WHEELING, W.Va., Nov. 7 /PRNewswire-FirstCall/ -- The following is a
letter to shareholders from the chairman of Wheeling-Pittsburgh Corporation
(Nasdaq: WPSC):
Dear Shareholders,
On November 27, 2007 Wheeling Pittsburgh Corporation will hold a
special shareholder meeting to vote on the combination with Esmark. This
vote will determine the future of our company. I am writing to encourage
you to vote for the proposed merger between Wheeling-Pitt and Esmark
because I believe it to be in the best interests of all shareholders.
Below, I will explain why I feel this way and detail our aggressive plans
to return the steelmaking operations of New Esmark to profitability in
2008.
Let me first describe why the combination with Esmark needs to be
completed. In short, Wheeling-Pitt cannot continue to be viable as a
standalone entity without a stronger balance sheet, dramatically reduced
cost structure, and a broader, larger and more profitable customer base.
Stronger Balance Sheet.
Given the cyclical nature of the steel industry, maintaining a strong
balance sheet is a must. During the last two decades the landscape became
littered with bankrupt steel companies that were not able to survive the
downturns in the marketplace. Wheeling-Pitt has too much debt. The merger
will address this problem by immediately bringing fresh capital into New
Esmark of at least $50 million and as much as $200 million. This would not
be possible without Esmark's largest shareholder, Franklin Mutual Advisers,
which has agreed to guarantee that New Esmark will receive $200 million for
the issuance of shares of New Esmark in connection with the purchase rights
feature of the combination.
The addition of Esmark also improves the balance sheet. Esmark
continues to be profitable, has no long term debt, and will deliver a net
positive working capital balance to New Esmark of $100 million.
All in, with the cash coming in, permanent financing to be entered into
after the merger, and conversion of most of the convertible instruments we
hope to reduce the debt of the combined companies from approximately $525
million at this time to approximately $275 million by year end. It will be
a pleasure to see a Wheeling-Pitt balance sheet that is more equity than
debt.
Further, in July of this year, a West Virginia jury unanimously awarded
the Company and our joint venture, Mountain States Carbon, $219.85 million
in a lawsuit against Massey Energy Company and its subsidiary Central West
Virginia Energy Company. Massey has publicly stated that it will appeal the
verdict and we will vigorously defend the jury's decision if appealed. Our
balance sheet will be additionally enhanced when and if we recover any
amounts, including interest that is accruing during the appeal process.
Plan to Lower Costs.
The steel manufacturing sector continues to experience rising costs of
energy, raw materials, labor and transportation at a time that steel prices
remain soft and flat. The steel industry itself could be viewed as having
survived a mild recession this past year. It appears to us that demand for
flat rolled products is off roughly 10-15 percent in the U.S. from last
year. In times like this, when selling prices and demand are low, and raw
material and other costs are increasing, the only producers who can be
profitable are those that have low cost structures.
Wheeling-Pitt currently has neither the raw material advantages of the
integrated producers nor the labor and technical cost structure of the
mini- mills. Although we took a number of steps to lower costs at operating
units this past year, the increased cost of scrap for our Electric Arc
Furnace (EAF) and the rise in energy and raw materials required for our
blast furnace operation overwhelmed our efforts to reduce operating
expenses. The Esmark merger and the liquidity (and balance sheet) it brings
will provide time and capital for us to continue to attack our cost
structure.
Of course, we can't influence the price of iron ore, scrap or natural
gas. These costs will remain high or go up in all scenarios we can
envision. Similarly, labor rates and transportation costs are not going
down. They are going up. Wheeling-Pitt has a plan which we believe will
lower our dependence on each cost category. Our medium term corporate goal
is to reduce our overall operating cost structure by $150 million per
annum. The cost rationalization process has already begun.
Our plan consists of a two-step transition: (1) Immediate Restructuring
for 2008 Profitability, and (2) Strategic Investment Considerations for
Long Term Profitability.
Restructuring for 2008 Profitability
-- Immediate actions are being taken to rationalize our existing equipment
and redirect our product offerings. Our mills are spread out over a
wide area and a number of our production units are severely
underutilized and are not capable of competing with modern facilities
and new technology. In particular, we will:
-- Maximize our profitable cold rolling capability and the trade sales
of those products and limit our less profitable cold rolled
products.
-- Optimize our value-added, high margin corrugating (WCC) division.
