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MITTAL IS STEELWALLED

IN A dramatic move to fend off Mittal Steel's hostile bid, Arcelor's board on Friday decided to merge with Russian steel giant Severstal to form the world's largest steel company.

india Updated: May 27, 2006 01:44 IST

Targeted Arcelor merges with Russian giant

IN A dramatic move to fend off Mittal Steel's hostile bid, Arcelor's board on Friday decided to merge with Russian steel giant Severstal to form the world's largest steel company.

Under the merger, the existing shareholders of Arcelor will own 68 per cent stake in the merged entity while the rest will be owned by Alexei Mordashov, the promoter of Severstal.

The merger will act as a poison pill for Mittal as Mordashov has agreed to vote his shares according to the board's recommendations. He has also committed to a 'standstill' in his Arcelor stake for four years and a lock-up for five years. This in effect means Mittal will have to acquire 51 per cent of the enhanced equity base. Since Mordashov will have 32 per cent stake in the company, Mittal, even if he manages to acquire a majority stake, will not have complete control over the company.

Under the deal Mordashov, who owns 89.6 per cent of the group, is to provide assets worth 11.73 billion euros, which include all of Severstal's steel assets and Italian steelmaker Lucchini SpA, and 1.25 billion euros in cash in exchange for Arcelor shares.

The deal, which is still be approved by Arcelor shareholders, values Arcelor at 44 euros ($56.12) per share, excluding a planned 1.85 euros ($2.36) per share dividend. At this rate, the deal is 37 per cent more than Thursday's closing price.

After the deal, Mordashov will become the largest shareholder of the merged entity with 32 per cent controlling stake. He will also become the non-executive president of the board of directors with the right to nominate six of 18 board members. However, Arcelor chairman Joseph Kinsch will retain his position, as will chief executive officer Guy Dolle. The merger is expected to complete by July.

The enlarged Arcelor will be the world's biggest steel company, with revenues of 46 billion euros and 9 billion euros in earnings before interest, tax, depreciation and amortisation.