LONDON, 26 June 2006 — “What Lakshmi Mittal wants, Lakshmi Mittal gets,” stressed one prominent Indian businessman in London.
In the specific case of Arcelor, the Luxembourg-based steel giant, it seems that the Indian tycoon got what he wanted albeit with a few caveats.
It seems that Mittal through sheer determination, staying power and attrition has finally worn down any semblance of an opposition by the board of directors of Arcelor, who at an extraordinary meeting yesterday in Luxembourg, recommended a “merger in principle” between European steel giant Arcelor SA and its Indian-owned rival Mittal Steel Company to create Mittal Arcelor, the world’s largest steelmaker.
The agreement will be put to shareholders of both entities on June 30 for final approval, which will be on the basis of a simple majority.
Arcelor directors have accepted a partnership offer from Mittal Steel, the Luxembourg economy minister and a spokesman for Mittal Steel said yesterday.
“The (Arcelor) board made a recommendation in favor of Mittal Steel,” Economy Minister Jeannot Krecke told a press conference following a nine-hour Arcelor board meeting.
The headquarters and the decision-making center of the merged company would remain in Luxembourg, where Arcelor is based, he added. The state of Luxembourg has a 5.6 percent stake in Arcelor.
The proposed merger is more of a victory for Lakshmi Mittal, the irrepressible Indian steel tycoon than for his detractors in the European Union who were opposed to the deal.
To be fair to Mittal, more than a third of the Arcelor board have been in favor of a takeover by Mittal from the onset of this corporate saga. They seemed to be wary of a merger with a Russian oligarch taking over a major European industrial company.
The Times of India, and two Indian TV channels, NDTV Profit and CNBC TV-18, all quoting unnamed sources, had earlier said that the merger is a done deal, although the agreement more accurately stressed that the two entities have decided to merge “in principle” to form Mittal Arcelor, in which Mittal would have a 45 percent stake, the single largest stake, but much reduced than previously envisaged.
The Indian government has hitherto refrained from commenting on the takeover battle for fear of “politicizing” what is essentially a corporate issue. The Indian High Commission in London still refuses to comment on the deal.
Perhaps because the takeover battle has from the start been steeped in the politics of alleged chauvinism, protectionism and oligarchy.
The Mittal Arcelor deal means that an alternative proposed deal between Arcelor and Russian steelmaker Severstal has fallen through, although Arcelor under the agreement would also pay 130 million euros to Severstal in compensation. The Arcelor merger proposal with Severstal included a plan for Arcelor to buy back up to a quarter of its shares.
The deal with Mittal became more likely last week when Arcelor board members rejected the proposed buy-back arrangement, stressing that it would dilute ownership of the company.
Some details of the merger agreement have emerged — Lakshmi Mittal and Joseph Kinch would be co-chairmen of the new entity. Mittal seems to have conceded “substantial” ground on corporate governance and transparency issues. The board of directors of the new entity, for instance, will have a majority of Arcelor appointees. The latest cash-and-stock offer by Mittal is worth 25.8 billion euros ($33 billion), with Arcelor shares valued at 43 euros per share, which is not far from the official self-tender valuation of 44 euros per share by Arcelor itself. Previous bids were dismissed by the Arcelor board as “inadequate” and undervalued the company. Arcelor perhaps ironically received a major boost in its share price, which some say is inflated, since Mittal launched his hostile takeover bid in January. Its share price on the Paris Stock Exchange last Tuesday surged to 35.02 euros ($43.78) compared to 20.95 euros ($26.19) at year-end 2005. Trading in Arcelor shares was suspended as officials demanded to know more about the details of the proposed Mittal and Severstal offers. Trading is due to start again today.
Mittal’s strategy of agreeing a reduced stake could bear fruits later, when he could down the line launch another bid to increase his stake. Under the agreement, according to the reports, Mittal Arcelor would also keep control of Canadian steelmaker Dofasco Inc., which was recently acquired by Arcelor. Mittal Arcelor, once the merger is completed, would become the world’s largest steel manufacturer accounting for 10 percent of world steel output; 55 billion euros in sales; and employing more than 320,000 people in the EU, North America, India, South Africa, and Eastern Europe.
The last say on the merger agreement, however, could come from the bureaucrats in Brussels and Luxembourg as they scrutinize the proposed new deal under existing European competition rules.
