By AOIFE WHITE
The Associated Press
Monday, June 26, 2006; 3:53 PM
LUXEMBOURG -- Putting five months of enmity behind them, Arcelor SA and Mittal Steel Co. promised to honor each other Monday as they toasted their $31.9 billion covenant _ but still need support from Arcelor shareholders to seal the deal.
Mittal had earlier offered 25.8 billion euros ($26 billion) for its rival. Executives were all smiles as Arcelor Chairman Joseph Kinsch welcomed Mittal Chairman and Chief Executive Lakshmi Mittal and his family, saying he hoped their "marriage of reason" would end as a "marriage of hearts."
"We've been trying to persuade the bride for the past five months that we love her and she should accept the marriage proposal," Mittal joked.
Arcelor spurned a rival offer for part of the company from Russia's OAO Severstal in favor of the deal with Mittal, which will create a titan with nearly 10 percent of the global market.
The Severstal deal was designed to go through unless shareholders representing at least 50 percent of Arcelor's capital vote against it on Friday.
Mittal said he was confident shareholders would say no to Severstal and back his deal, ruling out a merger of all three. But Arcelor said its board would have to discuss any new bid for the entire company.
Severstal, which had agreed to swap steel assets for a stake in Arcelor, could be in line for a 140 million euros ($175 million) breakup fee. Severstal said it was "very surprised" Arcelor's board did not invite it to discuss its revised offer and that it was reviewing its options.
Two large shareholders, Romain Zaleski and Jose Maria Aristrain, have been discussing the terms on which they would support Mordashov, the person said, speaking on condition of anonymity because of the sensitivity of the talks.
Lakshmi Mittal, however, said he was "very relaxed" about the possibility of another offer, saying he was sure Arcelor's board and shareholders backed his deal. "Any partial bid will not be entertained by the company," he said.
Mittal owned 0.2 percent of Arcelor by June 22, the Spanish market regulator said.
Arcelor shares shot up 7.9 percent to close at 37.80 euros ($47.29), their first day of trading after being halted by regulators last week. Mittal shares ended down 3.7 percent at 24.38 euros ($30.50).
Arcelor's opposition to the deal, which was first proposed in January, wrung substantial concessions from Mittal and left Arcelor with a considerable level of control.
"All the management board's actions of the last five months were well founded," Kinsch said. "We have worked in the interest of all the company's members and the results are there."
He said Mittal had "profoundly altered" its offer, taking on board Arcelor's business model and governance.
The new company would dwarf other steelmakers, controlling close to 10 percent of world steel production, churning out 120 million tons of crude steel a year and employing more than 320,000 people.
Lakshmi Mittal said it would have a total market capitalization of $46 billion and combining operations should save $1.6 billion in synergies.
Under the terms of the deal, Arcelor will name the chief executive of the new company. Kinsch said current Arcelor CEO Guy Dolle _ who once described Mittal's steel as cheap eau de cologne compared to Arcelor's fine perfume _ was ready to step down but would remain on the board and would head Arcelor in the meantime. Dolle was absent from Monday's presentations.
Mittal, 55, will be president of the new company, while Kinsch, 73, will be chairman for an undetermined length of time, to be succeeded by Lakshmi Mittal.
Mittal deflected a question about the level of debt the new company will take on, saying the new company would be in a very strong financial situation.
Fitch Ratings expressed concern, however, noting the extra cash Mittal was paying. "Should the transaction proceed on the currently understood terms announced today, the financial profile of the combined entity would be weaker than that of Mittal Steel on a stand-alone basis," it said.
Standard & Poor's Ratings Services said the new company's financial profile would deteriorate compared to current ratings for Mittal and Arcelor.
Neither Mittal nor Arcelor would say how much they have spent on the takeover campaign.
But Mittal said the high price it will pay for its nearest rival showed that the "undervalued" global steel industry was healthy. "Our consolidation will accelerate a lot of initiatives," he said, adding that he believed there would be at least two 150-million ton steelmakers in 10 years' time.
Mittal and Arcelor have been unable to agree on the future of Dofasco, a Canadian steelmaker Arcelor bought earlier this year. Germany's ThyssenKrupp AG, which had been bidding against Arcelor, told Dow Jones Newswires it expected Mittal to cede Dofasco to it if their deal goes through.
AP Business Writer Alex Nicholson in Moscow contributed to this report.