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Mittal-Arcelor agree marriage leaving Russians in the cold

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June 27, 2006

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PARIS: Mittal Steel and Arcelor on Monday began a campaign to convince shareholders to back their dramatic weekend deal creating the world’s biggest steel company but leaving the Russians in the cold.

Arcelor’s acceptance of Mittal’s 27-billion-euro (34-billion-dollar) takeover offer on Sunday ended a bitter five-month battle between the steel titans. The Arcelor defence has pushed up the value of the terms by about 40 percent.

The deal, reached after a marathon meeting of Arcelor’s board in Luxembourg, would create a steelmaker three times bigger than its nearest rival. But it would also put paid to a rival bid by Severstal, a Russian company which the Moscow press on Monday lamented had been used by Arcelor managers “as a battering ram in bargaining with Lakshmi Mittal,” the Indian head of Mittal Steel.

Arcelor and Mittal executives were due later Monday to give a press conference in Luxembourg outlining to the media and to shareholders why their plan is the best way forward for both companies.

Sources said the price offered by Mittal per share in a mix of cash and shares was 40.4 euros, more than 40 percent higher than Mittal’s original offer launched in January. Arcelor shareholders would thus profit handsomely from the deal. But the agreement cannot be implemented until they formally vote to accept it.

The new group, to be known as Arcelor-Mittal, would be owned 50.6 percent by Arcelor shareholders and 49.4 percent by those of Mittal and wold be listed on the New York, Paris, Madrid, Amsterdam, Brussels and Luxembourg stock exchanges.

In a short statement Sunday night, Mittal said: “We have paid a fair price for what is a very good business ... The two companies have always been focused on consolidation as a means of driving creation.”

The Arcelor-Mittal marriage would create a global steel-producing champion, with 320,000 employees, controlling about 10 percent of the market and turning

out 116 million tonnes of steel a year, three times that of its nearest rival, Nippon Steel of Japan.

The partnership deal amounts to a stunning personal victory for the Mittal founder and chairman, 55-year-old Lakshmi Mittal, who in the past five months has confronted bitter rejection as well as some stinging comments from Arcelor executives who were fiercely hostile to the proposal at the outset.

Arcelor chief executive Guy Dolle at one point described the offer as having been made with “Monopoly money” and later denigrated Mittal’s products: “They make eau de Cologne, we make perfume.” The bid also sparked objections by politicians in Luxembourg, France and Spain, where Arcelor is active and where it was feared a combined entity would lead to job cuts. Mittal insisted Sunday the new deal with Mittal would not lead to job losses.

Struggling to fend off persistent advances from Rotterdam-based Mittal Steel, currently the world’s largest producer, Arcelor management late last month announced plans to merge with Severstal. That deal was seen by analysts as a bid to thwart the Mittal offer. But it raised strong objections from a block of Arcelor shareholders who feared it would give the Severstal chairman, Russian billionaire Alexei Mordashov, too much power.

The Russian firm said Sunday that, in light of the “legal agreement” it has with Arcelor, it was studying “all its options.” The Russian press was scathing Monday in its reaction to the planned Mittal-Arcelor deal.

“By courting both Mordashov and Mittal, the Arcelor management completed a brilliant operation that boosted the deal’s final value and forced the unyielding Indian to pay up and agree to some important compromises,” the Nezavisimaya Gazeta wrote.

“By loudly advertising a possible merger with Severstal, Arcelor managers effectively used Mordashov as a battering ram in bargaining with Lakshmi Mittal, who tried a hostile takeover of Arcelor,” the daily said.

Mittal Steel, which has risen from modest beginnings in India 30 years ago and has built its success on carefully-judged acquisitions, is mainly active in eastern Europe and North America. Arcelor concentrates on western Europe and Latin America.

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