Russia's OAO Severstal said on Tuesday it was disappointed that steelmaker Esmark Inc rejected its $1.24 billion takeover bid in favor of an offer from India's Essar Steel Holdings Ltd.

Essar last week agreed to raise its offer to $19 per share, $2 per share more than the Severstal bid.

Severstal's offer has the backing of the United Steelworkers union (USW), which has threatened to block a deal with Essar. The union has the right to come up with an alternative deal in the event of a takeover of Esmark.

The bid by Severstal, a mining and metals giant, has also been backed by Esmark's largest shareholder, Franklin Mutual Advisers. Franklin, which owns about 60 percent of Esmark's shares, said in a regulatory filing last week that it had tendered all of its Esmark shares into the Severstal offer because the USW opposed the Essar bid.

The USW and Franklin Mutual have not issued any statements on Essar's sweetened offer.

Last week Esmark said it had adopted a stockholder rights plan that levels the playing field among bidders.

Severstal contends that the rights plan is designed to further thwart Severstal's tender offer in favor of Essar.

The rights plan, or poison pill, is triggered if an entity or person attempts to acquire 15 percent or more of Esmark's common stock. The plan does not apply to stockholders who already own 15 percent or more. (Reporting by Euan Rocha; editing by John Wallace)

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