Mittal and Arcelor to Merge

123jump.com Staff
25 Jun, 2006
New York City

Arcelor board, after defending itself from Mittal Steel for more than five months, agreed to recommend its offer to shareholders. The combined company will be called Arcelor Mittal and will be headquarted in Luxembourg. Severstal will be paid 140 million euros break-up fee. The combined company will have $70 billion in revenue and 335,000 employees. Arcelor Mittal will be three times larger than its nearest rival Nippon Steel. A new round of mergeres in steel industry are likely.

Arcelor board finally relented and agreed to recommend revised Mittal Steel offer. After five months of defending a hostile offer from Mittal Steel ((MT)), Arcelor debated merits of two proposals for nine hours before recommending the Mittal Steel revised offer by 14%. Management had proposed to merge with the Russian company, Severstal.

The new company will be called Arcelor Mittal and will be based in Luxembourg. Mittal Steel founder, Lakshmi Niwas Mittal, will be the president of the combined company and Joseph Kinsch, Chairman of Arcelor, will be the chairman of the combined company. Mr. Mittal will become the chairman of the board if Mr. Kinsch, 73 years old, retires before three-year term expires. Mittal family will control 43.6% of the combined company down from 45% in the previous proposal.

According to the source, the revised bid values the European steelmaker at 40.41 euro a share, 15% above the last traded price on Thursday and 45% above the initial offer in January from Mittal Steel. The bid includes 12.55 euro cash and 13 shares of Mittal Steel for every 12 shares of Arcelor. Mittal Steel revised bid will be 9 billion euros higher than the initial offer in January. In the combined company all shareholders will have same class of shares. Mittal holds super-voting shares in Mittal Steel that gives Mittal family ten to one power in voting.

The combined company board will consists of eighteen members, six members each from Arcelor and Mittal Steel, three members representing Luxembourg government and three members representing employees.

Arcelor will have to pay a break-up fee of 140 million euros to Severstal, a Russian company, if the deal with Mittal Steel is accepted by shareholders. The combined company will decide the future of Dofasco, recent Canadian company acquisition by Arcelor. Arcelor shareholder meeting on June 30th will decide the final fate of the board’s proposal. At that meeting more than 50% shareholders must vote against the Severstal deal to stop it or two-third of shareholders must vote in favor of deal with Mittal Steel.

Mittal has said in the past that two combined companies can save one billion dollars in operations and raw materials cost. The combined company will have sales close to $70 billion and earnings of $8 billion and employ total of 335,000 around the world. Mittal has steel plants located in Eastern Europe, China, Caribbean, Mexico and Africa. Arcelor is active in Europe, Brazil and has close operating and technical relationship with Nippon Steel of Japan.

Mittal Steel was formed by Indian born founder Lakshmi Niwas Mittal. Two decades of deal making in Eastern Europe, Asia and Latin America helped Mittal to form a company that came to dominate steel making at a global level. Arcelor was formed in 2001 through a merger of steel companies in Spain, France and Luxembourg.