L N Mittal has sent shockwaves in the international steel industry by making an unsolicited bid to acquire his main rival, Arcelor SA of France.

Mittal Steel, the world's biggest steel maker, has made an unsolicited bid to buy Arcelor SA of France, the world's second biggest steel group, for €18.6 billion ($22.7 billion). Mittal is offering €28.21 a share for Arcelor.

If the move succeeds, the Indian-born billionaire Lakshmi Mittal's group will control a tenth of the global steel industry, over three times as much as his closest rival. The combined group would have a workforce of around 320,000.

The steel industry, which is in the midst of a revival, may well be ripe for such consolidation. Mittal and Arcelor are complementary in terms of products and markets, and both companies could gain from a merger. However, Mittal may still have to cross the anti-trust hurdle in Europe.

EU competition commissioner Neelie Kroes said at Davos that she would take a close look at the Mittal bid. However, she also said that it was too soon to come to determine the impact of the deal on the steel business in the EU's 25 member states.

Biggest ever in steel
The acquisition, if it happens, would be the biggest ever in the steel industry, making Mittal's own $15.8-billion purchase of LNM Holdings NV in 2004 look small. The Mittal move comes close on the heels of Arcelor's acquisition of Dofasco, Canada's biggest flat steel producer earlier this week.

Arcelor grabbed Dofasco in a hostile bid, overcoming a rival bid from Germany's ThyssenKrupp, which tried to act white knight but backed out when Arcelor raised the ante to $4.9 billion (See: ThyssenKrupp backs out, Arcelor wins Dofasco). Mittal Steel was nowhere in the picture here, but the Dofasco deal has strengthened the French company's position in the all-important North American automotive market for steel.

Clearly, Mittal Steel, the biggest steel producer in the US, could not countenance its main global rival walking away with a slice of the North American market. Mittal Steel, which has eight major plants in Indiana, Ohio, West Virginia, Maryland, Pennsylvania, South Carolina and Illinois, is the fourth largest steel producer in Canada.

The Mittal group became the biggest steel producer both in North America and the world in April 2005 when it snapped up Richfield, Ohio-based International Steel Group ISG for $4.5 billion from financier Wilbur Ross. The group owns steel mills from Kazakhstan, Ukraine and Poland to South Africa and the Caribbean. It aims to invest $9 billion in steel production in the state of Jharkhand in India.

Arcelor accounts for half the steel used in European-made cars, and has plants across Europe and Latin America. Three-fourths of its revenues come from Europe, and 11 per cent from Latin America. North America accounts for 9 per cent of Arcelor's revenues.

Twist in the tale?
Given the possibility of anti-trust objections there is already speculation that Mittal may reverse the Arcelor-Dofasco deal. It would be an irony if Dofasco is sold to ThyssenKrupp.

It is reported that Arcelor has an enterprise value of €18.2 billion ($22.3 billion), including €2.6 billion of debt. The Rotterdam-based Mittal Steel, which is managed from London, has an enterprise value of €9.2 billion euros, and net cash of €654 million.

While trading in both Mittal Steel and Arcelor was suspended, the bid for Arcelor has triggered a global rally in steel stocks, including Tata Steel in India, ThyssenKrupp in Germany and Corus in the UK.