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Arcelor takes up Mittal gauntlet in bid battle

France once again spoke out in Arcelor's defense, calling Mittal Steel's corporate governance "inferior".

india Updated: Feb 17, 2006 11:09 IST

Arcelor ramped up its defence against a 18.6 billion-euro takeover bid by Mittal Steel on Thursday by nearly doubling its dividend on a 2005 profit rise and promising investors more to come.

A day after Mittal Steel reported its results and cited support for its bid, it was Arcelor's turn to try to convince shareholders to stay by its side and ignore the call of its bigger rival.

France, one of the most vocal opponents of the $22.06 billion bid, spoke out again in Arcelor's defense, calling Mittal Steel's corporate governance "inferior".

A week after Luxembourg tabled a bill that would preserve Arcelor's options to defend itself against a takeover, it proposed legislation to beef up anti-takeover defences by the issue of share warrants.

This clash between the world's two biggest steelmakers also raised the ire of business leaders in India, the birthplace of billionaire Lakshmi Mittal, majority owner of Mittal Steel.

One of the country's leading business organisations said its members were appalled by the resistance that the bid had met in Europe, especially in France and Luxembourg, calling it hypocritical and xenophobic.

But European leaders have insisted their concerns are jobs and what they say is Mittal's lack of an industrial plan after the merger.

Arcelor Chief Executive Guy Dolle vowed to keep fighting.

"It will be a marathon and we are only at the first round," he told a news conference where Arcelor staff wore badges reading: "I believe in Arcelor".

Dolle later told analysts on a conference call he would go on a roadshow later this month to convince shareholders of the benefits of an independent Arcelor.

"I will visit at the end of February with shareholders ... to show them and convince them that we are creating more value in Arcelor staying independent than in any other project," he said.

Dolle, who has been working with bankers and lawyers on a defence plan, ruled out any rash acquisitions or other "poison pills" and promised his defence would create shareholder value.

"This management would never do anything that would jeopardise value for shareholders," he told analysts.

Higher results

Arcelor's core profit or consolidated gross operating result rose 30 per cent to 5.64 billion euros ($6.72 billion) in 2005, in line with analysts' forecasts.

Net profit jumped 67 per cent to 3.85 billion euros as revenues rose to 32.61 billion euros from 30.18 billion.

Dolle said the rise in 2005 profits was the start of a sustainable upswing.

After several acquisitions, Arcelor said it had delivered 700 million euros per year of merger-related synergies ahead of plan and further gains were expected from the implementation of plans for the coming years.

Mittal played down Arcelor's figures. "There is nothing in these results that causes us to alter our strategic rationale nor financial terms of our offer," a spokesman said, adding Mittal was committed to paying out more in dividends than Arcelor.

On Wednesday, Mittal reported a quarter-on-quarter rise in net income but a year-on-year fall.

Lakshmi Mittal also mentioned a "good response" from 30-40 percent of Arcelor shareholders to his takeover proposal.

Higher dividend

Arcelor raised its dividend to 1.20 euros per share, from 65 cents, for a pay-out ratio of 20 per cent.

Dolle held out the promise of further dividend increases by saying that future annual pay-out ratio would be 25-30 per cent on average.

"I think our dividend should continue to grow," he told analysts. "We are here to generate free cash flow and that cash flow is for two things: our shareholders and growth."

Arcelor's stock ended 0.37 percent higher at 29.90 euros in Paris, while Mittal fell 5.0 percent to close at 27.00 euros in Amsterdam.

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 investor hopes the bid may be raised.

Dolle said the current Mittal bid "strongly undervalued" Arcelor and said the offer should be made in cash only.

Analysts said the dividend increase was easy given the strong results. "The question is whether they can sustain the dividend throughout (the industry's) cycle," one of them said.

ABN AMRO analyst Michael Sones said Mittal was unlikely to be put off by the dividend outlay although "it doesn't make Arcelor more attractive to Mittal that it is going to pay out 800 million euros in May (in dividends).

First Published: Feb 16, 2006 11:41 IST