Arcelor ownership battle

25 April 2008

Luxembourg: The Board of Arcelor, the world's largest steel producer, announced plans to takeover Severstal, Russia's largest steel company on May 29. If the deal is approved by Arcelor's shareholders, it will see Alexy Mordashov, Sverstal's controlling shareholder acquire a 32% interest in the new group.

Under the terms of the deal, this would give Mr Mordashov six places on Arcelor's 18-seat Board. However, it has been agreed that Mr Mordashov will vote his shares in accordance with the Board's wishes for the first four years following the merger, and that he will not sell any Arcelor shares for five years.

This would effectively block Mittal Steel from acquiring Arcelor, which it has been trying to do since 29 January through a hostile bid. Mittal increased its offer on 21 May, but this was followed five days later by Arcelor's announcement of the proposed Severstal merger.

The revised Mittal bid offers Arcelor shareholders a choice of cash, shares or a mixture of the two. The cash offer is for € 37.74 (US$ 48.68) per share, but the pure share swap - 17 Mittal shares for 12 Arcelor shares - would value the company at € 41.5 (US$ 53.5) per share, based on Mittal's average share price in May.

The Severstal deal values Arcelor's shares at € 44 (US$ 56.8) each. It comprises Mr Mordashov's controlling interest in Severstal, along with his minority interest in Italian producer Lucchini and with € 1.25 billion (US$ 1.61 billion) in cash. In exchange he would receive 32% of the enlarged group, made up of 295 million newly issued shares. Arcelor would then return € 7.6 billion (US$ 9.8 billion) to shareholders in dividends. The acquisition requires approval from shareholders representing more than 50% of Arcelor's voting rights.

Either merger would create a clear number one in the steel industry. If the Severstal deal goes ahead, the enlarged group will have annual revenues of about € 46 billion (US$ 59 billion) and production capacity of 70 million tonnes. The Mittal acquisition would create a larger group, with revenues of € 69 billion (US$ 89 billion) and production capacity of 91 million tonnes. According to Arcelor, world steel production last year was 1.13 billion tonnes.

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