NRI, Mittal made
a $22.8 billion offer to take over its rival, Arcelor
LONDON, Jan 28, 2006
Ram Mahant
NRI, Lakshmi Mittal,
steel tycoon, the world's largest steel producer made
a $22.8 billion offer on Friday to take over its rival,
Arcelor
Mr. Mittal told news
conference that the proposed merger of the world's
first and second largest steel groups would create
a $ 40 billion company making more than 100 million
tonnes of steel a year.
Mr. Mittal said his company, which first approached
Arcelor on January 13 for the merger bid without response,
was offering $ 22.7 billion [18.6 billion euros]to
the shareholders of the Luxembourg-based firm.
Mittal offered cash and shares for European market
leader Arcelor in what would be the biggest deal the
industry has seen. The shake-up includes a side deal
to sell on Canadian steelmaker Dofasco Inc
A combination with Arcelor,
itself the product of a merger of French, Spanish
and Luxembourg companies, would create an even greater
steel giant with a leading position in the Americas,
Europe and Africa, annual revenue of nearly $70 billion
and 320,000 employees
"This is a great
opportunity for us to take the steel industry to the
next level," Mittal said at a news conference
in London. "Our customers are becoming global,
our suppliers are becoming global, everyone is looking
for a stronger global player."
FOCUS: Mittal-Arcelor
Deal Would Create Steel Powerhouse
NRIemail/NRIentrepreneurs/UK/A_Z/M/Mittal/index.htm
LONDON, Jan 28, 2006
Jackie Range
(Dow Jones)
Mittal Steel (MT) offered EUR18.6 billion for rival
Arcelor (5786.FR) Friday in a hostile bid that proposes
to unite the world's two biggest steel companies into
one powerhouse almost four times larger than its nearest
rival.
Mittal's unsolicited approach to Luxembourg-based
Arcelor is the latest example of the company's bold
push to consolidate an industry that analysts and
participants have long said suffers from too many
producers. Arcelor has also been a key player in the
consolidation.
Whether Mittal will succeed is unclear.
Arcelor rejected the offer and the French government
said it has "great concerns" about the merger.
Arcelor has plants in France. The company's board
is expected to meet Sunday or Monday.
The market sent Arcelor's Paris-listed shares soaring
29%, to EUR28.6. Mittal shares listed in Amsterdam
closed up 6.2%, at EUR27.63. Steel shares around the
world also rose.
"Both Mittal Steel and Arcelor have been at
the forefront of ... consolidation and share a similar
vision for the future of our industry," Mittal
Chairman and Chief Executive Lakshmi Mittal said in
a statement. "This combination accelerates this
process.
Mittal said at a news conference Friday that Arcelor
Chief Executive Guy Dolle wasn't positive about the
approach a few weeks ago, but Mittal said he was confident
Arcelor's shareholders will back the bid.
If Mittal succeeds in acquiring Arcelor, it will
have bought about 70 million tons of crude steel production
since the start of 2005.
The idea that Mittal would bid for Arcelor "never
entered anyone's mind," said a steel analyst
who requested anonymity. It should have been obvious,
he added, considering the companies' lack of overlap.
A tie-up between the two companies would create a
company with $70 billion a year in revenue and the
most global production capacity in the industry. Arcelor
is primarily a European producer while Mittal is scattered
around the globe.
"There's a huge gap opening up now," between
the first and second tier of steelmakers, said Steve
Mackrell, director of operations for the London-based
Iron and Steel Statistics bureau.
The next largest producers after Mittal and Arcelor
are Nippon Steel Corp (5401.TO), JFE (5411.TO)and
Posco (PKX), all of which would be making around of
30 million tons per year, said Mackrell.
He described the proposed merger "a huge step
in the pace of consolidation. It makes steel a very
different proposition." Previously steel has
been "squeezed at either end" by raw materials
producers and steel end users.
While a combined Mittal-Arcelor company - Mittal
said Friday he hasn't decided on a name - would still
have less market share than is common among its suppliers
and customers, it would change the landscape, said
Mackrell.
It potentially creates a "strong global player
who can have a stronger bargaining position with raw
materials supply," he said, "which will
include people like the iron ore producers, ferrous
scrap supply and metallurgical coke producers."
The world's three biggest iron ore producers, BHP
Billiton,(BHP) CVRD & Rio Tinto (RTP), control
about 75% of production of steel's major raw material
and the top 3 car companies have about 30% of global
sales.
By contrast, Mittal, Arcelor and the next biggest
steel maker would have about 13% of the steel market.
Rabo Securities analyst Richard Brakenhoff, who called
Mittal's surprise move "ambitious, but smart,"
cast doubt on how effective it would be leveraging
prices with suppliers and customers.
