Mittal Steel criticises the deal as `second-class combination'

Arcelor to replace Mittal as largest steel maker Russian promoter to get 32 p.c. stake in Arcelor

BRUSSELS: Arcelor SA, long fighting a hostile bid from Mittal Steel Co., said on Friday it reached a deal that would give it a controlling stake in Russia's largest steel maker Severstal and euro1.25 billion ($1.59 billion) in cash in exchange for 32 per cent of Arcelor.

Mittal Steel Co. immediately criticised the deal as a "second-class combination,'' saying Arcelor's board seemed to be manipulating shareholders to its own ends.

Arcelor fought hard against Mittal's bid, complaining about the company's corporate governance, which is heavily weighted toward the Mittal family. Arcelor also said that Mittal's original offer of euro18.6 billion ($23.75 billion) undervalued the company. Mittal offered last week to raise its bid to euro 25.8 billion ($33 billion).

Under the deal announced on Friday, Severstal's controlling shareholder Alexei Mordashov will pay Arcelor euro1.25 billion ($1.59 billion) in cash and give it his stake in all of Severstal's steel assets and Italian steelmaker Lucchini, according to an Arcelor statement.

In exchange, Mordashov will own 32 per cent of the enlarged Arcelor group. Existing shareholders, who will own the remaining 68 per cent, can vote on the deal at a shareholders' meeting next month.

Arcelor Chief Executive Guy Dolle said the deal worth euro 44 ($56.12) per share, excluding a planned euro1.85 ($2.36) per share dividend represents the "real value'' of the company. Mittal has offered euro 37.74 ($48.19) a share.

Arcelor said the transaction would go through by the end of July unless shareholders representing more than half the company's capital vote against it on June 28. Some 35 per cent of Arcelor shareholders usually attend meetings. Mr. Dolle expressed confidence that shareholders would approve the bid. Mr, Mittal said this kind of move was unprecedented and prevented shareholders from having a real choice in the future of the company. ``Arcelor's shareholders are being forced to hand over control of their company, while being denied a premium,'' it said in a statement.

Mittal spokesman Paul Weigh said the way the deal had been structured and Arcelor's plans to buy back a quarter of existing shares meant that Mordashov could quickly have a large say in how the company is run.

Mordashov has agreed not to vote against Arcelor's board. He has also promised to launch a cash offer at fair value if his ownership goes over 45 per cent of Arcelor share capital, Arcelor said in documents for investors posted on its Web site.

However, Arcelor said Mordashov would not be allowed to buy any more Arcelor shares for four years and could not offload the bulk of his shares for five years, although he would be allowed to sell off up to five per cent after two years.

The deal will be called off if Mittal manages to acquire more than 50 per cent of Arcelor's equity before its offer closes. If either Arcelor or Mordashov back out, they will have to pay a euro140 million ($178.6 million) break-up fee. AP