Arcelor Agrees to Merge with Severstal

Elena
13 Jun, 2006
New York City

Severstal''s controlling shareholder, Alexei Mordashov, will pay Arcelor 1.25 billion euros ($1.59 billion) in cash and hand over his stake in all of Severstal''s steel assets and Italian steelmaker Lucchini SpA, which Arcelor values at 11.7 billion euros ($14.7 billion).

[R]8:00AM Arcelor agreed to a merger deal with Russia’s Severstal.[/R]
Having strongly resisted Mittal''s bid since January, Arcelor agreed to a merger deal with Severstal last month that sees it swap newly issued shares for Severstal''s steel assets. Luxembourg-based Arcelor gave a value for the Severstal deal for the first time, saying in a document that its 295 million new shares were worth 13 billion euros ($16.34 billion) for a 32% stake. Severstal''s controlling shareholder, Alexei Mordashov, will pay Arcelor 1.25 billion euros ($1.59 billion) in cash and hand over his stake in all of Severstal''s steel assets and Italian steelmaker Lucchini SpA, which Arcelor values at 11.7 billion euros ($14.7 billion).

The deal will be called off if Mittal acquires more than 50% of Arcelor, the document said, and in that case Mordashov will receive a 140 million euro ($176 million) break-up fee. Mittal published a business plan, predicting strong growth even if it doesn''t manage to win the battle for Arcelor. On Monday Arcelor rejected Mittal''s revised 25.8 billion euros ($33 billion) cash-and-stock offer as inadequate and undervaluing the company. Arcelor said the Severstal merger would be more profitable than a deal with Mittal, saying its operations in Russia and South America would make up 40% of earnings and make the company more resilient to industry cycle problems. Based on 2005 results, it said earnings per ton would be nearly 30% higher than Mittal as Mittal was far more reliant on spot contracts and low-added value steel. Mittal countered criticism, saying it expected its earnings to reach $9.9 billion in 2008, more than 70% higher than 2005.


[R]7:15AM Asian stocks plunge on mounting U.S. interest rates fears.[/R]
Asian markets finished sharply lower. Asian stocks, being until early May among the world''s top performers this year, were hit by a sell-off last Thursday due to worries that higher U.S. rates would spark a global slowdown. Japan’s Nikkei 225 Index plunged 4.14% to 14218.60, the lowest finish since Nov. 16, 2005 and its biggest percentage loss in a single day since May 10, 2004. The index has plummeted 11.75% since the beginning of this year. Tech stocks were hit hard, as Sharp lost 7.09% and Matsushita Electric Company lost 5.54%. Kyocera plunged 5.57%. Hong Kong’s Hang Seng followed in Tokyo’s footsteps, losing 2.5% to 15234.42. Its fall intensified in the afternoon session after traders came back from the midday break to find the Nikkei had closed down 4.1%. South Korea''s Kospi Index tumbled 2.9% to 1203.86, its lowest finishing level since Nov. 1, 2005. Stocks in New Zealand and Malaysia performed better, but each shed about 0.5%. Australia''s benchmark S&P/ASX200 index dropped 2.6% to 4838.9, 10.5% lower than its record high of 5406.7, hit less than five weeks ago.


[R]6:30 AM European shares fall on global sell-off[/R]
European shares were lower in early trading. In London, the FTSE 100 shed 1.6% to 5,533.5, following declines across the mining sector. The German Xetra Dax fell 1.7% at 5,301.3 and the French CAC 40 dropped 1.9% to 4,637.7. The decline was broadly based with all the main Eurozone sectors trading lower and only a few individual stocks gaining slightly. On the corporate front, Schering was the only gainer on the German market, up 0.6% as the struggle for control of the German healthcare group continued with rivals Bayer and Merck fighting in an unprecedented takeover battle which has immobilized investors in Germany. Vinci was up 1.45 and led the FTSE Eurofirst 300 on bid hopes after reports of interest from rival French utility Veolia Environnement, which was down 2.7%.

Light sweet crude oil for July fell 32 cents to $70.04 a barrel by 0334 GMT, extending Monday''s $1.27 plunge. London Brent shed 31 cents to $68.62 a barrel. Gold bullion opened Tuesday at a bid price of $593.70 a troy ounce, down from $608.70 late Monday. The euro hit a one-month low of $1.2558, but steadied at $1.2590 by 0954 GMT. The dollar also hit a six-week high against the yen at 114.77 yen, before easing to 114.10 yen, steady from the U.S. close. The British pound stood at $1.8435 versus the dollar.