India's Essar raises bid for Esmark by $80M

India's Essar Steel Holdings Ltd. raised its offer for Esmark Inc. by $80 million to $19 per share Wednesday, putting the value of the deal at approximately $750 million.

Shares shot up more than 7 percent on the news, to $19.97 before closing a penny higher at $19.98.

Esmark, a Wheeling-based steelmaker and distribution company, has been weighing competing $670 million bids from Essar and Russian metals and mining company OAO Severstal.

While management endorsed the initial Essar offer in late April, the United Steelworkers union partnered with Severstal on a counteroffer. The company is expected to issue a reply to that by Friday.

Esmark, meanwhile, filed a grievance against the USW over its opposition to the Essar detail.

In a complaint with the National Labor Relations Board, Esmark argued the union is abusing certain provisions of its contract by improperly trying to block the sale and refusing to deal with Essar.

"The USW seeks to turn what was intended as a shield of employee protection into a sword to veto business transactions that lie within the proper province of the board of directors and shareholders," President Craig Bouchard said in a prepared statement.

Dave McCall, District 1 director for the USW in Columbus, Ohio, did not immediately respond to requests for comment.

Essar had already extended a $110 million loan to Esmark to avoid a potential default, and the company said last week it was considering raising its initial offer of $17 per share.

It also announced Wednesday it will invest $525 million in capital improvements in Esmark's Ohio and West Virginia plants over the next five years.

Bouchard said he's surprised that not all shareholders have shown enthusiasm for Essar's offer, but even more shocked by the reluctance of employees and mill towns to welcome Essar.

"They are good people with a winning track record. Their offer to spend more than $500 million at Wheeling Pittsburgh Steel is twice that of the next bidder and is the opportunity of a generation for the steel families of the Ohio Valley," Bouchard said. "It would be great to see Severstal match or exceed this commitment, but so far this simply hasn't happened."

The USW has complained that Esmark accepted Essar's offer without giving the union adequate notice or the chance to put forth an alternative.

Essar says it will recognize the USW, assume its basic labor agreement and negotiate a new contract quickly.

The union's current contract, which expires Sept. 1, has two relevant clauses designed to protect workers.

The right-to-bid provision requires the company to give the union time to produce a counteroffer to a proposed change in ownership. The successorship clause effectively gives the union the right to reject any deal that changes control of the company, requiring that the USW approve a collective bargaining agreement before a transaction is concluded.

Essar's announcement that it will accept the current agreement might give Essar and Esmark time to sign a sale agreement before the contract expires.

Both Essar and Severstal claim they are best-positioned to create value for Esmark shareholders and secure a stable future for the mills. Both companies also agreed to assume $400 million in debt.

But Severstal has the union's support, and the USW has proven clout in defeating and facilitating deals: It invoked its right-to-bid clause and sided with Esmark in its successful takeover of twice-bankrupt Wheeling-Pittsburgh Corp., defeating the previous management team's plan to merge with Brazil's Companhia Siderurgica Nacional SA.

Severstal, which has a joint partnership with Wheeling-Pitt, already owns 50 percent of a coke plant in Follansbee and is a company the union works with daily.

Though Esmark was the best way to save Wheeling-Pitt as it teetered on the edge of a third bankruptcy two years ago, union leaders have said the partnership didn't work out as envisioned.

Esmark has operations in 20 states, including subsidiary Wheeling-Pitt plants in West Virginia, Ohio and Pennsylvania and a plant in Greensville County, Va.

Earlier this week, Esmark reported a first-quarter loss of $15.8 million, or 40 cents per share, but predicted a profitable second quarter.