MOSCOW (Reuters) – The Carlyle Group is suing Russian steelmaker NLMK (NLMK.MM: Quote, Profile, Research, Stock Buzz) to force it to complete a $3.5 billion deal to buy U.S. tubular steel maker John Maneely Co., one of Russia’s biggest merger deals this year.
Both sides confirmed in e-mails to Reuters on Saturday that the suit had been filed and that the deal was not closed.
In an October 15 filing with the U.S. District Court for the Southern District of New York, attorneys for DBO Holdings — a unit of Carlyle — filed suit against NLMK demanding NLMK complete the deal and pay damages for backing out of the deal.
“In a series of meetings and telephone calls with the company which occurred between Oct 2 and Oct 15, NLMK’s authorized representatives stated that changed financial market conditions warranted a reduction in the purchase price or a significant restructuring of the merger transaction,” the Carlyle unit’s filing said.
“During these meetings, NLMK’s authorized representatives indicated that NLMK repudiated the merger agreement.”
For its part, NLMK said in a statement: “There have been disagreements concerning the rights and obligations of the parties under the merger agreement and at this time, NLMK has not closed the transaction.”
NLMK, majority owned by the world’s 21st richest man Vladimir Lisin, said it had retained U.S. counsel and would defend itself against the suit.
Carlyle bought John Maneely Co. in 2006 for $568 million and in August 2008 agreed to sell it to NLMK, also known as Novolipetsk Steel, for $3.53 billion. The deal amounted to 12 percent of total U.S. M&A activity in August, according to ThomsonReuters data.
The price tag of the deal is now equal to two-thirds of NLMK’s own stock market capitalization. NLMK’s share price has fallen nearly 80 percent since the deal was announced. It fell nearly 20 percent on Friday alone.
Mergermarket this week listed the John Maneely Co takeover as Russia’s second largest deal this year and, at $3.5 billion, made up the vast majority of the deal flow for the third quarter.
For 2008 it was outstripped only by billionaire Mikhail Prokhorov’s sale of his share in investment vehicle KM-Invest to business partner Vladimir Potanin in a messy divorce that left Potanin in effective control of metals giant Norilsk Nickel (GMKN.MM: Quote, Profile, Research, Stock Buzz), Mergermarket said.
“Although effective October 1, 2008, NLMK’s lenders entered into a binding agreement to provide the financing necessary to enable NLMK to consummate the merger transaction, and NLMK refused to take steps — steps entirely within its control — to draw upon that financing,” said the Carlyle unit’s filing.
On Oct 6, Reuters Loan Pricing Corp reported NLMK had increased the margin on a $2 billion one year bridge loan by 45 basis points to 145-320 points over LIBOR.
In July it arranged $1.6 billion in five-year pre-export financing, some of which was expected to finance the John Maneely Co. purchase.
NLMK did not comment on the financing arrangements for the merger in its statement.
Steel companies’ market value has been savaged in a global stock selloff that hit the makers of construction inputs harder than others, largely on fears that declining real estate prices and lower economic activity would hit demand for their products.
If the John Maneely Co. deal fails it will not be the first time a Russian metals tycoon has withdrawn from new markets abroad because of the global credit crisis.
Aluminum tycoon Oleg Deripaska, listed by Forbes as Russia’s richest man, this month sold stakes in German construction giant Hochtief (HOTG.DE: Quote, Profile, Research, Stock Buzz) and handed a stake in Canada’s Magna (MGa.TO: Quote, Profile, Research, Stock Buzz) to creditors.
(Reporting by Melissa Akin; Editing by Jon Boyle)