Nov 20 2006
Institutional Investment Services on November 15, 2006, issued an alert in which it cited six aspects of the enhanced Companhia Siderurgica Nacional offer for Wheeling-Pittsburgh Steel, which was made public on November 14, to support its conclusion that CSN's proposal presents a better alternative to shareholders.
"We believe that ISS's new analysis fairly represents the significant improvements in CSN's enhanced proposal," said James G. Bradley, Wheeling- Pittsburgh Chairman and CEO. "We are disappointed, however, that despite ISS's endorsement of CSN's improved offer, ISS kept its recommendation of Esmark's Board of Directors slate unchanged because only one day remains to the Annual Meeting "and given the situation remains fluid with counter claims by each party."
Bradley noted that CSN's enhanced proposal has mitigated the issue of USW's opposition because CSN has agreed to limit its ownership to 49.5 percent of the new Wheeling-Pittsburgh. "We believe that CSN's enhanced offer has addressed all shareholder issues and our board should be re-elected to best ensure that our shareholders capture improved shareholder value," Bradley said.
"Since CSN's enhanced offer, Esmark has publicly refused to improve its offer and is clearly committed to monetizing its private, 'family-owned' business through its proposed merger with Wheeling-Pittsburgh. Faced with the same facts ISS analyzed, Esmark has represented that CSN's enhanced offer is worth less than Esmark's proposal. We question whether Esmark, and its Board of Directors slate, will ever open the bidding process to competitive bids, as has our Board.
"Members of Wheeling-Pittsburgh's Board of Directors have acted in the best interests of all our shareholders to continually improve shareholder value," Bradley noted. "Shareholders should vote to re-elect the current Board in order to ensure that all shareholders can benefit both near-term and in the future.
- Specifically, ISS cited:
- Higher underlying equity valuation brought about by the additional $50 million cash in the offer: "We consider it to have the same effect as increasing the underlying offer price for WP's share," ISS notes.
- Increase in redemption price for B shares. "The present value ($32/share redemption price of $23.50 to $24.40 per share) compares favorably against the $20/share share buy-back that Esmark has proposed."
- Reduced leverage. "By reducing the amount of convertible debt to $175 million and by injecting $50 million in new cash, the revised proposal increases net debt by $125 million, compared to $225 million previously. We believe that the lower level of net debt may be more manageable, and does not significantly affect WP's leverage."
- Rights Issue. "The revised offer now entitles existing WP shareholders, who opt for A shares in the new combined company, to subscribe to rights issue at $19/share for up to 4.6 million shares. We believe that the ability to subscribe to the rights issue allows class A shareholders to participate in the potential upside of the company. More importantly, we believe that this proposal now makes the CSN offer comparable to the Esmark offer in terms of shareholders ability to participate in the upside ... "
- Strong credentials of CSN designees. "We believe that all three (CSN) designees would bring relevant experience to the board. Given the background and experience of CSN designees, we are no longer concerned about the potential lack of steel experience on the proposed WP/CSN board."
- Positive market reaction to revised CSN offer: "WP's stock price has increased 5.8 percent in two days since CSN's revised proposal. We believe that a positive price reaction is partially indicative of market's approval of the revised CSN offer."
In its conclusion, ISS states: "Based on our review of the revised CSN proposal, we believe that CSN has addressed the concerns that we had raised in our initial analysis and now presents a better alternative to shareholders."