Arcelor plans to sell to Russian company

May 26, 2006|By NEW YORK TIMES NEWS SERVICE

LONDON --Arcelor Group, struggling to fend off a hostile takeover bid from the world's largest steel producer, is planning to sell one-third of the company to a Russian steel company controlled by the billionaire Aleksei Mordashov, according to executives involved in the negotiations.

The board of Arcelor, based in Luxembourg, met last night to approve the deal, which would turn the Russian company, Severstal, into Arcelor's largest shareholder. The purchase, which may be announced this morning, would then be put to a shareholder vote.

Under the terms of the deal, Mordashov would acquire the stake in the company by swapping shares of Severstal, while Arcelor would issue new shares for him. An executive said Mordashov would be paying a "substantial" premium to Arcelor's stock price and to the 25.8 billion euro ($33 billion) hostile bid from Mittal Steel, owner of the steel plant at Sparrows Point. Based on yesterday's closing price, a third of Arcelor would be worth 7.3 billion euros ($9.34 billion).

The move appeared to be a last-minute attempt by Arcelor to thwart Mittal's takeover ambitions. Arcelor's management has refused to meet with executives at Mittal since Mittal's first unsolicited buyout offer in January. Arcelor has criticized Mittal's corporate governance, the quality of its steel and the company's roots. Mittal is based in London and Rotterdam, though its founder, Lakshmi N. Mittal, was born in India.

Last week, Mittal increased its offer for Arcelor 34 percent and said it would take the bid directly to shareholders. Arcelor's management said then that it would look at the revised Mittal offer when regulators approved it, expected the week after next.

Mittal Steel said in a statement last night that it was concerned that Arcelor was attempting a "dilutive transaction" that would thwart its deal, and expressed concern about corporate governance at the company.

Wilbur L. Ross Jr., the American buyout specialist and a member of Mittal's board, said Arcelor shareholders should have the chance to choose whether they "prefer Mr. Mordashov or Mr. Mittal." Arcelor's future should be decided by shareholders, "not by management meeting in a broom closet," he said.

Severstal is the most internationally inclined of Russia's steelmakers, with mills in Italy and the United States, where a subsidiary, Severstal of North America, took over Rouge Industries in Michigan in 2004 and is a supplier to Ford. The company was a pioneer in issuing euro bonds in 2002.

Ross said Mittal Steel would not rule out proceeding with its takeover attempt, even if Arcelor sold a third of the company. But it would depend on the way the Russian stake was structured.

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