Steel giant tries to get even bigger
By Heather Timmons The New York Times
FRIDAY, JANUARY 27, 2006
LONDON Lakshmi Mittal, the founder of the world's largest steel company, has never been bashful about his global ambitions, but he still shocked the industry on Friday with an unsolicited E18.6 billion bid for his biggest rival, Arcelor.
Mittal Steel's offer to Arcelor shareholders, worth $22.7 billion in cash and stock, works out to E28.21 a share, a 27 percent premium over the company's closing price on the Euronext exchange in Paris on Thursday.
A combination with Arcelor, itself the product of a merger of French, Spanish and Luxembourg companies, would create an even greater steel giant with a leading position in the Americas, Europe and Africa, annual revenue of nearly $70 billion and 320,000 employees.
"This is a great opportunity for us to take the steel industry to the next level," Mittal said at a news conference in London. "Our customers are becoming global, our suppliers are becoming global, everyone is looking for a stronger global player."
Mittal is the world's third-richest person, behind Bill Gates and Warren Buffett. Mittal's company has grown rapidly in recent years by buying up competitors, based on his longstanding belief that the industry should be consolidated to stem a historical cycle of boom and bust.
Nonetheless, Arcelor's management did not share in Mittal's excitement on Friday. The company said the deal had a "hostile character" and its board members met in the afternoon to decide whether to try to counteract it. Options for Arcelor are limited - the Mittal offer is contingent on its receiving just 50 percent of Arcelor's shares, and Arcelor shareholders are mainly institutions with few qualms about swapping one share for the next, analysts said.
There is no other steel company large enough to make an obvious "white knight," though Arcelor may try to make a deal of its own, to become too large to be swallowed by Mittal.
The markets reacted favorably to the offer. Arcelor's shares rose E6.32 to close at E28.54 on Friday, as investors bet that the deal would go through and that Mittal Steel would be forced to raise its price. Shares of Mittal, which is based in Rotterdam, rose E1.60 to close at E27.63 in Amsterdam.
If the deal does go through, Mittal Steel would sell its Canadian subsidiary, Dofasco, to ThyssenKrupp of Germany, even though Arcelor is offering a higher price for Dofasco. The Canadian company had been the target of a hotly contested bidding war, which ThyssenKrupp recently exited. ThyssenKrupp would pay 68 Canadian dollars, or $59, a share for Dofasco, less than Arcelor's winning bid of 71 dollars a share.
Mittal Steel estimates that it could achieve $1 billion in cost savings after cutting overlapping administrative and manufacturing units. Together, the companies would produce 115 million tons of steel a year, dwarfing their nearest competitor, Nippon Steel, which produces just over 30 million tons a year.
Combining the largest and second-largest companies would raise competition issues in most industries, but steel production is so globally fragmented that regulators are not expected to object. Together, Mittal and Arcelor, which is based in Luxembourg, would control just 10 percent of the total market.
Mittal is offering four Mittal shares and E35.25 in cash for every five Arcelor shares, or about one-quarter of the price in cash.
The company will probably be forced to raise its price to win Arcelor, analysts said, but it may not be able to raise that much more money. It is using a E5 billion bank loan from Goldman Sachs and Citigroup to finance the deal and will have $14 billion in debt if it closes.
Ratings agencies warned on Friday that Mittal's ratings were at risk if it paid too much. Mittal is highly rated for the steel industry, said Fitch Ratings in a note, but "there are numerous risks surrounding the acquisition plans, including the high likelihood the price will need to be raised."
Mittal said he had tried at first to make a friendly offer, and approached Arcelor's chief executive, Guy Dollé, on Jan. 13 about the prospect, but was rebuffed. Dollé "saw difficulties" with the plan, Mittal said. Dollé canceled their next meeting, because he had won the Dofasco bid, and then did not return another call, Mittal said.
Still, Mittal and his son Aditya Mittal, who is the company's chief financial officer, both said at the news conference that they would like Arcelor's management to become part of the new organization. The two also said they would honor all of Arcelor's existing agreement with its subsidiaries and staff, and that there would be no plant closings.
If the transaction goes through, the Mittal family will own 51 percent of the company, down from 88 percent.
Other Mittal investors said they welcomed the deal. "I'm very much in support of it," said Wilbur Ross, who sold his International Steel Group to Mittal last year and is now a shareholder and member of the company's board. "The industrial logic of the deal is impeccable."
Some French officials expressed concern about the bid, in part because they said they received the news on Friday morning with no warning. French politicians said they were worried about the loss of a European steel champion, even though the company is based in Luxembourg, because Arcelor employs many French workers and has deep roots in France.
