RIO DE JANEIRO, Brazil -- Mittal Steel Co. NV, the world's largest steelmaker and owner of the Sparrows Point steel mill, is reviewing a Brazilian regulatory order that may raise the cost of its $38 billion merger with Luxembourg-based Arcelor SA by almost 10 percent.
Mittal's combination with Arcelor is considered a takeover under Brazilian law, the securities regulator, known as the CVM, said on its Web site Monday night. The ruling requires Mittal to bid for shares it doesn't own in Arcelor's Brazilian unit.
"The amounts at stake here are very large here and may add pressure to Arcelor-Mittal's capital structure," said Pedro Galdi, steel analyst with the Sao Paulo unit of the Netherlands' ABN Amro Bank NV. "I don't think Mittal can win if they appeal, but I think they'll appeal to gain time."
The unanimous ruling by the regulatory board in Rio de Janeiro upholds an earlier CVM decision and is final unless Mittal and Arcelor Brasil appeal to Brazil's federal courts. Such appeals have been rare, and in those few cases, almost all injunctions against enforcement have been quashed upon petition by the CVM, Marcelo Trindade, the regulator's president, said in an interview last month.
Mittal, which said it would have to buy out the stakes when it first bid for Arcelor Jan. 27, rewrote the offer terms in June. In its Aug. 17 appeal, Mittal says it will have less than half of Arcelor's stock when the sale is complete, making a buyout unnecessary.
This "is going to be a situation where Mittal wants its lawyers on the case as quickly as possible," Stephen Pope, head of equity research at Cantor Fitzgerald LP in London, said in a telephone interview yesterday. "This is going to be a long, drawn-out process but I don't see why the merger won't go ahead."
Meanwhile, the clock is ticking for Arcelor Mittal to sell one of three plants in North America - including Mittal's plant at Sparrows Point - to satisfy Justice Department concerns about the combined company having a monopoly on tin production in the United States.
Mittal officials said last week that they are "committed" to selling Canadian steelmaker Dofasco to German-owned ThyssenKrupp AG to appease the Justice Department. However, their Arcelor counterparts refuse to let Dofasco go. Earlier this year, in one of a series of moves to fend off Mittal's nearly six-month takeover bid, Arcelor transferred Dofasco to a Dutch foundation, which makes a sale difficult.
In an Aug. 1 directive, the Justice Department said Mittal has four months to sell Dofasco. If it is unable to do so, it has 90 days to sell either Sparrows Point or its sister plant in Weirton, W. Va. The company can ask for an extension of up to 60 days.
Sun reporter Allison Connolly contributed to this article.