Sun, Jul 02, 2006 - Page 11 News List

Severstal tie-up rejected by Arcelor shareholders in vote

AFP , LUXEMBOURG

Shareholders in the European steel group Arcelor voted here on Friday to reject an alliance with Russian group Severstal, clearing the way for Arcelor to merge with Mittal to create a global steel giant.

Severstal later acknowledged that its deal to merge with Arcelor had been terminated, but it said in a statement issued on its website that chairman Alexei Mordashov "continues to assess all of his strategic options," underlining that the experience of the Arcelor talks had "greatly raised Severstal's profile and standing within the investment community."

On Thursday, stock market regulators in France, Belgium, Luxembourg and Spain had asked the Russian group to clarify its intentions regarding Arcelor as soon as possible amid reports that Mordashov might make a sweetened merger offer.

Earlier on Friday, Arcelor board president Joseph Kinsch had told a general assembly of shareholders that "more than 50 percent [of the capital] declared itself against the operation with Severstal."

He said the supervisory board of Arcelor would "proceed with the [cancellation] of the contract between our company and Mordashov" and would therefore incur a penalty of 140 million euros (US$179 million).

Severstal had agreed a merger deal with Arcelor in May that would have seen Mordashov take a 32-percent stake in Arcelor, but Arcelor management on Sunday accepted an alternative offer to merge with rival Mittal Steel under pressure from its shareholders.

The proposed alliance with Severstal had been conceived of by the Arcelor management as a defensive move to ward off a hostile bid by Mittal Steel which the Arcelor board had been determined to thwart.

The shareholders of Mittal Steel, essentially chairman Lakshmi Mittal who holds 96 percent of the voting rights, also voted in favor of a merger with Arcelor on Friday with an approval rate of 99.99 percent.

The management of Arcelor is now recommending its shareholders to accept a share and cash offer from Mittal Steel which values Arcelor at about 25.4 billion euros (US$32.3 billion).

In another twist, Kinsch revealed that Lakshmi Mittal had asked the chief executive of Arcelor, Guy Dolle, to remain in his position and lead the integration of Arcelor and Mittal.

Dolle, 64 and due to retire in 15 months, had been scathing in his initial reaction when Mittal's offer was announced in January, denigrating his rival's products and the value of its assets.

Dolle was expected to become the first victim of the tie-up.

The deal between the two companies is set to create a group with 320,000 employees producing about 116.0 million tonnes of steel per year, about 10.0 percent of the world market.

A spokesman for Mittal hailed the news of the decision by Arcelor shareholders to reject the proposed tie-up with Severstal.

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