Battle for Arcelor down to the
wire By Siddharth Srivastava
NEW DELHI - For the shareholders of
steelmaker Arcelor SA, it could turn out to be a
choice between the devil and the deep blue sea -
that is, Lakshmi Mittal or Alexei Mordashov,
billionaires both vying to merge with the
Luxembourg-based firm in what has become one of
the biggest takeover battles in history.
It now appears that Arcelor's attempts to
stymie Mittal's hostile bid via a Russian "white
knight", Mordashov's OAO Severstal, could
boomerang, as shareholders seem more willing to
deal with a known player like Mittal than with a
comparatively nebulous entity. Indeed, the latest
news looked bright for Mittal, as the French
newspaper La Tribune reported on Friday that
Mittal and Arcelor were close to a deal that would
finally resolve the bidding war for the latter.
The paper said Mittal had made concessions
on
corporate governance and only
the final price remained to be determined.
This weekend Arcelor's board will meet for
the second time in five days to recommend to its
shareholders whether to accept a hostile takeover
offer from Mittal Steel Co or combine with OAO
Severstal to emerge as the No 1 steel company
(overtaking Mittal Steel) in the world with US$60
billion in sales and 70 million tons of
production. A presentation by Arcelor on Thursday
highlighted synergies of 590 million euros ($745.5
million) from the deal with the Russian
steelmaker.
Earlier this month Arcelor
rejected Mittal's revised cash-and-stock offer,
saying it was inadequate and undervalued the
company, though it kept the doors open for further
negotiations. Last month, Arcelor agreed to buy
Severstal (terms modified now) by swapping newly
issued shares for Severstal's steel assets, a move
that has evoked apprehension on the part of some
shareholders. The 6.5 billion euro share-buyback
plan is seen as a defensive move against Lakshmi
Mittal, who has ruled out a three-way tie-up among
Mittal Steel, Arcelor and Severstal.
The
deal now being promoted by Arcelor management
would make Mordashov the biggest investor in the
new company. Arcelor, in turn, would control
production of the third-biggest steel producer in
Russia, one of the world's fastest-growing
economies.
However, discontent has been
brewing among Arcelor's main shareholders about
handing over the company to a relatively unknown
and very ambitious Russian oligarch. The balance
may have tilted decisively against Arcelor's
gambit in recent days after a virulent attack by
Jose Maria Aristrain, doyen of Spain's steel
dynasty, who holds a 3.7% stake in the French-led
group. Breaking his long silence, Aristrain called
for the exit of Arcelor's "old regime" executives,
accusing them of ignoring shareholders' interests.
In comments to the Financial Times, Aristrain said
he thought the idea of a Mittal-Arcelor union was
"a good proposition". However, Aristrain thought
Mittal should increase his bid to "around 42-43
euros" a share.
To complicate matters
further, the French Association of the Defense of
Minority Shareholders (ADAM), representing 2.7% of
Arcelor's capital, has complained to a Luxembourg
court that the voting procedure was unfair and
favored those pushing the deal. The court is to
decide next Thursday whether to cancel the
shareholder meeting scheduled for the following
day, June 30.
There has been anger in
Luxembourg and the Walloon region of Belgium,
which together hold close to a 9% stake. They are
unhappy with the Arcelor board's strategy of
increasing Arcelor's debt from 5 billion euros to
nearer 12 billion euros to finance a share buyback
with no aim other than checkmating Mittal, in what
many now see as a clash of egos between Lakshmi
Mittal and Arcelor's chief executive, Guy Dolle.
The two avoided each other at a recent conference
in New York.
In a bid to allay shareholder
apprehensions, Mordashov, who owns 90% of
Severstal, has sweetened his merger terms by
reducing his stake in a Severstal-Arcelor
combination to 25%, from 32%, in exchange for
scrapping a cash contribution of 1.25 billion
euros to Arcelor. He also offered to give up
rights to form a strategic committee within
Arcelor's board that would recommend new
acquisitions.