"Even though they will be producing 100 million
tons this won't give them pricing power because the
market is still very fragmented," he told Associated
Press. "They are still too small for that but
it will give them a huge advantage over competitors
in terms of cost savings and know-how in the fields
of automotive and construction."
The Iron and Steel Statistics bureau's Mackrell said
that a tie-up would start to address the industry
problem of "gluts of steel going to market.
"By these two giants coming together it will
rationalize their capacity plans (and) therefore help
to avoid too much new capacity coming on stream. In
the future it would help to avoid this runaway needless
overcapacity."
Arcelor-Mittal's combined 115 million tons of steel
would give it about 10.5% of the world's crude steel
output, which the International Iron & Steel Institute
put at 1.1 billion tons in 2005. London-based Mittal
expects $1 billion in synergies from purchasing, marketing
and manufacturing efficiencies and said the deal would
give it leading positions in the United States, Europe,
Africa and South America.
Mittal would become the leader in providing steel
to the automotive industry in Europe and the U.S.,
and would lead in the North American Free Trade Area
in appliances and packaging
Although steel companies have profited from high
prices in recent years, the industry's cyclical nature
regularly puts producers into deep financial difficulty.
One reason is that the many producers continue to
produce too much during the downturn. Consolidation
also could improve the negotiations with customers
and suppleirs.
"We're watching developments closely,"
said a spokesman for French automaker PSA Peugeot-Citroen
(12150.FR). "We don't have any specific view
on it (the possibility of a mega-merger in the steel
sector) but Peugeot-Citroen is particularly attentive
regarding competition among its suppliers. We've already
had some concerns about the level of competition in
the steel industry."
Mittal, the major shareholder of Mittal Steel, has
been the leading proponent of consolidation - closely
followed by Arcelor itself. Since the start of 2005,
Mittal has merged with the International Steel Group
in the U.S., bought Ukraine's Kryvorizhstal late in
2005, and has now made a move to acquire Arcelor.
Mittal's agility was also evident Friday in the Arcelor
news. Although Mittal said he approached Arcelor on
Jan. 14 and that Dolle didn't like the idea, Arcelor
was only Friday assembling a team of bankers to address
the bid.
The bid came within days of Arcelor winning the bidding
for Canada's Dofasco. Mittal announced it had agreed
to sell Dofasco to ThyssenKrupp AG (TKA.XE), the losing
bidder in the competition for the Canadian company,
for C$68 per share.
Still, the Mittals' nimble footwork in future consolidations
could be reduced by a cash and share proposal that
would dilute the family's own stake in the combined
company and possibly require them - Lakshmi Mittal's
son, Aditya Mittal, is president and chief financial
officer - to consult more widely in future takeovers.
Moody's Investors Service Inc. rates Mittal just
one notch inside investment grade and the ratings
agency recently noted the company's rapid buildup
of debt, heavy exposure to emerging markets and the
tightly-held family ownership structure.
Mittal Steel's EUR28.21-a-share bid for Arcelor offers
Arcelor shareholders four Mittal Steel shares and
EUR35.25 for every five Arcelor shares. A secondary
offer consists of EUR28.21 for each Arcelor share.
Arcelor shareholders will be able to choose from
a mix of cash or stock in any proportion, provided
that the aggregate amount paid to Arcelor shareholders
is paid 25% cash, 75% stock. Mittal said, however,
it won't pay out more than EUR4.7 billion in cash.
Arcelor was formed by the merger of Luxembourg's
Arbed, Spain's Aceralia and France's Usinor in 2002.
Its production facilities are concentrated heavily
in Belgium, France and Spain while Mittal has operations
in 16 countries, employs 164,000 and in 2004 had revenue
of $31 billion.
Arcelor's 2004 turnover was EUR30 billion on 44 million
tons of production. The company had 94,000 employees
at end 2004.
Both Mittal and Arcelor have been seeking low-cost
producers in new markets, or acquisitions which consolidate
their positions in existing markets.
The past six months has witnessed some blockbuster
deals in the sector.
In addition to Arcelor's outbidding ThyssenKrupp
for Dofasco with a hefty EUR3.95 billion for the asset.
Mittal's $4.8 billion bid beat Arcelor for Kryvorizhstal.
Arcelor also initially lost out in an auction for
a majority stake in Turkey's state-owned Eregli Iron
& Steel Works Co., or Erdemir, which was bought
by a pension fund in Turkey. But in December Arcelor
announced it was helping to fund the pension fund's
purchase and acquiring a 20% indirect stake in Erdemir
for about $1 billion.
"You can't really fault the Mittals for a pretty
smart piece of business," said a steel analyst,
as the move for Arcelor "fulfills everything"
Mittal said it was going to do.
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