Mittal Wins Bidding Battle for Arcelor Tie-Up

After the European steel giant Arcelor announced last month it was seeking a merger with Russian steel maker Severstal to combat a hostile bid from rival Mittal Steel, Mittal increased its bid, creating an offer that Arcelor apparently could not refuse.

"We came to the conclusion that Mittal's offer was a better offer than the Severstal proposal," Arcelor chairman Joseph Kinsch said on Sunday after a nine-hour Arcelor board meeting.

According to Kinsch, the new steel behemoth will be known as Arcelor-Mittal, and will be based on Arcelor's business model.

In a short statement Sunday night, Mittal said: "We have paid a fair price for what is a very good business ... The two companies have always been focused on consolidation as a means of driving creation."

Playing tug-of-war

Arcelor directors had also considered an alliance proposal from Russian steel producer Severstal. But Kinsch said the board gave the nod to Mittal after it improved its offer by 10 percent. Mittal said the increase was more like 7 percent. Mittal's previous proposal valued Arcelor at about 25.8 billion euros ($32.3 billion).

Arcelor said in a statement that there would be no job losses at Arcelor's European plants. The group created under the merger would be owned 50.6 percent by Arcelor shareholders and 49.4 percent by those of Mittal. The statement said the Arcelor board considered that in the long term the European steelmaker would absorb Mittal Steel.

Arcelor-Mittal will be traded on the New York, Paris, Madrid, Amsterdam, Brussels and Luxembourg stock exchanges. Arcelor shareholders will be offered a combination of shares (69 percent of the offer) and cash (31 percent).

A surprise for Russians

Severstal said Sunday it was "very surprised" by the announcement.

"We have an agreement to merge that ties us to the board of directors of Arcelor ... We are very surprised that the board did not invite us to discuss our revised offer, and did not give use the opportunity to respond, as we had requested," the company said in a statement.

Severstal, run by Russian billionaire Alexei Mordashov, and Arcelor announced with great fanfare on May 26 that the two companies would merge. The Russian firm said Sunday that, in light of the "legal agreement" it has with Arcelor, it was studying "all its options."

A marriage of steel

Luxembourg Economy Minister Jeannot Krecke said directors would now recommend that Arcelor shareholders, who are to gather June 30, accept the Mittal offer.

"The (Arcelor) board made a recommendation in favor of Mittal Steel," Krecke said, adding that the headquarters of the merged company would remain in Luxembourg, where Arcelor is based and which has a 5.6 percent stake in the group.

An Arcelor-Mittal marriage would create a global steel-producing champion, with 320,000 employees, controlling about 10 percent of the market and turning out 116 million tons of steel a year, three times that of its nearest rival.

A personal victory

The partnership deal amounts to a stunning personal victory for the Mittal founder and chairman, 55-year-old Lakshmi Mittal, who in the past five months has confronted bitter rejection as well as some stinging comments from Arcelor executives who were fiercely hostile to the proposal at the outset.

Arcelor executives had been sharply dismissive of Mittal's initial offer, announced in January at 28.21 euros a share and later raised to 37.74, and vowed that it would never go through.

Arcelor Chief Executive Guy Dolle at one point described the offer as having been made with "Monopoly money" and later denigrated Mittal's products: "They make eau de Cologne, we make perfume."

Two bidders

The bid also sparked objections by politicians in Luxembourg, France and Spain, where Arcelor is active and where it was feared a combined entity would lead to job cuts. Lakshmi Mittal, however, has denied that his initiative would lead to job losses.

Struggling to fend off persistent advances from Rotterdam-based Mittal Steel, the world's largest producer, Arcelor management late last month announced plans to merge with Severstal. That deal was seen by analysts as a bid to thwart the Mittal offer. But it raised strong objections from a block of Arcelor shareholders who feared it would give Severstal chairman Mordashov too much power. Severstal last week sought to allay such concerns by reducing Mordashov's stake in a combined company, but by then Arcelor and Mittal representatives had begun to talk.

Mittal Steel, which has risen from modest beginnings in India 30 years ago and has built its success on carefully-judged acquisitions, is mainly active in eastern Europe and North America while Arcelor concentrates on western Europe and Latin America.