By Heather Timmons The New York Times
FRIDAY, JANUARY 27, 2006
LONDON Lakshmi Mittal, the founder of the world's largest steel company, has never been bashful about his global ambitions, but he still shocked the industry on Friday with an unsolicited E18.6 billion bid for his biggest rival, Arcelor.
Mittal Steel's offer to Arcelor shareholders, worth $22.7 billion in cash and stock, works out to E28.21 a share, a 27 percent premium over the company's closing price on the Euronext exchange in Paris on Thursday.
A combination with Arcelor, itself the product of a merger of French, Spanish and Luxembourg companies, would create an even greater steel giant with a leading position in the Americas, Europe and Africa, annual revenue of nearly $70 billion and 320,000 employees.
"This is a great opportunity for us to take the steel industry to the next level," Mittal said at a news conference in London. "Our customers are becoming global, our suppliers are becoming global, everyone is looking for a stronger global player."
Mittal is the world's third-richest person, behind Bill Gates and Warren Buffett. Mittal's company has grown rapidly in recent years by buying up competitors, based on his longstanding belief that the industry should be consolidated to stem a historical cycle of boom and bust.
Nonetheless, Arcelor's management did not share in Mittal's excitement on Friday. The company said the deal had a "hostile character" and its board members met in the afternoon to decide whether to try to counteract it. Options for Arcelor are limited - the Mittal offer is contingent on its receiving just 50 percent of Arcelor's shares, and Arcelor shareholders are mainly institutions with few qualms about swapping one share for the next, analysts said.
There is no other steel company large enough to make an obvious "white knight," though Arcelor may try to make a deal of its own, to become too large to be swallowed by Mittal.
The markets reacted favorably to the offer. Arcelor's shares rose E6.32 to close at E28.54 on Friday, as investors bet that the deal would go through and that Mittal Steel would be forced to raise its price. Shares of Mittal, which is based in Rotterdam, rose E1.60 to close at E27.63 in Amsterdam.
If the deal does go through, Mittal Steel would sell its Canadian subsidiary, Dofasco, to ThyssenKrupp of Germany, even though Arcelor is offering a higher price for Dofasco. The Canadian company had been the target of a hotly contested bidding war, which ThyssenKrupp recently exited. ThyssenKrupp would pay 68 Canadian dollars, or $59, a share for Dofasco, less than Arcelor's winning bid of 71 dollars a share.
Mittal Steel estimates that it could achieve $1 billion in cost savings after cutting overlapping administrative and manufacturing units. Together, the companies would produce 115 million tons of steel a year, dwarfing their nearest competitor, Nippon Steel, which produces just over 30 million tons a year.
Combining the largest and second-largest companies would raise competition issues in most industries, but steel production is so globally fragmented that regulators are not expected to object. Together, Mittal and Arcelor, which is based in Luxembourg, would control just 10 percent of the total market.
Mittal is offering four Mittal shares and E35.25 in cash for every five Arcelor shares, or about one-quarter of the price in cash.
The company will probably be forced to raise its price to win Arcelor, analysts said, but it may not be able to raise that much more money. It is using a E5 billion bank loan from Goldman Sachs and Citigroup to finance the deal and will have $14 billion in debt if it closes.
Ratings agencies warned on Friday that Mittal's ratings were at risk if it paid too much. Mittal is highly rated for the steel industry, said Fitch Ratings in a note, but "there are numerous risks surrounding the acquisition plans, including the high likelihood the price will need to be raised."
Mittal said he had tried at first to make a friendly offer, and approached Arcelor's chief executive, Guy Dollé, on Jan. 13 about the prospect, but was rebuffed. Dollé "saw difficulties" with the plan, Mittal said. Dollé canceled their next meeting, because he had won the Dofasco bid, and then did not return another call, Mittal said.
Still, Mittal and his son Aditya Mittal, who is the company's chief financial officer, both said at the news conference that they would like Arcelor's management to become part of the new organization. The two also said they would honor all of Arcelor's existing agreement with its subsidiaries and staff, and that there would be no plant closings.
If the transaction goes through, the Mittal family will own 51 percent of the company, down from 88 percent.
Other Mittal investors said they welcomed the deal. "I'm very much in support of it," said Wilbur Ross, who sold his International Steel Group to Mittal last year and is now a shareholder and member of the company's board. "The industrial logic of the deal is impeccable."
Some French officials expressed concern about the bid, in part because they said they received the news on Friday morning with no warning. French politicians said they were worried about the loss of a European steel champion, even though the company is based in Luxembourg, because Arcelor employs many French workers and has deep roots in France.
