Arcelor beefs up defences against Mittal
Arcelor on Tuesday beefed up its defences against a planned $25 billion takeover bid by rival Mittal Steel, with a legal manoeuvre to put key assets beyond the reach of the world's largest steel giant.
The decision to shelter newly-acquired Canadian unit Dofasco inside a small Dutch foundation surprised markets and detracted attention from a sharp rise in Arcelor's dividend and promises of more cash handouts, two other planks of its defence.
The world's two biggest steelmakers have been involved in an aggressive war of words for more than two months over plans by steel magnate Lakshmi Mittal to forge an industry giant with control of 10 percent of the global steel market.
Arcelor freely acknowledged its tactics would thwart Mittal's plans to sell Dofasco to Germany's ThyssenKrupp, saying it was too important an asset to lose due to its North American position and valuable industry licences.
But it denied it had frustrated Mittal's bid altogether and held out the possibility a special lock put on the Canadian assets could be released again in the event the Arcelor board recommended any improved Mittal offer.
"The keys (to Dofasco) have not been thrown away, they are very well kept," Chief Financial Officer Gonzalo Urquijo said.
Arcelor, the world's largest steelmaker by revenue, said it would raise its 2005 dividend to 1.85 euros per share from a previously announced 1.20 euros.
It also offered investors 5 billion euros ($6.0 billion) in cash between April 28 and the year after a withdrawal or failure of the offer by Mittal, the global sector leader by volume.
Arcelor shares, which soared after Mittal unveiled its offer at the end of January, ignored the higher payout and fell more than 2 percent before closing 0.88 percent lower at 32.50 euros as analysts and investors focused on the asset shuffle.
"These measures are aimed at hampering Mittal's takeover bid for Arcelor," broker IberSecurities said in a note.
Mittal fell 3.6 per cent to 31.10 euros in Amsterdam.
"This is an unprecedented assault by Arcelor on the interests of its own shareholders and an attempt to deprive them of the right to decide on the merit of the offer," a spokesperson for Mittal said, adding it would pursue its bid.
Mittal's proposed cash and share offer values Arcelor at 20.35 billion euros, before dividend adjustments.
Arcelor said it would run Dofasco, but a three-member board in the foundation would be the only people allowed to sell it.
It described the foundation as independent, but also acknowledged one of its board members was an Arcelor employee and one a former Arcelor senior executive vice president.
The three will appoint their own successors if needed and if Mittal Steel won the bid, it would be unable to change the foundation for five years. The structure had been used in a previous Anglo-Dutch steel merger and was part of Gucci's defence to stave off an unsuccessful bid by LVMH.
"This is not a poison pill," Urquijo said. "Of course if the board of directors (of Arcelor) recommends an offer at some stage, this will change their perception, this will change the scenario. I insist that is only their decision to take."0
Mittal must now make the next move -- either trumping Arcelor or call it quits.
By boosting the dividend, Arcelor automatically reduces the cash part of Mittal's bid because the Dutch-registered group had said any dividend above 0.80 euros per Arcelor share would be seen as an advance payment on its own bid.
After a meeting with officials in the Asturias region of Spain, Lakshmi Mittal confirmed to reporters the cash element of the offer would be cut to reflect the surplus dividend.
Mittal also pointed out Arcelor's dividend boost was removing value from the company because it prejudices its ability to invest for the future and limits the scope for growth.
Mittal had met the regional Prime Minister, Vicente Alvarez Areces, and assured him no Asturian steelworkers would lose their jobs as a result of his takeover of Arcelor.
By holding out the 5 billion payment in the future, and by cutting off Mittal's access to sale proceeds from Dofasco, Arcelor is playing up its argument that Mittal is bidding for it because it needs Arcelor cash to beef up its own plants.
"I think they perhaps will have to increase their offer a bit because one can't deny that Arcelor has been showing great results," said Jan Leroy, a fund manager at Petercam.
Luxembourg's top administrative court on Tuesday voiced its opposition to a key amendment to the nation's takeover law that could hinder Mittal planned takeover of Arcelor.
The court's opinion is non-binding.
Luxembourg lawmakers have proposed an amendment that would prevent companies resubmitting acquisition bids for the 12 months after the failure or withdrawal of a previous bid.