Russian marriage could spoil Mittal’s plans

By Lorraine Mallinder

Date: 01/06/06

European Union regulators are expected to make a final decision on Mittal Steel's 25.8 billion euro hostile bid for Arcelor next Wednesday (7 June).

For Mittal, the EU seal of approval will be no cause for celebration, following last week's announcement of a possible friendly merger between Arcelor and Russian company Seversta. But signs of agitation among Arcelor's shareholders suggest the contest is not yet over.

Observers are confident that the long-awaited green light from competition authorities, delayed by two weeks, is already a done deal, given that there is little geographical and commercial overlap between the two companies. Mittal Steel, which originally launched its hostile bid in January, had already been given clearance by stock exchanges, going on to raise its offer by 34%, and making important concessions on governance.

Arcelor revealed its trump card last week, announcing the 12 billion euro merger with Severstal, a deal which had been in the pipeline for three years. The merger would elevate the Luxembourg-based company to the position of world's largest steel company in terms of production, apparently placing it well out of Mittal Steel's reach, and valuing Arcelor shares at 44 euro apiece, significantly higher than the 37.74 euro offered by Mittal.

Stuart Fraser, investment director of European equities at UK investment fund Standard Life, which has a 0.6% stake in Arcelor, is not convinced, dubbing Arcelor's defence tactics "disingenuous". "I don't think Mittal is going to walk away. His bid is still above the current share price of Arcelor," he said. "They [Arcelor] are placing a value on their shares which is purely arbitrary. Arcelor [will] issue shares to a Russian company for 44 euro, but their shares are currently valued at 32.5 euro."

Gerard Augustin-Normand, president of Richelieu Finance, an asset management company in Paris, which has a stake in Arcelor, is equally unimpressed. "I am surprised. I don't think it's good for the shareholders. It's more of a defence than a strategic move, the last defence of Guy Dollé," he said.

Arcelor spokesperson Jean Lazar told European Voice: "We expect the deal to be through by the end of July. We don't expect problems with regulators."

Shareholders would have the opportunity to express opinions at extraordinary meetings on 21 and 28 June. One of the issues looming large is the proposed 7.6bn euro cash payout to shareholders, a sweetener offered to shareholders in the event that Mittal's bid fails, which could partly take the form of a share buyback. "If they want to pay 44 euro per share, I'll offer them mine," said Fraser.

The French government, while less vehement in its opposition to the bid than it had been earlier this year, is still concerned about certain aspects of Mittal's proposals for Arcelor. "We are having frequent discussions with Mittal's management," said Beno"t Gausseron, spokesperson for the French ministry of finance, adding, "but this kind of merger is not based on friendly relations and that can make all the difference."

A spokesperson for the Luxembourg government, which holds a 5.6% stake in Arcelor, indicated this week that it remained opposed to the Mittal bid. No stance had been adopted on the merger with Severstal.

The government of the Walloon region in Belgium is keeping an open mind on both options. Spokesperson Christopher Barzal said: "What interests us is the industrial project and the implications on employment in Belgium."

Augustin-Normand suspects shareholders will scupper Dollé's carefully hatched plans. "We knew he would do anything to escape Mittal's clutches," he said. "I think shareholders are more likely to vote for Mittal. This campaign brings us nothing."

Article reports on recent developments considering the attempts for consolidation in the global steel industry. European Union regulators were expected to make a final decision on Mittal Steel's 25.8 billion euro hostile bid for Arcelor on 7 June 2006.