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Arcelor asks shareholders to accept Mittal offer

Vaiju Naravane

Volte-face over Severstal causes tremendous anger in Russia

Paris: Following the rejection of a merger with Russian steel maker Severstal by a majority of Arcelor shareholders, the Luxembourg-based company's board is now asking its shareholders to accept a share and cash offer from Mittal Steel for 25.4 billion euros ($32.3 billion).

The volte face by the Arcelor management has caused tremendous anger in Russia. The cancellation of the agreement with Severstal means that Arcelor will have to pay an estimated 140 million euros as punitive damages for breach of contract.

Once the formalities are concluded and the merger with Mittal Steel finalised, the Arcelor-Mittal group will become a giant employing 320,000 people and producing about 10 per cent of the world's steel, some 116.0 million tonnes annually.

Lakshmi Mittal has shown great tenacity and proved to be an extremely skilful negotiator. But he has also paid an extremely high price, increasing his initial 18.6 billion euro bid by almost a third.

Closure of the takeover offer by Mittal Steel for Arcelor has been extended from July 5 to July 12.

Arcelor chairman Joseph Kinsch was clearly not delighted with what has been described as an enforced marriage with Mittal Steel, one brought about by shareholder pressure. "Between the proposal from Mittal and the one from Mordashov, the supervisory board did right in recommending the Mittal offer. If Mordashov makes a bid for Arcelor, shareholders will be delighted."

However, the Russian has so far not submitted an improved bid, although he has publicly stated his intention of doing so. Mr. Kinsch said that in his opinion, the plan with Severstal had offered the best industrial strategy for Arcelor but acknowledged that financial markets had "reacted badly" and that some Arcelor shareholders had also voiced strong opposition.

He said the plan for an alliance with Severstal had not been pulled "out of a hat" but had been in gestation for some time and that a proposed deal had nearly succeeded two years ago.

In the ultimate analysis, market forces and not "economic patriotism" as propounded by the Governments of France, Luxembourg or Spain decided the fate of Arcelor.

The shareholders have been the final winners, the share value going up from 23 euros to a record 40.40 euros during the five-month long tussle for the company.

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