Arcelor gives in to Mittal; extracts sweetened deal and concessions
26 June 2006
Mittal Steel agreed to raise its offer to 1.084 Mittal Steel shares and €12.55 in cash for every Arcelor share, or a total of €40.4 per share of Arcelor, based on its current prices. Mittal Steel has also offered 13 of its own shares and €188.42 for every 12 convertible bonds of Arcelor.
Arcelor shareholders would receive 69 per cent of the offer in shares of Mittal Steel and the balance 31 per cent in cash.
The exchange ratio for the merger has been fixed at 11 shares of Mittal Steel for 7 of Arcelor. The merged company would be called Arcelor-Mittal and would be three times bigger than its closest rival Nippon Steel. The exchange ratio implies relative valuations of 60 per cent for Arcelor and 40 per cent for Mittal Steel.
The deal became possible after Mittal Steel agreed to make a host of improvements to its earlier offer. Apart from the hike in price, Mittal agreed to give a bigger say to the existing Arcelor management in the combined entity. The merged company would be based in Luxembourg, where Arcelor is currently based, and would retain Arcelor''s strategic focus on higher margin, value-added segment of the market.
The Mittal family would own only about 43 per cent of the merged entity and has agreed to a lock in period of five years. Mittal has also agreed to limit its holdings in the merged company to below 45 per cent.
Mittal Steel has agreed to have only one class of shares and each share would have only one vote. Mittal Steel currently has different classes of equity shares and shares held by the Mittal family have more than one vote per share. This was one of the major factors Arcelor used to dub Mittal as a family controlled enterprise.