Carlyle Group’s Steel Sale Collapses

NEW YORK, (Reuters) – Russian steelmaker Novolipetsk Steel (NLMK) has pulled out of a $3.5 billion agreement to buy U.S. rival John Maneely Co. from buyout firm Carlyle, the U.S. company said on Friday.

The deal, struck in August, has looked on shaky ground since October when Washington, D.C. based-Carlyle sued Novolipetsk (NLMK) to complete the deal, claiming the Russian firm had breached its obligations to close the transaction.

John Maneely’s parent, DBO Holdings, owned by Carlyle, said in a statement on Friday that the Russian steel producer had terminated the deal. A source familiar with the situation said that Novolipetsk informed Carlyle that they were terminating the deal on Thursday.

DBO alleged in the October lawsuit that NLMK had the financing available to do the deal but “failed to … take the necessary actions … to consummate” the takeover.

The deal was to have been financed from available bank commitments, and a $2 billion bridge loan provided by Merrill Lynch, Deutsche Bank and Societe Generale, the parties said in August.

The lawsuit is still pending, DBO said in the statement on Friday. It said it intended to “aggressively pursue all legal remedies at its disposal to enforce its rights under the merger agreement, and fully expects to prevail in its pending lawsuit against NLMK.”

Novolipetsk was not immediately available for comment.

“We are disappointed that NLMK has chosen to breach its obligations under the merger agreement,” Daniel Pryor, managing director at Carlyle and vice chairman of John Maneely, said in a statement. “However, JMC is an exceptional company with superb employees and a proven management team. We see many opportunities to continue building and strengthening the business.”

Carlyle paid $550 million for the company in March 2006 and then merged it with two subsequent acquisitions, Atlas Tube Inc and Sharon Tube Co.

John Maneely’s other owners include the Zekelman family. Barry Zekelman was previously CEO of Atlas.

(Reporting by Megan Davies, editing by Richard Chang)