Steel Mills
Esmark Will Not Acquire Zelezara Smederevo
Written by Sandy Williams
February 17, 2015
The acquisition of Serbian steel mill Zelezara Smederevo by Esmark Europe has fallen through. After 10 months of negotiations, Chairman and CEO James Bouchard announced that a definitive agreement for purchase of the mill could not be reached with the Republic of Serbia.
A revised proposal from the Serbian government changed the financial terms and provisions previously agreed to in the Pittsburgh negotiations, rendering it unacceptable to Esmark’s lending partners.
Serbian news source B92 reported the decision not to sell an 80 percent share of Zelezara to Esmark was based on failure by Esmark to guarantee that the factory would not be shut down as well as a dispute regarding raw materials and sales. According to the report, the Serbian government had requested control of raw materials usage and sales of steel from the mill for the first nine months following finalization of the acquisition. Prime Minister Aleksanadar Vucic expressed concern that, “that all raw materials would not be spent and the factory then abandoned with the explanation that the market was not good.”
The prime minister said that a management team would be sought for Zelezara because “we never knew how to earn money, nobody in Serbia ever knew that.” Vucic expects the second blast furnace to be operational by the end of the year, increasing capacity at the mill.
In a press release, Bouchard said, “We’re extremely disappointed we could not reach a definitive agreement with the Republic of Serbia for the sale and purchase of Zelezara Smederevo Steel Works, especially since we reached an agreement on the key terms of the transaction following the successful conclusion of negotiations last Thursday and Friday in Pittsburgh.
“We negotiated in good faith throughout the entire tender process, maintained a fair and consistent position throughout more than 10 months of due diligence and talks, delivered a sound and comprehensive business plan, and put in place a world-class management team to revitalize the steel mill and make a meaningful and lasting contribution to the Serbian economy. Esmark Europe’s detailed tender offer and business plan also paved the way for the company to successfully negotiate a three-year labor agreement that would have provided all 5,300 steelworkers with a 25 percent wage increase this year and a 10 percent increase in 2016.”
The offer from Esmark Europe included $130 million in capital expenditures, a $200 million working capital credit facility, and $400 million in maintenance, spare parts and capital required to manage and maintain a two blast furnace operation.
“We do wish to extend our sincere thanks to Republic of Serbia Prime Minister Aleksandar Vucic and his Ministers, U.S. Ambassador to Serbia Michael Kirby, and the dedicated steelworkers and their union leadership for all their efforts during this process and wish them well as they move forward,” said Bouchard.
Sandy Williams
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