Mordashov further invited
120 key Arcelor shareholders to visit his rambling
Soviet-era plant in Cherepovets to dispel their
fear of the unknown. The amended deal would,
however, still see Mordashov become Arcelor's
biggest shareholder with considerable sway over
strategic matters. French financier Romain Zaleski
is currently the largest shareholder in Arcelor,
with a 7.8% stake.
Colette Neuville, head
of ADAM, has said she was skeptical of Mordashov's
intentions. "This proposal reduces him to a normal
shareholder, but will he stay there? I don't
believe that he has dropped his ambition,
overnight, to take over control of Arcelor," she
said.
Severstal's revised terms have
turned the takeover battle into an auction that
could compel Mittal to sweeten the deal further
before next month's deadline, though many
observers have described Mittal's most recent
offer as extremely generous and Lakshmi Mittal
himself has said he would not raise the bid
further. Mittal upped its offer for Arcelor by 34%
on May 19 from its original bid January 27.
As part of the new terms, chairman Mittal
agreed to eliminate his preferential voting rights
in the combined company. The current
cash-and-shares offer, valued at 24 billion euros,
closes on July 5. Mittal's bid was valued at 37.74
euros ($46.5) per share when it was announced last
month.
Dolle said this week he expects
Mittal to improve his takeover bid. There is
speculation that Mittal might raise the offer by 3
billion euros. According to some reports, Mittal
is looking to raise the offer to 45 euros per
share ($56.5), though some analysts have said the
momentum is in favor of Mittal now and he may not
need to do so, given shareholder apprehensions. In
January Arcelor rejected a 17.5-billion-euro
unsolicited, hostile bid by Mittal.
This
Tuesday Mittal denied that he would raise his
offer for Arcelor. Speaking at a steel conference
in New York, he also said a Mittal-Arcelor merger
would go a long way in consolidating the global
steel industry. "Both the companies are
complementary to each other. They have a lot of
synergies. I think no other company can match
Mittal Steel and Arcelor for the future of the
industry. We need more companies to consolidate,"
Mittal said.
Mittal told the Wall Street
Journal that Arcelor's decision to cancel the
shareholders' meeting on Monday made him
increasingly confident he could convince Arcelor
shareholders they should back his offer and
pressure management to drop its resistance.
However, some analysts have suggested that
Mittal will improve on his offer if only to make
the deal friendly. "At this point, it looks like
Arcelor will end up merging with Mittal," Edmund
Shing of Kepler Equities told Dow Jones on
Wednesday. "Mordashov's willingness to take a 25%
stake is proof he sees the [Arcelor-Severstal
merger proposal] slipping away."
A merger
with Severstal would have represented a "Pyrrhic
victory" for Dolle because shareholders were
unhappy with the deal and could force him out,
Shing said.
Mittal has to "sweeten its
offer for Arcelor and further improve its
corporate governance", Alain William, an ING
analyst in Paris, said in a report this week
Reports suggest that Mittal has been
steadily gaining sympathy over the past five
months, even in France, where business leader
Francois Pinault said he had extended his support
to show that not all French people are party to
the "xenophobic, not to say racist" response
initially shown by the Paris elite to an alien
Asian (Lakshmi Mittal hails from India). Though
New Delhi has spoken in favor of Mittal in the
past, the government has now gone on record to say
that the merger is a matter that ultimately rests
with the shareholders.
On Wednesday,
European regulators suspended trading of Arcelor
shares until further notice because of uncertainty
about its future. The purchase of Severstal can be
blocked if at least half the company's shareholder
base votes against it. But matters are coming down
to the wire: the Arcelor shareholders' meeting
scheduled for next Friday will decide the issue,
unless canceled because of litigation. And at this
writing, Arcelor could still go to Mittal, merge
with Severstal, or neither.
Siddharth Srivastava is a New
Delhi-based journalist.
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2006 Asia Times Online Ltd. All rights reserved.
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