11, Essar upped its offer by $2 a share to $19, representing an equity value of $750 million. Apart from the equity value, both bidders also agreed to assume Esmark's $400 million debt.
Esmark, meanwhile, filed a grievance against the union over its opposition to the Essar deal on June 11. In a complaint to the National Labor Relations Board, Esmark argued that the union was abusing certain provisions of its contract by improperly trying to block the sale and refusing to deal with Essar. Around 94 per cent of Esmark's shares are held by 69 institutions. Franklin Resources, which owns 60 per cent of Esmark, is largely responsible for triggering the current bidding war.
In a statement before Essar tabled its latest bid, Franklin said that as Esmark's majority stockholder, it supports the sale of the company to Severstal as the latter "enjoys the backing of the union and has already satisfied the conditions imposed by the company's collective bargaining agreement".
Even before raising its bid, Essar had extended a $110-million loan to Esmark to avoid a potential default. It also announced that it would invest $525 million in capital improvements in Esmark's Ohio and West Virginia plants over the next five years. Esmark has operations in 20 states, including subsidiary Wheeling-Pitt's plants in West Virginia, Ohio and Pennsylvania, and a plant in Greensville County.
The acquisition will bring Essar mining and production synergies since it recently acquired Algoma Steel in Canada and Minnesota Steel in the US.
