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26 Jun, 2006 07:32

Arcelor agrees takeover by Mittal to create steel giant

Arcelor agrees takeover by Mittal to create steel giant

Steelmaker Arcelor has yielded to Indian suitor Mittal Steel in a deal building what would be the world’s largest industry giant. It’s another obstacle to a deal with Russia’s Severstal, ending more than five months of lobbying, speculation, shareholder d

After a marathon board meeting, Arcelor announced it would put a plan to shareholders to merge with Mittal, the world’s largest steelmaker. Arcelor's board will recommend a new offer from Mittal Steel, bettered this time with a ten percent premium for its cash-and-stock offer.

Mittal first bid for the European steelmaker in January and was rejected.  Subsequently, it was revised and rejected again as Arcelor sought to fend off the suit. In May, Arcelor announced a merger proposal which would have seen it buy Russian steelmaker Severstal, with Severstal owner Aleksey Mordashov taking a 32  percent stake in the merged group.

This proposal was watered down with Mordashov agreeing to reduce his stake to 25 percent, and a proposed share buyback was shelved as shareholder discontent mounted. Legal action loomed. 

Mittal continued the pressure, and in the week leading up to Sunday’s board meeting, continued to make ground as Arcelor pushed on for an increased price.

They won it eventually as Mittal agreed on 40.4 euros per share for all of the company, a 43 percent increase on its January offer, and worth 26.9 billion euros.  Lakshmi Mittal would own 43.4 percent of the merged company and become non-executive president.

The company would be at least three times larger than its nearest rival, with plants on four continents.  The proposed deal’s announcement said Severstal would have a privileged status with the new company, and that joint ventures would continue. A subsequent statement from Severstal affirmed it had a legally-binding merger agreement, and was reviewing its options.

In response to the latest deal, Severstal said it was ready to improve its offer. The company was “deeply surprised” that Arcelor’s board had not invited Severstal representatives to participate in talks on the Mittal merger.

Severstal believes the deal could be reversed on the grounds that Arcelor has legal obligations towards the Russian company as part of an earlier understanding. If the merger between Arcelor and Mittal goes through, Arcelor will have to pay a penalty of 130 million euros to Severstal.