OREANDA-NEWS. June 17, 2008. OAO Severstal (LSE: SVST; RTS: CHMF; “Severstal”), one of the world's leading metals and mining companies, last night sent the following letter to the Board of Directors of Esmark Incorporated (NSDQ: ESMK; “Esmark”) with respect to Severstal’s previously announced tender offer to acquire all of the outstanding shares of common stock of Esmark.

OAO SEVERSTAL
Klara Tsetkin, 2/3
Moscow, Russia 12729
June 16, 2008
Board of Directors
Esmar Incorporated
1134 Market Street
Wheeling, WV 26003
Attention: Mr. James Bouchard

Chairman and Chief Executive Officer
Dear Mr. Bouchard:

We were disappointed with your Board’s recommendation to Esmark’s shareholders concerning our tender offer, as reflected in your form SC 14D9 filing with the Securities and Exchange Commission on June 12, 2008.  We continue to believe that Severstal is best positioned to strengthen and grow Esmark’s current assets, and that our offer provides compelling value for your shareholders through a transaction that can actually be realized.  In contrast, we believe that your contemplated transaction with Essar Steel Holdings Limited (“Essar”) does not present these same opportunities, cannot realistically be consummated, and, thus, will not deliver value to your shareholders.  As you know, we are not alone in this belief as our offer is supported, unequivocally, by the United Steelworkers (the “USW”) and your largest shareholder.  Thus, notwithstanding your negative recommendation, Severstal intends to continue with its plans for a transaction with Esmark because we believe that, ultimately, Esmark’s Board must acknowledge these same facts.

In your 14D9 filing, you note that on June 10, 2008, Essar encouraged your Board to “take all reasonable actions to create a level playing field among the bidders and to allow shareholders the opportunity to receive the maximum value for their shares.”  We agree entirely with that sentiment.  But, unfortunately, we also believe that your Board has in reality tipped the scales in favor of a transaction with Essar in a number of significant respects, and thus made it more difficult for your shareholders to receive value.

First, in direct conflict with certain contractual obligations owed to the USW, Esmark entered into an agreement with Essar on April 30, 2008 (the “MOA”), with purportedly binding obligations to pay certain termination fees to Essar in the event that Esmark concluded a transaction with any other bidder, including Severstal.  Esmark made this agreement even though we were in active negotiations with you, and even though by that time you were aware that the USW supported a transaction with Severstal and opposed a transaction with Essar.  Rather than exempting a Severstal transaction from any termination fee provisions in your agreement with Essar, your Board concluded instead to institute a \\$22.5 million impediment to a Severstal transaction.[1]  This is no level playing field.

Likewise, the financing agreements that you entered into with Essar on May 2 and May 6 contain provisions which provide for further termination fees to Essar.  As described in your filings, in the event of a transaction with Severstal, Essar purportedly has the right to purchase 3,000,000 Esmark shares at the highly discounted price of \\$12.50 per share.  This would translate into \\$13.5 million of value handed to Essar, and simply further increases the cost of a Severstal transaction. 

Notwithstanding these termination fees in favor of Essar and which make competition less likely, in the MOA you also provided Essar with a three-day window to respond to and, in essence, defeat any competing offer by simply matching it.  Thus, any bidder, including Severstal, wishing to offer value to your shareholders would have to overcome tens of millions of dollars of transaction costs payable to Essar, and then wait to see if Essar chose to trump that bid simply by matching.  Here again, this is no level playing field.

As you know, after Esmark signed the MOA, Severstal still hoped to negotiate an acceptable transaction with you.  But on May 2, 2008, you requested that to go forward in any way, Severstal would have to sign a new standstill agreement which would have prohibited Severstal from making any offer for Esmark (of any kind, public or private) without first having your Board’s written consent to do so.  We were unable to see how such an arrangement would promote a level playing field for Severstal, and thus, as you are aware we declined to enter into that agreement with you.

We also believe that your 14D9 filing is materially stilted in favor of an Essar transaction, and against a Severstal transaction.  In addition to ignoring the unlikelihood of ever being able to conclude successfully a transaction with Essar, your filing contains incorrect assertions as to the circumstances and merits of our tender offer.  While we intend to raise these issues with you more completely at an appropriate time, for now it seems abundantly clear that this filing was designed to unfairly persuade your shareholders to reject Severstal’s offer, as opposed to fairly inform them of the merits of their current opportunities.  We are confident that, with complete and accurate disclosure, Esmark’s shareholders will choose the Severstal offer, but we believe your filing has denied them such disclosure.

And, finally, on June 13, you announced that your Board has instituted a poison pill ostensibly to “level the playing field” among bidders, but which in reality is obviously designed to further thwart Severstal’s tender offer in favor of Essar.  In fact, it appears that this poison pill is structured, by fiat of the Board, so that it applies to Severstal’s current tender offer but not to Essar’s contemplated tender offer.  Given that Esmark actually signed one agreement contemplating the purchase of Esmark shares at \\$17 per share, we are at a loss to comprehend how you determined to institute measures to block Severstal’s current tender offer for shares at exactly that price.  We can only conclude that it is because you have determined to support Essar, over Severstal, for reasons that remain unknown to us for now. 

We believe Esmark’s shareholders should be allowed to choose between the questionable transaction with Essar that you support, as opposed to the real value that will be delivered through the Severstal offer.  Severstal is confident that, on a truly level playing field, Esmark’s shareholders will choose to realize actual value from the Severstal tender offer, and that Esmark’s opportunity for future success will be maximized as a result.  We encourage the Board to take steps to eliminate the prior impediments it has created to Esmark’s shareholders receiving this value, and, in particular, we encourage you to eliminate the termination fees and deal-matching provisions in your Essar agreements as to Severstal, eliminate the poison pill designed to block Severstal’s tender offer, and present Esmark’s shareholders with an unvarnished and unbiased account of the opportunities available to them through a transaction with Severstal.