When it came to repelling a hostile takeover bid from Mittal Steel, Arcelor left no stone unturned as it searched for a poison-pill partner. But some critics say the solution, a deal that gives more than a third of Arcelor to a Russian billionaire, Aleksei Mordashov, may leave a bitter aftertaste.
The deal, which exchanges Mordashov's majority stake in the Russian company Severstal as well as other assets and cash for the stake in Arcelor, has angered some stockholders, who fear that the way it is structured and the lack of input from investors may lead to heavy Russian influence over Arcelor, which is based in Luxembourg and has operations in France and Belgium.
If it is approved by the shareholders, the agreement will put Russian executives in crucial management positions at Arcelor, raising questions about integration between the two corporate cultures and concerns among some shareholders about what role the Russian government may want to play.
Critics also say the deal is being forced on investors, who are limited in how they can block it.
In a note on Monday, Sylvain Brunet, an analyst at Exane BNP Paribas, wrote, "Although the proposed merger contains industrial logic, we believe shareholders will question the large ownership transferred to Severstal, the risk of change of control, and the negative vote procedure."
And Bernard Oppetit, chairman of Centaurus Capital, a hedge fund company in London, said, "The most egregious thing is that someone could get control of Arcelor without paying a premium."
Oppetit said Mordashov was in fact receiving a premium because the shares of Arcelor are "worth a lot more than the assets that are being contributed."
On Friday, Commerzbank said in a note that a Mittal-Arcelor tie-up would be a better transaction, in part because the value of Mordashov's assets was not clear.
Roeland Baan, chief of Mittal's European operations, admitted that his company's offer had been viewed as "Attila the Hun attacking from the East, taking over an iconic company from the West."
But Arcelor, he asserted on Monday, is part of a "cozy club" of gentlemen, which in trying to fend off Mittal has "given the company to Genghis Khan."
Baan added he was "completely confident" Mittal would prevail.
Arcelor started a search for a partner after Mittal offered 23 billion euros (US$29.3 billion) for the company in January, and it was close to announcing a deal with Severstal 10 days ago when Mittal increased its bid to 25.8 billion euros, several executives involved in the negotiations say.
Arcelor came up with nine prospective partners that could thwart the Mittal deal, including companies in China, Brazil, Germany and another from Russia, executives briefed on its strategy said. These prospective partners were whittled down to three or four, and then a month ago just to Severstal.
On May 19, executives said, Mittal raised its bid in part because it feared that a Severstal deal was imminent.
Over the weekend, some shareholders, including hedge funds, were trying to force an emergency meeting to change the way a deal would be approved. Other shareholders withheld judgment.
Mordashov, who would remain chairman of Severstal, will become non-executive chairman of Arcelor with the power to appoint six of 18 board members.
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