Mittal's Arcelor success came after hotel chat

The talks helped end five months of acrimony, during which Arcelor CEO Guy Dolle rejected two bids from Mittal.

The moment that turned the biggest steel merger in history from hostile to friendly came during a 20-minute conversation last month at the Sheraton Hotel across the street from Brussels Airport.

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Aditya Mittal, son of Mittal Steel founder Lakshmi Mittal, and a team of negotiators met with officials from Arcelor on June 13. The talks helped end five months of acrimony, during which Arcelor Chief Executive Officer Guy Dolle rejected two bids from Mittal, and led to a euro 26.9 billion ($34.4 billion merger agreement less than two weeks later.

"We sat down for the first time after about five months in a room and it was amazing," says Aditya Mittal who is Mittal Steel's chief financial officer. "After about 20 to 30 minutes of conversation we realised we do have a common vision, a common industrial plan and we can realize these synergies."

The meeting of minds will push Mittal's share of global steel production to 10 per cent, three times larger than its closest rival, and may spark further consolidation in the industry. The merged company plans to expand in India and China, while trimming $1.6 billion of costs by buying iron ore from its own mines and eliminating duplication in manufacturing.

The Brussels airport meeting came after Lakshmi Mittal on June 2 sent Arcelor Chairman Joseph Kinsch a 2008 business plan and guidance on Mittal's 2006 earnings, according to the prospectus for the transaction.

Mittal also provided a comparison of the Mittal-Arcelor deal and an offer from Severstal, which Dolle had engineered to block Mittal.

In addition, the letter outlined corporate governance rules to promote Arcelor's business model, including an 18-member board with 12 independent directors and a commitment that the Mittal family would vote its shares in accordance with the board's recommendations.

On June 8, a two-man team headed by Aditya Mittal met with two Arcelor officials for technical discussions on "questions pertaining to the business plan," the prospectus says. Lakshmi Mittal wrote to Arcelor's board two days later, to answer specific queries raised at the meeting.

With those questions resolved, representatives of the two companies met at the airport hotel on June 13, says Bill Scotting, Mittal's director of continuous improvement. Convenience led to the choice of venue between Mittal's headquarters in Rotterdam and Arcelor's in Luxembourg.

"It's the most efficient, right, because all of us are busy," Aditya Mittal says. "At the airport lounge we had wonderful discussions."

There were follow-up meetings in Brussels later that week, including a June 16 valuation discussion between Aditya Mittal and Urquijo. "The meeting schedule intensified" on June 19, with the involvement of lawyers, the prospectus says.

In addition to the Sheraton, meetings were held at the luxury Conrad hotel among the upscale shops and apartments of Avenue Louise.

Arcelor's view of Mittal changed during the meetings, as the company learned about how the suitor had expanded its production of high-quality steel, says Roeland Baan, CEO of Mittal Europe.

The discussions in Brussels initially focused on matters other than price and quickly produced an agreement on those issues, says an Arcelor adviser who asked not to be identified because the discussions were confidential.

Throughout the talks, the negotiators used code names that changed periodically to preserve secrecy, the adviser said. Mittal was initially known as "moon," Arcelor was "tiger" and Severstal was "sauvignon."

When the two sides finally went public, Mittal and Arcelor professed their newfound passion for one another. "I hope it can become a love marriage between our teams," Arcelor's Kinsch said when the deal was announced.

Mittal Chairman Lakshmi Mittal went further. "We have been trying to pursue a bride for the past five months," said Mittal.