-- Discontinue noncompetitive product offerings.
-- Idle underutilized and noncompetitive equipment.
-- Rebalance our scheduling of operating, maintenance, and support
service manpower to match the restructured product flows and
equipment utilization.
-- Reduce and realign administrative and labor activities in line with
the above operational restructuring.
-- Following our July EAF outage, we have been making dramatic
improvements in our ability to charge hot metal into our EAF. This
allows us to reduce our dependence on high cost scrap, eliminate the
use of expensive pig iron and minimize electric power consumption.
This will also improve our overall steelmaking conversion costs.
-- The Company and the United Steelworkers (USW) formed a Joint
Strategic Labor Management Committee to discuss adjustments to business
strategy and workplace changes. In partnership with the USW, we will
work together to realign manpower consistent with our obligations under
the collective bargaining agreement.
-- We are actively pursuing a plan to enable us to begin producing
merchant pig or granulated iron in 2008.
-- We are taking steps to become energy self sufficient. Wheeling-Pitt
spends approximately $7-10 million per month on natural gas. We are in
the process of investigating the recovery of believed substantial
natural gas deposits on 1,700 acres of property owned by our company.
If the reserves are proven and recoverable, then we have the
possibility to significantly reduce our natural gas costs. We
currently expect that this project could begin to reduce our dependence
on volatile purchased natural gas as early as the 3rd Quarter of 2008.
Strategic Investment Considerations for Long-Term Profitability
-- Our 80" Hot Strip Mill facility is a very valuable asset. We are
evaluating plans to upgrade the mill's capability, enabling it to
produce a broader spectrum of more profitable products.
-- We plan to take the hot strip mill's annualized production rate above
the 3 million ton level in 2008. This plan fits well with our
formulation of E2 Acquisition Corporation's acquisition of Sparrows
Point, which would be an ideal source for the required incremental high
quality slabs.
-- Wheeling-Pitt has been considering a number of possibilities and
scenarios for making capital investments that will provide us with
highly competitive finishing capability, including rationalization of
our 3 existing pickling lines; a long-term strategy and solution for
sheet cold rolling; and/or replacement of our higher-cost galvanizing
equipment with modern hot dip technology.
We also believe that combining our steel operations with those of
Sparrows Point makes sense. After E2's acquisition of Sparrows Point, we
will pursue a combination with the new owners of Sparrows Point, subject to
approval of our board and shareholders.
Linking Distribution and Production.
Our underlying strategy is to change the steel supply chain model in
North America by combining a mill with service centers. This is the model
used and employed by successful companies in their operations in Europe,
such as ArcelorMittal and Corus. The steel operations of Wheeling-Pitt,
which is essentially a spot player with a small customer base, will benefit
by creating more customers for its products. Esmark is a steel distribution
company with a customer base of approximately 2,000 customers which stretch
across the states of Illinois, Wisconsin, Indiana, Michigan, Missouri, and
Ohio. We believe that steel consumption in these states comprises a
significant part of the steel consumption in the United States. The
distribution operations will benefit by allowing the service centers to
offer customers faster, more efficient and just-in-time service.
Ultimately, we believe this combination will enhance shareholder value.
Finally, I cannot pass up the opportunity to point out how valuable our
partnership with the USW is to accomplishing our plans. The USW and our
employees believe in our strategy. They care very deeply about the success
of New Esmark and they are helping. With continued support, I am convinced
we have the right people, partners and strategy to become a low cost "big
4" producer of steel in North America.
I am also thankful to Esmark and its largest shareholder, Franklin
Mutual Advisers, for remaining steadfast in their determination to build
this company into something very special.
We have through the merger agreement provided each shareholder of
Wheeling-Pitt the ability to also share in our strategy to change the steel
supply chain model in North America through the right to purchase shares of
New Esmark stock at $19 per share. These purchase rights will not only
improve the capital structure of our company, but they provide
Wheeling-Pitt stockholders with the opportunity to reduce dilution and
participate in the upside of the strategy to combine distribution with
production.
I ask for your continuing support and to vote "FOR" the merger on November
27.
Sincerely,
James P. Bouchard
Chairman and Chief Executive Officer
If you have additional questions about the special meeting or the
combination, including the procedures for voting your shares, or if you
would like additional copies, without charge, of the proxy
statement/prospectus, you should contact Wheeling-Pitt's proxy solicitation
agent, Innisfree M&A Incorporated at (888) 750-5834 (toll-free). If your
broker holds your shares, you may also call your broker for additional
information.
