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Mittal's Arcelor bid raises job concerns

Shares of global steel makers surged after Arcelor rejected Mittal's hostile $23 billion bid.
By Reuters | None, Paris
PUBLISHED ON JAN 30, 2006 01:09 PM IST

Shares of global steel makers surged after Arcelor rejected Mittal's hostile $23 billion bid, and both sides prepared to win support from shareholders in a public relations clash on Monday in Paris.

A deal that could put many of Arcelor's 28,500 French jobs at risk also poses a sharp test for French Prime Minister Dominique de Villepin's policy of "economic patriotism", especially with employment likely to be a key issue in French presidential elections in 2007.

The impact of the bid was being felt across the world's steel industry and stock markets, with shares of major steelmakers rising sharply in Asia on Monday as investors bet a bidding war could lift stock values across the sector.

"The deal may raise speculation that there might be more mergers and acquisitions in the industry," said Yoshiyuki Takano, an analyst at Tokai Tokyo Research Center.

"If the deal goes through, there would be a possibility that steel makers have more power to negotiate prices with mining companies."

The board at Arcelor, the world's second largest steelmaker, unanimously rejected the bid by the world's top steelmaker on Sunday, but Mittal and Arcelor both scheduled news conferences in the French capital on Monday, seeking to bolster their positions.

Meeting in Luxembourg, Arcelor's board members urged shareholders not to tender their shares in the proposed offer by the Rotterdam-based Mittal Steel, 88 percent owned by Indian-born Lakshmi Mittal, the world's third richest man.

The conservative French government was widely reported to be embarrassed by the bid, and Finance Minister Thierry Breton said he would ask the steel magnate for more details at a meeting on Monday morning.

"I am very surprised by (Mittal's) way of proceeding," he told LCI television in an interview on Sunday.

Arcelor was created in 2002 by the merger of France's Usinor, Spain's Aceralia and Luxembourg's Arbed. Its French workforce makes up 30 percent of its staff.

Although it is not a French company, Arcelor's shares are traded in Paris and the unsolicited bid affect a vital industry.

Attempts to shield French companies from hostile foreign bids in sensitive sectors such as defence exclude steel. The government wants to avoid allegations of protectionism even as it seeks to support French jobs.

Luxembourg's government also spoke out against the deal on Sunday, expressing its concern about how it would affect the state's 5.62 percent stake in the company, arguably the jewel in the crown of the country's economy.

STEEL SHARES RALLY

Mittal said on Friday it was offering 28.21 euros a share, a 27 percent premium to Arcelor's closing price on Thursday.

Arcelor's shares jumped as much as 41 percent to a high of 31.29 euros before closing on Friday at a record 28.5 euros, up more than 28 percent, on speculation Mittal would have to raise its bid.

Mittal rallied 6 percent to a 10-month high of 27.6 euros on the Amsterdam exchange amid a surge in European shares.

Mittal offered a total of $23 billion in cash and shares to create a company capable of producing 100 million tonnes of steel and reaping annual sales of more than $69 billion.

The group would be three times the size of its nearest rival Nippon Steel Corp.

In Asian trade on Monday, Nippon Steel shares climbed 2.3 percent, JFE Holdings Inc., the world's fourth largest steel firm, rose 6.2 percent. Australia's top firm in the sector, BlueScope Steel Ltd., jumped 4.9 percent.

Analysts see the bid by Mittal as a way of addressing oversupply in the steel industry and it is widely expected to prompt consolidation in the sector.

Following the bid announcement, shares of other European and U.S. steel maker also rose. Nucor Corp. shares added 6.3 percent, while in Europe, Britain's Corus and Germany's Salzgitter added 14.7 percent and 8.6 percent, respectively.

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