Mittal, Arcelor finally tie the knot

NEW DELHI: First, the tablestakes. For those who came in late, here’s what the deal is all about: Mittal Steel's final bid represents a 49% improvement over its original offer.

The offer gives Arcelor shareholders the option of exchanging each share of theirs for e12.55 in cash plus 1.084 shares of Mittal Steel.

Alternatively, Arcelor shareholders have the option of subscribing to a pure cash offer of e40.4 per share as well as pure share swap offer in the ratio of 11 Mittal Steel shares for 7 Arcelor shares. This is subject to condition that 69% of the offer be in the form of exchange of shares and a maximum of 31% in the form of cash.

This means that the total cash outgo for Mittal Steel will be around e7.8bn-8bn. That’s not the real story — the big fight begins now. After five months of “going after the bride”, as LN Mittal puts it, it’s time to make the marriage work. And in this mega-deal, there’s no time for a long honeymoon.

Sample this: The feisty CEO of Arcelor Guy Dolle — the man who brought racial undertones to the Mittal-Arcelor fight — is on his way out. The merger is set to claim its first casualty. Dolle, who waged an acrimonious battle against Mittal Steel's takeover bid, has seen the writing on the wall: it’s Mittal, in all caps.

He has asked for the appointment of a new chief executive in his place. It is not clear when he will step down and he has said that he will assist in the integration process. In a sense, the departure of Dolle — the man who called Mittal’s steel as cologne to Arcelor’s (high quality steel) perfume — perhaps signals the next big challenge for Mittals.

Integration, with a capital I. But Mr Dolle's decision not to remain for a long period typifies the integration issues that the merger will face after five months of vigorous warfare between the two largest steel companies in the world.

Addressing a press conference in Luxembourg on Monday, Arcelor chairman Leonard Kinsch admitted that the integration will be “difficult” and a “big challenge”.

Mr Dolle had described Mittal Steel as “the company full of Indians” and had made famous phrases such as “monkey money” — Mittal Steel, it was hinted, would pay for Arcelor in monkey money — a derogatory French term that means worthlessness. It has been agreed that his successor will be nominated by Arcelor.

In another instance of the integration issues facing the companies, Arcelor employees, who own around 1.4% in the company, are expected to vote in favour of the SeverStal merger proposal in the shareholders meeting on June 30.

Meanwhile, Arcelor and Mittal Steel continue to differ over the fate of Canadian steel maker Dofasco, bought by Arcelor earlier this year. Arcelor has made it clear it wants Dofasco to be part of Arcelor-Mittal whereas Mittal Steel had entered into an agreement with Thyssen Krupp to sell Dofasco to it, post-acquisition.

Says Mittal Steel president and CFO, Aditya Mittal: “We have agreed to disagree on the future of Dofasco.” Integration issues and other differences, however, did little to dim Mittal’s joy at acquiring Arcelor after five months of relentless pursuit. “It has taken me five months to persuade the bride.

This is a seminal deal for the steel industry and the new company will be the undisputed leader. I have the highest respect for the Arcelor management and that respect remains undiminished,” said Mr Mittal at Arcelor's headquarters in Luxembourg.

In another development, Russian steelmaker SeverStal,whom Arcelor had roped in as a white knight, today announced its intention to make a revised offer for Arcelor, for the company's shareholders to consider when they meet on June 30.

In response, this is what Arcelor chairman Joseph Kinsch had to say: "If a new offer for Arcelor was made for 100% of its capital, the Board must discuss it," He was speaking at a news conference in the company of LN Mittal.

However, the prospects of Arcelor shareholders being swayed by SeverStal are not considered bright, on account of both the high valuation that would be required and the resistance shareholders had expressed to the attempted merger with the Russian firm.

"It does look like the final chapter," said a London-based trader, even as Arcelor share price climbed up and Mittal Steel prices moved down during the day. Mr Mittal said there was no question of Mittal Steel increasing its offer price any further for Arcelor and also ruled out any possibility of a three-way merger between Mittal Steel, Arcelor, and SeverStal.

The Russian steel giant, which is miffed at having been abandoned by Arcelor at the last moment, is weighing several options that range from revising its bid for Arcelor to initiating legal damages against it.

Defending his board's decision to finally go with Mittal Steel after spurning its earlier overtures, Mr Kinsch said the substantial upward revision in Mittal Steel's final bid shows that the company was correct in rejecting the earlier bids.

The Mittal family's stake in the combined Arcelor-Mittal will be 43.5% and it has agreed to a lock-in for 5 years as well as a standstill at 45% of the combined group's share capital.

In addition, it has been agreed that out of the 18 directors on the Arcelor-Mittal board, 12 will be Arcelor representatives and six, including three independent directors, will be nominated by Mittal. The seven-member management board will consist of four Arcelor nominees and three Mittal nominees.