European firm Arcelor officially rejected yesterday a hostile takeover bid worth 25 billion euros (US$32.4 billion) from Mittal Steel, the world's largest steelmaker.
Arcelor said in a statement on its Web site that the offer was "inadequate as it continues to undervalue Arcelor" and recommended shareholders agree instead to a proposed merger between Arcelor and Russia's Severstal.
"The Arcelor board notes that the revisions to Mittal Steel's offer announced on May 19, 2006, demonstrate that Mittal Steel's initial offer undervalued Arcelor," the board said.
"Notwithstanding the increase in the consideration offered by Mittal Steel, the Arcelor board of directors believes that this offer is still inadequate as it continues to undervalue Arcelor," the board said.
It said Mittal's offer did not take into "proper account Arcelor's operating and financial results for last year -- which exceeded market expectations -- and for the first quarter of this year, nor Arcelor's strategic plan."
"The multiple implied by Mittal Steel's valuation of Arcelor remains significantly lower than multiples used in recent transactions in the steel sector," it added.
Arcelor has fought since late January against the offer by Mittal, the biggest steelmaker worldwide in terms of volume, which became official on May 18.
On May 26, Arcelor announced plans to acquire the Russian steel group Severstal for US$15.3 billion in what analysts said was a bid to thwart Mittal's takeover ambitions.
The Arcelor board, which met in Luxembourg on Sunday, said in the statement that "the Severstal transaction is a more attractive alternative from a strategic, financial and social point of view."
It said it "recommends to Arcelor's shareholders to support the Severstal transaction at the general meeting scheduled for 30 June 2006."
"The Severstal transaction will create the world's steel champion and the most profitable steel company," the statement said.
"The Severstal transaction represents a key step in the implementation of Arcelor's value plan and growth strategy and it is consistent with its strategic vision, business model and corporate values," it said.
Mittal's offer, on the contrary, conflicted with Arcelor's growth strategy.
"Mittal Steel's strategy is mainly volume driven while Arcelor's is margin driven," the Arcelor board said.
"As a result of these diverging business models, the synergies generated by the proposed combination of Mittal Steel and Arcelor are on the low side compared to those generated by recent large steel sector mergers and compared to those generated by the proposed merger of Arcelor and Severstal," the board said.
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