Steel giant Mittal Steel launches takeover for Arcelor (Roundup)

Jan 27, 2006, 18:11 GMT

London - The world's biggest steelmaker Mittal Steel Co launched Friday an 18.6-billion-euro (22.7-billion-dollar) bid for rival Arcelor SA, paving the way for a major shakeout in the global steel business.

If successful, the takeover will give Mittal control of about 10 per cent of global steel production - more than three times as much as the group's closest rival.

'The last 10 years have seen a major shift towards consolidation of the steel industry,' said Mittal chief executive Lakshmi Mittal in London.

'Both Mittal Steel and Arcelor have been at the forefront of this consolidation and share a similar vision for the future of our industry,' he said.

'This combination accelerates this process and leaves us uniquely positioned to benefit from the opportunities created,' he added.

The Indian-born Mittal, 54, who was last year named the richest man in Britain by the Sunday Times with a personal fortune estimated at 14.8-billion- pounds (26.33 billion dollars).

The offer for Arcelor, which is the world's second biggest steelmaker, is about 27 per cent higher than the Luxembourg-based group's Thursday closing price.

Forging together the world's two biggest steelmakers would create a business with revenue of about 68.7 billion dollars and a workforce of 320,000. It would also be the world's first 100-million-tons a year steel producer.

'Mittal Steel is strengthening its position in Europe,' said Tom Muller an analyst with Dutch bankers Theodoor Gilissen.

'The company has a number of plants in Central and Eastern Europe, but now it looks certain of a leading position in markets like France and Germany.'

The merger of the two companies was necessary to create a 'sustainable operating environment' for the steel industry, Mittel Steel said, adding there was little overlap between the two groups.

While Mittal Steel was strong in Eastern and Central Europe, Asia and Africa, Arcelor was strong in Western Europe.

Arcelor described Mittal Steel's move as 'clearly hostile', saying in a statement that there had been no talks between the two companies and that its board would meet soon to devise a strategy to respond to the bid.

In addition, French Finance Minister Thierry Breton said Friday that the government was troubled by 'the manner in which the takeover bid appears to have been made, notably its hostile character and the lack of preliminary talks between the two groups.'

Mittal admitted in a telephone conference Friday that the company's initial reaction to his proposal had not been positive.

The merger between the two groups is also likely to lead to Mittal Steel selling on the Canadian steel producer, Dofasco to the German giant steelmaker ThyssenKrupp AG.

Essen-based ThyssenKrupp is expected to acquire Dofasco for about 3.8 billion euros or 68 Canadian dollars a share.

Arcelor only bought Dofasco this week for 71 Canadian dollars a share after successfully seeing off ThyssenKrupp in a fierce takeover battle to acquire the Canadian group.

Although steel prices have slipped recently as demand from China's booming economy has retreated, steel company shares raced ahead Friday as speculation grew about further consolidation in the steel industry.

While shares in ThyssenKrupp, Germany's biggest steel group jumped by 6.7 per cent in trading in Frankfurt, shares in Salzgitter AG were up about 7.8 per cent. Shares in Arcelor shot up more than 30 per cent once the suspension of trading in the company's stock was lifted.

Hilary Cook of Barclays Stockbrokers predicted that Anglo-Dutch steel maker Corus could emerge as the focus of a bidding war.

'Other people in the industry will be looking at this. They are not going to let Mittal have Arcelor on the cheap,' she told Britain's PA news agency. Corus shares rose 7.6 per cent in early European trading.

Since he founded his company 30 years ago, British-based Mittal has through a series of high-profile takeovers transformed it into a major force in the steel market.

Mittal, which now operates in 14 countries, only dislodged Arcelor last year as the world's biggest steel group.

Indeed, Jaap Barendregt of bankers Dutch FBS said Mittal had shown itself capable of taking over and integrating other companies.

'Mittal Steel has shown it can cope with take overs and raise the finances easily. This time the take over sum is relatively low, because Mittal Steel is getting Arcelor through a share swap with only a small portion in cash,' he said.

The offer by Mittal is in cash and shares, comprising 35.25 euros for five Arcelor shares plus four Mittal shares.

Mittal has its headquarters in Rotterdam but is managed from London. Arcelor was created in 2002 out of Luxembourg's Arbed, Spain's Aceralia and the French company Usinor.