Arcelor SA agreed to buy a controlling stake in Russia's OAO Severstal, in a 13 billion euro (US$16.6 billion) transaction that will create the world's biggest steelmaker and fend off a hostile bid from Mittal Steel Co.
Billionaire Severstal chairman Alexei Mordashov gets 295 million new Arcelor shares at 44 euros apiece, for a total stake of 32.2 percent, Luxembourg-based Arcelor said in a statement yesterday.
Arcelor gets an 89.6 percent stake in Severstal, other steel and mining assets and 1.25 billion euros in cash from billionaire Alexei Mordashov.
Chief executive officer Guy Dolle, who has opposed Mittal's 25.8 billion-euro offer, said he would scrap the transaction with Mordashov if more than half his shareholders vote against it. Mittal has raised its bid once since making a first offer Jan. 27. Luxembourg passed a law on May 4 that allows companies to enact takeover defenses or to find another buyer to protect against bids, without shareholder consent.
"It is clearly a ploy to avoid Mittal," Charles Bradford, analyst with Soleil Securities in New York, said in an interview. "They've been trying to find a `white knight' every place they could."
Shares of Severstal jumped 23 percent to a record US$14.50 on the Russian Trading System as of 10:38am in Moscow, valuing the company at US$8 billion. Shares of Arcelor fell as much as 1.06 euros, or 3.1 percent, to 33 euros in Paris, valuing the company at 21.1 billion euros. They have gained 49 percent since Mittal made its first bid.
Shares of Mittal rose 1.23 euros, or 5 percent, to 25.75 euros in Amsterdam.
Arcelor said it will regain its position as the world's biggest steelmaker, with annual output capacity of 70 million tonnes of steel, compared with Rotterdam-based Mittal's 60 million tonnes.
Arcelor's sales will average 650 euros a tonne, compared with Mittal's 450 euros a tonne.
Arcelor will also get Mordashov's stake in Severstal-Resource, which has iron ore and coal assets, and Italy's Lucchini SpA. Severstal, based in Cherepovets, Russia and the nation's third-biggest steelmaker, already has a venture with Arcelor in Russia making steel for cars.
Arcelor didn't say when shareholders will vote on the proposed transaction. It expects the deal to be completed by July. The two sides have agreed a 140 million-euro breakup fee.
The combined group will be the biggest supplier of steel to the world's car industry, controlling 22 percent of the market, Arcelor said. Mittal has 8 percent.
The enlarged Arcelor will make 58 percent of its steel in Europe, compared with 71 percent now. A further 16 percent will be produced in Russia, 15 percent in Brazil and 10 percent in North America.
Arcelor earlier sought to fend off Mittal by paying out bigger dividends to shareholders, offering to buy back shares and placing its Dofasco Inc unit in a Netherlands-based trust. Arcelor bought Hamilton, Ontario-based Dofasco last month for US$5.5 billion. Mittal had agreed to sell the unit to Germany's ThyssenKrupp AG should its offer for Arcelor succeed.