Russian Suitor Backs Out Of Carlyle Exit

The Carlyle Group will begrudgingly have to hold on to steel pipe maker John Maneely Co. longer than intended after a $3.53 billion deal was called off by Moscow-based Novolipetsk Steel.

On Nov. 17, steel producer Novolipetsk Steel announced it had “terminated the agreement and plan of merger” with DBO Holdings Inc., John Maneely’s holding company. It also cancelled the $2 billion bridge loan commitment, provided by Deutsche Bank, Merrill Lynch, and Societe Generale, that was to be used to help finance the deal. The busted deal was several weeks in the making. On Oct. 15, DBO Holdings filed suit against Novolipetsk Steel with the U.S. District Court for the Southern District of New York, alleging that the buyer had breached its obligations to close the merger, which was originally scheduled for completion by Sept. 29.

Calls to The Carlyle Group and Novolipetsk Steel were not returned. A representative of John Maneely Co. declined to comment. The Carlyle Group purchased John Maneely in March 2006 for $568 million, then combined it with Atlas Tube Inc. in December of that year in a deal valued at about $1.5 billion. In the twelve months ended June 30, 2008, the combined entity generated revenue of $2.4 billion and EBITDA of $485 million.

In its lawsuit DBO Holdings said: “Although effective Oct. 1, 2008, NLMK’s [Novolipetsk Steel] lenders entered into a binding agreement to provide the financing necessary to enable NLMK to consummate the merger transaction, NLMK refused to take steps—steps entirely within its control—to draw upon that financing.” For its part, Novolipetsk Steel pledged to “defend [itself] vigorously against the claims” brought against it.

DBO Holdings also said in its suit that Novolipetsk Steel sought to lower the purchase price or otherwise restructure the merger transaction in light of negative market conditions in the two weeks following the Sept. 29 consummation deadline. It’s a tactic that worked for another of Novolipetsk Steel’s deals. On Oct. 31, amid falling stock prices and a reduction in steel demand, the Russian company acquired steel producer Beta Steel Corp. for $350 million after originally agreeing to pay $400 million for the Portage, Ind.-based company in September.

This latest broken deal follows a string of similar bust-ups since the credit crisis took hold in the summer of 2007. Another ongoing example: the battle between Apollo Management and chemical manufacturer Huntsman Corp., where Huntsman has accused Apollo Management and its affiliate, Hexion Specialty Chemicals, of attempting to scuttle a 16-month old deal to acquire Huntsman for $10.6 billion.

In the case John Maneely, Carlyle Group said it will continue to treat the Beachwood, Ohio-based steel maker as any other growing portfolio company. “We see many opportunities to continue building and strengthening the business,” said Daniel Pryor, a managing director with The Carlyle Group, in a statement.

In October, ratings agency Standard & Poors said upheld its ‘B+’ corporate credit rating on DBO Holdings, noting it would also keep it on CreditWatch with positive implications. That rating could change, however, as it was partially hinged on the fact that, though uncertain, the acquisition agreement between John Maneely and Novolipetsk Steel was still intact.

John Maneely operates eleven plants in five U.S. states and one Canadian province and has a total production capacity of more than 3 million tons of steel pipe and tube per year.