Mittal: Not on the mark

London, Feb. 15: Mittal Steel today posted sharply lower annual profits but said its audacious 18.6-billion-euro ($12.8 billion) hostile bid for rival Arcelor was progressing well.

Mittal Steel reported full year 2005 net income of $3.4 billion, down from $4.7 billion in 2004. Fourth-quarter net income fell to $650 million from $1.6 billion a year earlier. Operating profit fell to $871 million from $765 million.

Lakshmi Mittal, the billionaire behind the group, said his company had produced a “solid performance in a more challenging year”, which underscored the logic of the Arcelor deal and “illustrates the increased stability that industry consolidation has delivered”.

A successful deal would represent the biggest merger seen in the steel sector and would create a company with output three times greater than its nearest rival.

Mittal Steel, which was built by Mittal, an Indian-born tycoon ranked by Forbes as the third-richest man in the world, is already the world’s largest producer by volume. It announced its surprise takeover bid for Arcelor last month.

Despite ruling out job cuts, Mittal has said a takeover would generate annual economies of scale of $1 billion (?565 million), with 60 per cent of that sum being reached in the first year. The company’s finance director, Aditya Mittal, said a merged group would hit annual net profits of $7.2 billion.

The proposed tie-up met with fierce opposition from several European politicians and the Arcelor board. However, Mittal’s proposed cash-and-shares takeover bid met with a positive reception from financial analysts, though many think Mittal Steel will have to up its offer.

The European Commission has said it will look at the deal “on competition grounds only”. The new company would have almost 350,000 employees at 61 plants in 27 countries ? but analysts have said there are few areas of overlap that could cause obvious competition problems.

Mittal said today that he was pleased the offer for Arcelor had been given a “very positive” reception.

For the past financial year, Mittal said sales rose to $28.1 billion for the year from $22.2 billion, and to $7.1 billion for the fourth quarter from $6.2 billion. Full-year operating income fell to $4.7 billion from $6.1 billion. Steel shipments rose to 49.2 million tonnes from 42 million for the full year and to 13.6 million tonnes from 10.1 million for the quarter.

Mittal said it expects first quarter shipments to increase by about 10 per cent due to the acquisition of Kryvorizhstal, a Ukrainian steelmaker.

It added that average selling prices are expected to remain flat in the first quarter while the cost of sales is expected to increase on the back of higher gas prices.

“We expect operating income to be higher as compared to the fourth quarter of 2005,” the company said.

About the Arcelor bid, Mittal said, “We are pleased with the very positive reception our offer has received, and are confident that progress is being made towards establishing the regulatory framework for the offer.”

Last week, Lakshmi Mittal said in a newspaper interview his company’s bid for Arcelor would safeguard European jobs in the face of mounting Chinese competition.

Guy Doll?, the Arcelor chief executive, had earlier cautioned in a newspaper interview that the plan would have “dramatic consequences for shareholders and especially for workers”.

Overnight, Luxembourg said it has hired investment banker JP Morgan to advise it on the offer to buy Arcelor, in which the Grand Duchy owns a minority stake.

Arcelor is due to publish its annual results on Thursday.