|(Top) Lakshmi Mittal, Alexey Mordashov
May 26: Running from the culture the Indian steel magnate Lakshmi Mittal represents, Luxembourg-based Arcelor today walked into the arms of a Russian company whose financial methods had come under suspicion in the days of emerging capitalism in that country in the 1990s.
By agreeing to a merger with the Alexey Mordashov-owned Severstal, Russia’s largest steel company, Arcelor appears to have blocked Mittal Steel’s hostile takeover attempt which it has been fighting tooth and nail.
Mittal Steel immediately criticised the deal as a “second-class combination”, saying Arcelor’s board seemed to be manipulating shareholders to its own ends.
Arcelor is the world’s second largest company after Mittal Steel and after the merger the new entity will be the most profitable globally.
The deal that virtually stops a company owned by an Indian from taking over a European rival is believed to have been blessed by Russian President Vladimir Putin. It’s an amusing contrast to the days when the Soviet Union had helped India build some of its earlier steel plants.
Under the arrangement, Mordashov receives 32 per cent shares of the joint company in exchange for his 82 per cent holding in Severstal and a cash payment of 1.25 billion euros.
Mordashov said the new company would “have the best corporate governance, by world standards”.
Under CEO Guy Dolle, Arcelor fought hard against Mittal’s bid, complaining about the company’s corporate governance, which is heavily weighted toward the Mittal family. Arcelor also complained that Mittal’s original offer of 18.6 billion euros undervalued the company. Mittal offered last week to raise its bid to 25.8 billion euros.
The terms of the deal represent an improvement of almost 20 per cent on Mittal’s hostile offer and sparked immediate anger in the Mittal camp.
Mittal said this was unprecedented and prevented shareholders from having a real choice in the future of the company. “Arcelor’s shareholders are being forced to hand over control of their company, whilst being denied a premium,” it said.
Spokesman Paul Weigh said the way the deal had been structured meant that Mordashov could quickly have a large say in how the company is run.
“Effectively, he can do whatever he wants with the company,” Weigh said, stressing that, in contrast, Mittal had discussed its bid with governments and most Arcelor shareholders and had promised to respect labour deals.