Cautionary Notes Regarding Forward-Looking Statements
This letter contains certain projections or other forward-looking
statements within the meaning of Section 27A of the Securities Act and
Section 21E of the Securities-Exchange Act regarding future events or the
future financial performance of New Esmark and Wheeling-Pittsburgh
Corporation that involve risks and uncertainties. Forward-looking
statements reflect the current views of management and are subject to a
number of risks and uncertainties that could cause actual results to differ
materially from actual future events or results. These risks and
uncertainties include, among others, factors relating to (i) the risk that
the businesses of Esmark and Wheeling-Pitt will not be integrated
successfully or such integration may be more difficult, time consuming or
costly than expected; (ii) the risk that expected benefits of vertical
integration do not materialize; (iii) the ability of Esmark and
Wheeling-Pitt to realize the expected benefits from the combination,
including the ability to enter permanent financing on satisfactory terms,
expected operating efficiencies, synergies, cost savings and increased
productivity, and the timing of realization of any of these expected
benefits; (iv) the risk of unexpected consequences resulting from the
proposed combination; (v) the ability of the combined company to operate
successfully within a highly cyclical industry; (vi) the extent and timing
of the entry of additional competition in the markets in which the combined
company will operate; (vii) the risk of decreasing prices for the combined
company's products; (viii) the risk of significant supply shortages and
increases in the cost of raw materials, especially carbon slab supply, and
the impact of rising natural gas prices; (ix) rising worldwide
transportation costs due to historically high and volatile oil prices; (x)
the ability of the combined company to implement and complete restructuring
plans for Wheeling- Pitt; (xi) the ability of the combined company to
realize on natural gas deposits on its properties; and (xii) certain other
risks identified in section "Item 1A - Risk Factors" of Wheeling-Pitts'
Annual Report on Form 10-K for the year ended December 31, 2006, as
amended, and other reports and filings with the SEC by Wheeling-Pitt and
New Esmark, which identify important risk factors that could cause actual
results to differ from those contained in the forward-looking statements.
In addition, any forward-looking statements represent Wheeling-Pittsburgh
Corporation's views only as of today and should not be relied upon as
representing views as of any subsequent date. While Wheeling-Pittsburgh
Corporation may elect to update forward-looking statements from time to
time, it specifically disclaims any obligation to do so.
In connection with the proposed business combination of Wheeling-
Pittsburgh Corporation ("Wheeling-Pitt") and Esmark Incorporated
("Esmark"), Clayton Acquisition Corporation ("New Esmark") has filed with
the SEC a registration statement on Form S-4 and related definitive proxy
statement with the SEC. Stockholders of Wheeling-Pitt and Esmark are urged
to read the registration statement, definitive proxy statement/prospectus
dated October 26, 2007 and any other relevant documents, filed with the
SEC, as well as any amendments or supplements to those documents when they
become available, because they contain, or will contain, important
information, including information on the proposed transaction as well as
participants and their interests in New Esmark, Wheeling-Pitt and Esmark.
Stockholders may obtain a free copy of the registration statement and
related proxy statement/prospectus, as well as other filings containing
information (when they become available) about New Esmark, Wheeling-Pitt
and Esmark, at the SEC's website at http://www.sec.gov. New Esmark,
Wheeling-Pitt, Esmark and their respective directors and executive officers
may be deemed participants in the solicitation of proxies from the
stockholders of Wheeling-Pitt in connection with the proposed business
combination transaction. Information regarding the participants in the
proxy solicitation and their respective interests may be obtained by
reading the registration statement and related definitive proxy
statement/prospectus. Investors and security holders are urged to read the
definitive proxy statement/prospectus, and other relevant materials (when
they become available), before making any voting or investment decision
with respect to the proposed combination. This document shall not
constitute an offer to sell or the solicitation of an offer to buy any
securities, nor shall there be any sale of securities in any jurisdiction
in which such offer, solicitation or sale would be unlawful prior to
registration or qualification under the securities laws of any such
jurisdiction.
SOURCE Wheeling Pittsburgh Corporation
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Related links:
http://www.wpsc.com
http://www.prnewswire.com/comp/967451.html /
CONTACT:
Dennis Halpin of Wheeling Pittsburgh
Corporation, +1-304-234-2421, halpindp@wpsc.com
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