Indian Firm Mulls New Bid to Thwart Severstal

CHICAGO -- Essar Steel Holdings, India's fourth-largest steelmaker, said Friday that it might raise its takeover offer for Esmark to thwart a rival bid from Severstal.

Essar may boost the offer of $17 a share, or about $670 million, after obtaining more information from Esmark, the Mumbai-based firm said in a statement. Essar asked West Virginia-based Esmark to disclose any "arrangements" Severstal may have had with shareholder Franklin Mutual Advisers, which agreed to the Russian company's bid.

Severstal has said it wants to buy Esmark, owner of the Wheeling-Pittsburgh steelworks, so it can sell a wider range of steel products in the United States and because its Sparrows Point plant can provide semifinished steel slabs to boost Esmark's output.

"Severstal has the strategy that makes the most sense with Esmark and Wheeling-Pittsburgh," said Charles Bradford, an analyst at Soleil Securities in New York. "I don't see where the fit is with Essar, though they may have a different strategy."

Both steelmakers have been expanding in the United States, where a shortage pushed prices of steel sheet to a record $1,020 a ton in May. Severstal agreed to buy ArcelorMittal's Sparrows Point plant in Baltimore and Ohio-based WCI Steel this year. Essar bought two plants in North America last year.

Esmark rose 46 cents, or 2.6 percent, to $18.35 as of 11:29 a.m. in Nasdaq Stock Exchange composite trading. The shares gained 27 percent this year through Thursday.

Essar offered to buy Esmark on April 30 in a transaction that also included a $110 million loan. Esmark said it needed a partner to continue its operations because soaring raw-material and transportation costs had led to difficulties in securing funding.

Franklin agreed Thursday to tender its 60 percent stake to Severstal's offer because the U.S. steelmaker's main union favors the Russian company's proposal. Under a labor contract, Esmark cannot complete the Essar deal without the workers' support, the union has said.

"Severstal's offer remains at $17 per share," spokesman Michael Henson, based in New York, said Friday by telephone. "It's the only deal that can get done as it has critical union support." While Franklin has agreed to tender the shares, the deal is not irrevocable, he said.

Esmark president Craig Bouchard declined to comment.