Arcelor to Merge with Severstal
May 26, 2006
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Global steel giant Arcelor SA (Luxembourg) said today it plans to merge with Moscow-based steel company Severstal. The merger deal may bring to an end an attempt by Mittal Steel N.V. to acquire Arcelor – but more plot twists may yet emerge in this global, multi-billion-dollar steelmaking drama.

Mittal Takeover Timeline
Arcelor has been maneuvering for months to head off a Mittal takeover. Mittal presented its first offer for Arcelor on January 27, 2006, eager to make the combined companies into the world's first 100-million-ton plus steel producer. Arcelor resisted the bid, even as Mittal received U.S. antitrust clearance for the bid (conditioned on the sale of its stake in Dofasco, Inc.).

On May 9, Mittal released a statement saying its attempts to initiate a dialog with Arcelor Chairman Joseph Kinsch were rebuffed. On May 19th, Mittal made an improved offer to Arcelor. Arcelor's board met on Sunday (May 21) and Kinsch said the new offer seemed to address some of the shortcomings Arcelor had seen in the original offer, and a study of the new offer was ordered.

Mittal, quoted in various media today, said the Arcelor/Severstal merger would be a "second-class combination" and would deny shareholders a premium.

An unconfirmed media report from Russia's RosBusinessConsulting says Mittal may respond by merging with another Russian steel maker, such as Magnitogorsk Iron & Steel Works.

Done Deal?
The Arcelor/Severstal transaction is subject to antitrust and shareholder approval, but both companies say they expect the deal will close in July 2006.

The transaction values Arcelor at 44 euros (approx. U.S. $56.38) per share, excluding a 1.85 euro (approx. $2.37) dividend and said to represent a premium of 100 percent over Arcelor’s closing price on Jan. 26, 2006, and 36.6 percent over Arcelor’s closing price ex-dividend on May 25, 2006. In addition, up to 7.6 billion euros (approx. $9.74 billion) cash will be returned to shareholders.

The New Company
Arcelor and Severstal say the merger will result in a steel company with 46 billion euros (approx. $59 billion) in sales and 70 million tonnes (metric tons; approx. 77.2 U.S. tons) of production, based on each company’s pro forma 2005 results. The companies say the combined new company would be the Number 1 steel maker in Europe, Russia and South America and have a leading position in North America.

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