New York: Essar Steel Holdings Limited (Essar) has informed the Esmark Board of Directors that it is open to considering raising its 30 April offer to acquire Esmark Inc at $17 per share. Essar had proposed acquiring Esmark for $669 million on 30 April (See: Essar Steel to acquire American steelmaker Esmark for $669 million) 

Essar also said that it would consider making an increased bid after it had obtained additional information from Esmark.

OAO Severstal, the metals and mining company controlled by Russian billionaire Alexei Mordashov, put in a matching bid to acquire the US steel maker at an equivalent price, with the United Steel Workers supporting the the Rusian steelmaker (See: Russia's Severstal makes rival bid to Essar's bid for Esmark).

On the invitation of Esmark and financial advisor UBS, Essar had participated in a bidding process for the sale of Esmark shares, which was unanimously accepted by the Esmark Board.

Following Esmark's acceptance of Essar's offer on 30 April, 2008, Essar entered into a memorandum of agreement with Esmark to acquire Esmark Inc. at an estimated enterprise value of $1.1 billion, which includes a proposed tender offer for a cash purchase price of $17 per share of all outstanding shares of the Nasdaq listed steel company.

At Esmark's request, Essar also extended a $110 million loan to Esmark, which helped the company address a potential default. As part of the acquisition strategy, Essar has proposed a capital expenditure program of $525 million for Esmark's Ohio and West Virginia manufacturing facilities over the next five years.

Essar's bid had been approved by the Esmark board, but had failed to garner support from the United Steelworks Union (USW), which is a pre-requisite under labour agreements entered into by the US company.

Conversely, a similar offer from Seversal was supported by the USW, but spurned by the Esmark board. Now, Esmark's board plans to meet before 13 June to decide on Severstal's offer, and has advised its shareholders to stay away their offer for the interim. FMA did not take Esmark board's advise, and has sent a letter to the Esmark board informing them that it ''is tendering'' all its shares to the Severstal offer.

In a letter to the Esmark board of directors, Essar specifically sought information on "any arrangements or understanding" that Severstal may have had with Franklin Mutual Advisers, LLC, an institutional shareholder of Esmark, who Essar understands has agreed to tender their shares into the Severstal offer.

Essar also urged the board to "recognize its continuing obligations under the Memorandum of Agreement, dated April 30, 2008, and in particular Esmark's agreement to enter into the Merger Agreement upon the expiration of the Right to Bid period provided in Article Eleven, Section D of the CBA."

Franklin Mutual Advisors (FMA) owns 60 per cent of Esmark's equity, and has expressed its desire to tender its shares to a competing offer from steel major Severstal.

According to analysts, now that FMA has decided to go with Severstal even before the Esmark board's decision, Essar would have no option but to come up with a substantially higher offer to win over FMA. A very real possibility is the outbreak of a aggressive bidding war by Severstal to thwart Essar.

Alexy Mordashov, Severstal's billionaire owner is keen to built a steel empire in North America which is bigger than his empire back home in Russia. Mordashov outbid Essar to acquire Sparrows Point from ArcelorMittal.

Esmark's stock has been going up since Severstal announced a counter offer to Essar, and is presently trading at around $18.39.

In the event that the deal does not materialise, Essar would be entitled to a 'break-up fee' of $20.5 million from Esmark.

Essar Global Limited is the overseas arm of the Ruia-promoted Esar Group  with interests in manufacturing and services sectors of steel, energy, power, telecommunications, shipping, ports and logistics, mining and mineral resources, and construction. It has enterprise value of approximately $50 billion, employing around 30,000 people worldwide.

Esmark is a vertically integrated steel producer and distributor, combining steel production capabilities through both blast furnace and electric arc furnace technologies with the just-in-time delivery of value-added steel products to a broad customer base concentrated in the Ohio Valley and Midwest regions.