Moment of truth for
Mittal By Siddharth Srivastava
NEW DELHI - As a young man, Lakshmi
Mittal, now chairman of Mittal Steel Co, must have
been a difficult suitor to fend off. He refuses to
give up. His quest to create the biggest steel
conglomerate in the world took a new turn last
week when he considerably hiked his takeover bid
for competitor Arcelor SA of Luxembourg, the
world's second-largest steelmaker, after the first
offer was rejected.
Mittal Steel's new
cash-and-equity offer has an overall value of
US$33 billion, up 34% from its original bid per
share and a premium of about 7% to Arcelor's
market value on Monday. The offer, which will be
open until July, was further sweetened when Mittal
offered to drop a key family-control clause:
Mittal Steel is predominantly (88%) family-held,
but has offered to dilute the
family
interest in the merged company to 45%. In January,
Arcelor SA rejected a $22 billion hostile and
unsolicited bid by Mittal Steel, the biggest steel
company in the world.
A few analysts see
some signs of thawing at Arcelor, which initially
rejected the revised offer, though this could be
just futile prediction. "The board of directors
expressed its wish to examine Mittal Steel's
business plan ... to be able to assess the
industrial merits as well as the value of the
Mittal Steel shares offered in exchange," Arcelor
chairman Joseph Kinsch told reporters.
However, Arcelor provided no indication
about the board's thinking. "The board of
directors also reiterated the management board's
mandate to present it with all options, which are
in the interests of all stakeholders," Kinsch
said.
After the rejection of the earlier
offer, Arcelor said it "was greatly lacking in
terms of valuation and particularly inadequate as
regards corporate governance". Indeed, if Mittal
is tough, he is up against the equally difficult
Guy Dolle, Arcelor's chief executive, who has been
at the forefront of spurning Mittal. After the
Mittal bid, Dolle said Arcelor had better growth
prospects as a stand-alone company because it was
expanding outside Europe into lower-cost nations
such as Brazil. Dolle has plans to increase
Arcelor profit by at least 24% over the next three
years. He has almost doubled the company's
dividend, and Arcelor bought Canada's Dofasco for
$4.8 billion, providing it a 10% slice of the
North American market supplying steel to auto
makers such as Ford and Toyota.
Georges
Ugeux, a former managing director of the New York
Stock Exchange, said in a Bloomberg interview: "Mr
Dolle is as stubborn as Lakshmi Mittal. He's going
to be nasty, but I don't see how Mittal will
withdraw his bid."
However, the Arcelor
pursuit is much more than just a personality
clash. If Mittal Steel were to take over Arcelor,
the deal would create a giant that would produce
three and a half times as much steel as its
closest rival. Mittal-Arcelor would control more
than 10% of the world's steel production (more
than 100 million tonnes and $70 billion annual
sales), with 320,000 workers in four continents,
of whom 32,000 are in France and Luxembourg, and
three times the size of the biggest rivals
together, Nippon Steel and JFE of Japan and South
Korea's Posco.
In 2004, Mittal became the
world's largest steelmaker, overtaking Arcelor
with the acquisition of American Wilbur Ross's
International Steel Group, which enabled the
Mittal Steel Co to straddle four continents and 14
countries, with an annual production capacity of
70 million tonnes.
Arcelor has a strong
presence in Western Europe, while Mittal is in 16
countries in Eastern Europe, North America, South
Africa and Asia. The merger would thus give the
combine a hold over a much larger span. Mittal's
aim is to be able to compete and control prices
better, with demand for steel likely to be driven
by India and China over the next decade.
In an interview with a French newspaper
published on Monday, Mittal expressed confidence
that he would succeed in taking over Arcelor. "I
am convinced that, given the attractive nature of
our revised offer, we will obtain more than 50% of
the shares," he told La Tribune.
There
were also signs that some shareholders were being
won over: Francois de Rambuteau, who manages
Arcelor shares at Cholet-Dupont Gestion SA in
Paris, told Bloomberg on Tuesday, "We are
definitely seduced by this new offer ... It was
clear to everybody that the earlier offer was
insufficient. All depends now on the performance
of Mittal shares."
Since January, Mittal
has been doggedly reassuring the governments of
France, Luxembourg (biggest shareholder with
5.6%), Spain and Belgium (which holds 2.4%),
launching his bid only after doing so. Detailed
documents will be circulated for clearance by
financial regulators in these countries within two
weeks. According to reports on Tuesday morning,
the Spanish stock-market regulator has cleared the
offer.
Most observers seemed to agree that
the new offer improved the chances of the bid
going through, although the size of the increase
raised some eyebrows. The Independent said: "The
increase in the value of the offer is so striking,
it almost smacks of desperation; it hints that
Mittal doesn't just want this deal, he needs it."
And Jutta Rosenbaum, a Commerzbank
analyst, told the Financial Times: "When you look
at the higher offer by Mittal and the concessions
it is proposing on corporate governance, I think
the new offer is positive. However, I would not be
surprised if Arcelor continued to say the bid was
insufficient."
At the heart of the tussle
are nationalist sensitivities (on both sides) and
deep philosophical issues about cross-border
competition. Last week, the European Union's
ambassador to India, Francisco Da Camara Gomes,
said in New Delhi that Mittal's bid would be
decided on business grounds. "Let me assure you
that [the] issue of nationality will not have any
relevance in this context and only business and
competition considerations will be studied," he
said.
However, European nations differ.
The Luxembourg government has said it will be
guided by industrial interests and employment
considerations, not the financial aspects, a view
repeated by Belgium, which has said no decision
would be made until late June.
Employment
is a sensitive subject because the global steel
workforce has declined by about 30% every decade
since the 1970s, because of increasing
consolidation and automation, with opponents of
Mittal alleging that the company would lay off
45,000 workers in Europe.
Media reports
have suggested that Arcelor was seeking a "white
knight" to rescue it from Mittal. Possible
candidates include Russian tycoon Vladimir Lisin
and Russia's Magnitogorsk Iron and Steel Works
(MMK). Analysts have said Arcelor's willingness to
study the Mittal deal is to allow time to work out
alternatives.
Colette Neuville, head of
ADAM (Association de Defense des Actionnaires
Minoritaires), an influential French minority
shareholders group that says it speaks for 5% of
Arcelor shareholders, told Reuters recently that
"investors fear that there will be a deal in
Russia, and that the rumors [of a white knight]
are true." Neuville said Arcelor shareholders
should be able to vote on a rights issue for a
white knight, if one were proposed, at the
company's June 21 meeting, where Arcelor's planned
5 billion euro ($6.42 billion) share buyback will
be voted on. Mittal has said that a Russian
purchase would not be in the interest of
shareholders.
There are miles yet to go in
this saga, but the message from Mittal is clear:
he is willing to go the extra mile to court
Arcelor. It is now for the shareholders to decide.
Siddharth Srivastava is a New
Delhi-based journalist.
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2006 Asia Times Online Ltd. All rights reserved.
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