Arcelor strives to keep house in order
Arcelor ramped up its defence against a $22 billion takeover bid by global leader Mittal Steel, hiking its dividend.india Updated: Feb 16, 2006 23:33 IST
Arcelor ramped up its defence against a $22 billion takeover bid by global leader Mittal Steel, hiking its dividend after a rise in 2005 profit on Thursday and promising investors more to come.
At the same time, French Finance Minister Thierry Breton re-opened the political front against the unsolicited cash and share bid by the company run and majority-owned by Indian-born Lakshmi Mittal.
Breton called the Rotterdam-based steel group's corporate governance system "inferior" to that of Arcelor.
France also proposed legislation to beef up anti-takeover defences by the issue of share warrants.
Several hundred journalists flocked to the Grand Duchy of Luxembourg on Thursday, forcing Arcelor to move its results news conference from its baroque-style headquarters at the edge of the historic centre of Luxembourg to an exhibition centre near the airport.
Some Arcelor staff attending the meeting wore badges saying: "I believe in Arcelor".
Mittal on Wednesday presented its 2005 results in London, showing a quarter-on-quarter rise in net income but a year-on-year fall, and claimed a "good response" from 30 to 40 per cent of Arcelor shareholders to his takeover proposal.
But Arcelor chief executive Guy Dolle cast doubt on this remark and pledged he would start seeing shareholders in March with "figures in hand" showing it would be in the investors' interests to remain with Arcelor.
Expanding Arcelor, formed from the 2002 merger of France's Usinor, Luxembourg's Arbed and Spain's Aceralia, said the rise in 2005 profits was the start of a sustainable upswing.
"I want to share with shareholders in the beginning of March that the future of Arcelor is bright and that it is in their interest to stay shareholders of Arcelor," Dolle said.
"It will be a marathon and we are only at the first round," he told reporters about the takeover battle.
Arcelor said its 2005 core profit rose to 5.64 billion euros ($6.72 billion) from 4.34 billion euros in 2004.
Analysts had expected the company to report a consolidated gross operating result of 5.6 billion euros, according to the average of 18 estimates.
Arcelor stock was up 0.4 per cent at 29.90 euros at 1315 GMT.
Mittal's offer values Arcelor at about 18.6 billion euros or 29.1 euros per share.
Analysts say the stock's higher price on the market reflects hopes among investors that Mittal may have to raise its bid.
Dolle said the current Mittal bid "strongly undervalued" Arcelor and the board of directors would only be able to judge the value of any new bid if it was made in cash only.
Despite confident statements by Dolle and his board members, Arcelor held off detailing its alternatives until March. Meanwhile Mittal has formally lodged its bid with European bourse authorities.
Arcelor raised its dividend to 1.20 euros per share, from 65 cents, for a pay-out ratio of 20 per cent. Dolle said that on average the future annual pay-out ratio would be 25-30 per cent, which held a promise of further dividend increases.
He also ruled out any rash acquisitions or other "poison pills" and promised that the defence plan would be based on creating superior shareholder value.
ABN AMRO analyst Michael Sones said Mittal was unlikely to be put off by the cash spend that the extra dividend plan represented although "it doesn't make Arcelor more attractive to Mittal that it is going to pay out 800 million euros in May (in dividends)."
Others remained convinced Mittal would win, but with each camp having hired several investments banks for advice, there are few truly independent analysts left to comment.
"Even if Arcelor takes certain actions, like raising its dividend, to deter shareholders from tendering, we still believe that the long-term value creation of a combined Mittal-Arcelor is difficult to trump," JP Morgan analysts said in a note, distributed by the public relations company Maitland working for Mittal.
JP Morgan advises the government of Luxembourg, which has a 5.6 per cent stake in Arcelor. The country has a history in steel and iron making going back to Roman times.
Following several acquisitions, Arcelor said it had delivered 700 million euros per year of merger-related synergies one year ahead of plan and further gains were expected from the implementation of plans for the coming years.
Group net profit reached 3.85 billion euros compared with 2.31 billion euros in 2004 as revenues rose to 32.61 billion euros from 30.18 billion.
In the fourth quarter, net profit was 1.25 billion euros, up from 820 million euros in the same period of 2004, Arcelor said.