The third-largest shareholder of Wheeling-Pittsburgh Corp. said Friday that it will support Esmark Inc. and help elect a new board of directors that aims to pull off a hostile takeover.
On Thursday, Esmark, a Chicago Heights-based steel distributor, amended its plan for a reverse takeover by Wheeling-Pitt, which said it will review the offer. The West Virginia-based company said Wednesday that it agreed to merge with Brazil’s Companhia Siderurgica Nacional.
Esmark’s new plan would raise up to $200 million by selling Wheeling-Pitt shares to existing shareholders, including Tontine Management LLC, a hedge fund run by Jeffrey Gendell that holds a 9.5 percent stake in Wheeling-Pitt.
“The Esmark proposal provides the most attractive long-term economic value and ongoing participation opportunity to the current shareholders,” Gendell said in a regulatory filing. The Brazilian company’s offer is “very unattractive,” he said.
“Absent any changes in the facts or dynamics of the process or the current proposals, Tontine has concluded it will support the Esmark slate of directors” at the company’s annual meeting Nov. 17, Gendell said in the filing.
Privately held Esmark, which operates distribution centers known as steel service centers throughout the Midwest, is proposing to elect an alternative slate of directors at Wheeling-Pitt’s annual meeting and aims to strike down the deal with the Brazilian company in favor of its own offer to merge.
Esmark wants to close Wheeling-Pitt’s blast furnace, where production costs are high, while maintaining other operations, including Wheeling-Pitt’s new electric-arc mini-mill. The steel produced would be used to supply Esmark’s service centers.
Wheeling-Pitt is seeking a cash infusion to help cut $398 million of debt that it has failed to reduce since emerging from bankruptcy in 2003. Steel producers are merging to reduce operating costs and increase bargaining power with buyers at a time of rising demand and prices.
Wheeling-Pitt didn’t return phone calls Friday seeking comment.
Under the new proposal, Esmark changed the way in which Wheeling-Pitt would receive its cash infusion.
Originally, Esmark and its largest shareholder, Franklin Mutual Advisers, proposed investing up to $200 million in new Wheeling-Pitt shares. Now, new stock would be offered for sale to existing shareholders, and Franklin would act as a standby purchaser for any that goes unsold.
The stock offering would allow existing shareholders such as Tontine to buy more shares in the company, after the fund indicated in its Oct. 13 letter the “significant opportunities emerging in the global” steel market.
Esmark wants to be bought by Wheeling-Pitt for about $273 million and then merge the two companies. It also has a loan agreement for $350 million from banks led by JPMorgan Chase & Co.
