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Luxembourg drops law change

L'bourg has dropped a proposed change in its takeover laws that would have helped Arcelor fend off Mittal's bid.

india Updated: Apr 20, 2006 18:58 IST

Luxembourg has dropped a proposed change in its takeover laws that would have helped local steel group Arcelor fend off Mittal Steel's $25 billion takeover bid.

A committee in Luxembourg's parliament on Thursday scrapped the controversial proposed amendment to the country's takeover laws, finance committee head Laurent Mosar said.

The amendment, proposed by the committee last month, would have prevented companies resubmitting an offer for 12 months after the failure or withdrawal of a previous bid.

That would have meant that Mittal could not change the terms of its offer for 12 months, contrary to the practice in many countries.

But on Tuesday Luxembourg's state council -- the country's highest administrative review body -- came out against the change and the government had earlier voiced some unease.

The Parliament plans to have its final vote on the takeover law during a plenary session on May 4, Mosar said.

The small state wedged between Belgium, German and France is the largest single shareholder in Arcelor, with 5.6 per cent, and the group has its headquarters in a palatial building just outside the old city centre.

But Prime Minister Jean-Claude Juncker, a steelworker's son and outspoken critic of the Mittal bid, has been careful to avoid any international political fall-out or legal challenge to the Grand Duchy's actions.

The formal ruler of Luxembourg, Prince Guillaume, sits on the Arcelor supervisory board.

Mittal responds to Arcelor defence

In the meantime, Arcelor has beefed up its own legal defences with recourse to Dutch law.

On Tuesday it said it was transferring the ownership of its recently acquired Canadian subsidiary Dofasco to a special Dutch foundation, legally independent of Arcelor but with three hand-picked members on its board and a brief to vote in line with a decision of Arcelor's independent board members.

Mittal's 20.5 billion euro ($25-billion) share-and-cash bid for Arcelor, which is awaiting regulatory approval, envisages selling Dofasco to German group ThyssenKrupp, which lost out to Arcelor earlier this year in bidding for the Canadian company.

Arcelor also raised its 2005 dividend and held out the prospect of another 5 billion euros in payments to investors within a year of the Mittal bid failing or being withdrawn.

Mittal Steel's Finance Director Aditya Mittal said in an interview published on Thursday that the Dutch-registered steel group had no plans to raise or withdraw its bid and noted Arcelor's cash promise was tying its own hands for the future.

"Arcelor has put itself in a position that strengthens the interest of our offer, because contrary to Arcelor we can guarantee growth to the shareholders," he told Les Echos.

Mittal said Arcelor's defence was not strategic but purely financial and legal -- a comment that attempted to turn the tables on the Luxembourg-based group which has claimed Mittal's bid lacked an industrial strategic basis and was a pure financial operation.

Arcelor Finance Director Gonzalo Urquijo said on Tuesday that the steel group would fund the 5 billion euro handout from free cash flow and extra debt, adding that many investors which the group had canvassed had said Arcelor was "undergeared".

Urquijo said that following the Dofasco buy, Arcelor's debt was 5.5 billion euros, with shareholder equity at 17.6 billion euros at the end of 2005.

Aditya Mittal said the group was not raising its bid.

"Our offer is already improved, it went from 28.20 euros (per Arcelor share when launched) to 32 euros today due to the rise in Mittal shares," he said.

Mittal's offer values Arcelor shares at 32.09 euros at current prices, before taking out 1.05 euros per share for dividend adjustments.

Mittal added that because the cash part of the offer was reduced due to the Arcelor dividend hike, shareholders would get more Mittal shares. "Therefore they will benefit even more from a future rise in Mittal Steel shares."

Mittal advisers said they were studying legal challenges to the Arcelor Dofasco move but first wanted to gauge Arcelor investor reaction to what they called a 'poison pill' defence.

While the ADAM group for minority shareholders has expressed its discontent with the manoeuvre, some fund managers have said they are less worried, partly because the foundation will be dissolved after five years and Mittal would then be able to finally sell Dofasco, as it has said it planned to do.