Takeover War for Arcelor Takes Sudden Turn

Arcelor's board of directors has been staunchly resistant to the hostile takeover by the world's leading steelmaker Mittal Steel, looking for just about any way to stop the bid. Now, the Luxembourg-based company has found a possible escape by announcing a merger with Russian steel group Severstal in a 12 billion euro ($15.3 billion) deal that would create the global leader in steel production.

The move, which Arcelor chief executive Guy Dolle called a "friendly fusion," is the latest in a high-stakes game of poker that has seen money being pushed back-and-forth across the table like it was Monopoly cash.

If the merger is finalized by its shareholders at the end of July, Arcelor-Severstal would then be the world's biggest steel group with a turnover of 46 billion euros, the two companies said in a statement.

The proposed fusion, which came just a week after Mittal improved its hostile cash and shares deal tender, would offer shareholders a premium of around 20 percent to the Mittal bid. The reaction from Netherlands-based Mittal was one of anger.

Arcelor "manipulating" its shareholders

Mittal said that Arcelor was denying its shareholders a premium and a choice with what it called a "second class" combination.

"Arcelor's shareholders are being forced to hand over control of their company, whilst being denied a premium. Yet again the board appears to be manipulating its shareholder base to its own ends," a Mittal spokeswoman said.

As much as Mittal was infuriated by the potential Arcelor-Severstal alliance, it is relatively helpless. The cash needed to put a more attractive offer on the table wasn't there.

"I think this is a deal breaker for Mittal. It will be very difficult to match this," said one Paris-based analyst.

Alexei Mordashov to hold one-third of new company

Under the agreement, Severstal's chairman Alexei Mordashov will pay 1.25 billion euros in cash in exchange for Arcelor shares given a value of 44 euros each. In addition, Severstal's 11.73 billion euros in assets will be handed over to Arcelor. Mordashov will then own 32 percent of the new steelmaker. Mordashov has agreed not to increase his share in the company for four years, or to sell any of his stake for the next five years.

Mittal had last week offered 25.8 billion euros or 37.74 euros per Arcelor share. Should the deal go through in July, Arcelor's stock will have doubled since the war for it started with Mittal's unsolicited bid in January.

Meanwhile, Germany's largest steel company, ThyssenKrupp, must wait and see if it can buy Arcelor's newly-acquired Canadian unit Dofasco, which would have been possible in the event of a Mittal-Arcelor merger. The Düsseldorf-based company made no comment about the newest developments.