Mittal edges ever closer to Arcelor

LONDON: Mittal Steel said it is in “advanced” and “constructive” discussions with Arcelor, which could lead to a deal to join the world's top two steelmakers, ending a bitter five-month bid battle.
"Talks are ongoing and constructive" and some parts of the offer "in principle have been agreed," Sudhir Maheshwari, Mittal's managing director (business development and treasury) told Bloomberg.
"Mittal Steel confirms it is in advanced and constructive discussions with Arcelor which may or may not lead to a recommended transaction," a Mittal spokesman said on Friday. Sources familiar with the situation said Mittal is likely to raise its euro 23.2bn offer to win support from Arcelor’s board, which meets on Sunday to decide between Mittal's offer and an alternative deal to buy Russia's Severstal. Mittal and Arcelor together would have 10% of the global production in the fragmented industry. Arcelor declined to comment but sources said Arcelor and Mittal have not agreed on the price and corporate governance issues.

Earlier, French newspaper La Tribune reported that after 10 days of talks, the two sides just have to negotiate the final price to be paid for Arcelor after Indian-born steel magnate Lakshmi Mittal gave ground on corporate governance and strategy.

It would be a major reversal for Arcelor which had rubbished Mittal's bid, its family ownership structure and the quality of its steel since Mittal first went public in late January. The unsourced report came amid signs of eroding support among Arcelor's major shareholders for chief executive Guy Dolle's strategy.

La Tribune said the negotiations between Mittal and Arcelor focused on a price of around euro 43, slightly below the euro 44 price offered in a controversial Arcelor buyback plan. It said Arcelor's chairman Joseph Kinsch would keep his post with Lakshmi Mittal, whose family controls 87% of Mittal Steel, accepting the title of co-chairman, at least until 73-year-old Kinsch’s retirement.

Ahead of Arcelor's meeting, Mittal, Severstal and Arcelor itself all placed newspaper advertisements to woo shareholders. Financial authorities in Belgium, Luxembourg, Spain and France have suspended trading in Arcelor's shares until Monday. Mittal's shares were up 1% at e 26.2. “It seems that the core shareholders of Arcelor are looking for about euro 40 a share and ultimately it is the price game in these talks," said one trader at a US investment bank. A source familiar with the thinking of the Luxembourg government, which holds 5.6% of Arcelor stock, said: "The management will have to convince shareholders that its policy is well founded.

It is obviously having difficulty in doing so." Luxembourg prime minister Jean-Claude Juncker had initially led outspoken opposition to Mittal's takeover effort, vowing a hostile response to a hostile bid. The pan-European steel giant is the only major industrial employer headquartered in the Grand Duchy, and keeping a major corporation in Luxembourg has been a matter of prestige for the government. "Whether it's with Mittal or Severstal, what is essential is to preserve the interests of the Luxembourg government," said the source, speaking on condition of anonymity. "The Luxembourg government doesn't like hostile takeovers and would have preferred prior talks, but that occurred afterwards once or twice," the source added, stressing he was not privy to details of the latest negotiations.

Of the other largest shareholders in Arcelor, French-born businessman Romain Zaleski with 7.8% opposed a share buyback proposed by Arcelor to fend off Mittal's bid, and Spanish investor Jose Maria Aristrain, with 3.55%, has opposed the Arcelor-Severstal deal.

Colette Neuville, a shareholder activist mandated for 2.3% of the capital, has taken legal action to try to thwart Arcelor's plan to push through the Severstal merger without giving shareholders a realistic chance to vote it down. Arcelor has proposed to take over Severstal, controlled by billionaire Alexei Mordashov, to block Mittal's offer.

The deal with Severstal would originally have given Mordashov a stake of about 32%. Under pressure, Mordashov this week agreed to settle for a stake of 25%.