Carlyle Sues NLMK Over $3.4Bln Deal

The Carlyle Group is suing steelmaker NLMK to force it to complete a $3.5 billion deal to buy U.S. tubular steel maker John Maneely, one of Russia's biggest merger deals this year.

Both sides confirmed in e-mails on Saturday that the suit had been filed and that the deal was not closed.

In an Oct. 15 filing with the U.S. District Court for the Southern District of New York, lawyers for DBO Holdings -- a unit of Carlyle -- filed suit against NLMK demanding that NLMK complete the deal and pay damages for backing out of the deal.

"In a series of meetings and telephone calls with the company, which occurred between Oct. 2 and Oct. 15, NLMK's authorized representatives stated that changed financial market conditions warranted a reduction in the purchase price or a significant restructuring of the merger transaction," the Carlyle unit's filing said. "During these meetings, NLMK's authorized representatives indicated that NLMK repudiated the merger agreement."

For its part, NLMK said in a statement, "There have been disagreements concerning the rights and obligations of the parties under the merger agreement, and at this time NLMK has not closed the transaction."

NLMK, majority owned by the world's 21st-richest man, Vladimir Lisin, said it had retained U.S. counsel and would defend itself against the suit.

Carlyle bought John Maneely in 2006 for $568 million and in August 2008 agreed to sell it to NLMK, also known as Novolipetsk Steel, for $3.53 billion. The deal amounted to 12 percent of total U.S. M&A activity in August, according to Thomson Reuters data.

The price tag of the deal is now equal to two-thirds of NLMK's own stock market capitalization. NLMK's share price has fallen nearly 80 percent since the deal was announced. It fell nearly 20 percent on Friday alone.

Mergermarket earlier in the week listed the John Maneely takeover as Russia's second largest deal this year and, at $3.5 billion, it made up the vast majority of the deal flow for the third quarter.

For 2008, it was outstripped only by billionaire Mikhail Prokhorov's sale of his share in investment vehicle KM-Invest to business partner Vladimir Potanin in a messy divorce that left Potanin in effective control of metals giant Norilsk Nickel, Mergermarket said.

"Although effective Oct. 1, 2008, NLMK's lenders entered into a binding agreement to provide the financing necessary to enable NLMK to consummate the merger transaction, and NLMK refused to take steps -- steps entirely within its control -- to draw upon that financing," said the Carlyle unit's filing.

NLMK did not comment on the financing arrangements for the merger in its statement.

Steel companies' market value has been savaged in a global stock sell-off that hit the makers of construction inputs harder than others, largely on fears that declining real estate prices and lower economic activity would hit demand for their products.