UPDATE 3-Russia's Severstal makes rival bid for Esmark

(Recasts, adds Esmark, Severstal, USW comments, adds byline)

By Steve James

NEW YORK, May 20 (Reuters) - Russia's OAO Severstal (CHMF.MM: Quote, Profile, Research)(CHMFq.L: Quote, Profile, Research) made a rival bid for U.S. steel company Esmark Inc (ESMK.O: Quote, Profile, Research) on Tuesday, days after the steelworkers' union threatened to block an offer from India's Essar Steel Holdings for Esmark.

Severstal, a mining and metals company, said its proposal was worth $1.24 billion and was backed by the United Steelworkers union (USW). Under an agreement with the company, the union can come up with an alternative deal.

Chicago-based Esmark, which acquired U.S. steelmaker Wheeling-Pittsburgh last year, valued the bid at $1.1 billion.

After the news, Esmark shares closed up 17 percent, or $2.60, at $18 on Nasdaq.

Bill Keegan, a spokesman for Esmark, said the company was reviewing an offer letter from Severstal. He said the offer was similar to one from Essar -- $17 per share and the assumption of $400 million debt.

Keegan said Esmark's material agreement with Essar "is now subject to a competing bid, which we will entertain."

"Essar and Severstal are both excellent global companies and Esmark CEO Jim Bouchard will be reaching out to Severstal (International CEO) Gregory Mason to discuss the offer and how to provide the greatest value for shareholders and the future of the Ohio Valley," he said. Wheeling-Pittsburgh is a big employer in the steel-making area.