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'Arcelor overvalued Severstal'

Arcelor shareholders have demanded they be shown the valuation report drawn up by Deutsche Bank.

india Updated: May 29, 2006 02:06 IST

The Arcelor move to knock out Mittal Steel from its takeover bid of the French steel giant through merger with the Russian Severstal has hit a bit of turbulence.

Arcelor shareholders have demanded they be shown the valuation report drawn up by Deutsche Bank, the group’s lead financial adviser, to justify the £8.9 billion merger with the Russian steel rival.

On Friday, Arcelor surprised its investors by unveiling the merger plan seen by most as a move to derail an attempt by Mittal Steel to acquire the Luxembourg-based group. Financial advisers are, however, obliged by regulators to draw up a “fair value” report for acquisition. Areclor shareholders are allegedly demanding to see the detail of the Severstal report. The demand is said to be based on the growing concern among investors that the Arcelor Board has overpaid for Severstal in a last-ditch attempt to escape the clutches of Mittal. A banker with links to a large number of Arcelor shareholders was quoted in the Sunday Telegraph saying, “Investors will want to see the Deutsche report. They will want to know how Severstal’s assets have been valued, what political risk has been taken into account and why the board felt compelled to spend 13 billion euro on a rival when shareholders could have taken a premium offer for their stakes in Arcelor from Mittal.”

Under the terms of the deal, Alexei Mordashov will get 32 per cent stake in Arcelor at a theoretical value of 44 euro per Arcelor share. But because of asubsequent share buyback in which he will not participate his 295 shares will represent a 38 per cent stake.The Commerzbank analysts were quoted saying that the true value of Severstal’s assets is closer to 10 billion euro instead of 13 billion being paid by Arcelor.

In its note the bank has allegedly said that shareholders would get no benefit at all from the supposed value of 44 euro per Arcelor share that was said to be implied in the deal.

But 50 per cent of shareholders have to vote against the deal to abort it, according to the surprising rule laid down by the group’s board. Mittal Steel is reportedly set to seek talks with key Arcelor investors next week. Small investors represented by the French pressure group ADAM have already said that they are “appalled” by the Russian deal.

There are indications that shareholders might decide to take control of the situation by calling for an extraordinary general meeting. But Guy Dolle, the Arcelor Chief Executive, told the Telegraph that as soon they explained the deal to shareholders it would all be fine.

First Published: May 29, 2006 02:06 IST