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Nippon Steel-Arcelor pact has control change clause

By Staff
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TOKYO, Feb 23 (Reuters) Nippon Steel Corp. said on Thursday its alliance with Arcelor, the target of billion hostile takeover bid by Mittal Steel, allows either party to terminate the contract in case of a change of company control.

Nippon Steel President Akio Mimura confirmed media reports earlier this month that the company could stop Arcelor from using technologies it has provided to the firm if Arcelor is taken over, although he added Nippon Steel has not yet decided whether to invoke that clause in their contract.

''Technology is an important asset for us,'' Mimura told a news conference. ''We'll decide whether and how we execute the clause after carefully studying the benefits to our company.'' The contentious takeover bid by Mittal Steel, the world's biggest steel maker in terms of crude steel output, for its closest rival would create a steel giant with a global market share of about 10 per cent, but it has been rejected by the Arcelor board and has prompted opposition from some politicians fearing job cuts.

Nippon Steel, the world's third-biggest, has provided Arcelor with technologies for high-grade sheet steel used in automobiles, an area where Japanese steel makers have an edge over rivals because of tough requirements by Japanese automakers, their key clients.

Arcelor sells the sheet steel to Japanese car makers operating in Europe.

Nippon Steel and Arcelor also have a joint venture in Shanghai with China's Baoshan Iron&Steel Co, which will soon start producing sheet steel for Honda Motor Co., Nissan Motor Co. and Toyota Motor Corp., all of which have existing or pending assembly plants in the southern province of Guangzhou.

The market is watching closely to see whether Nippon Steel uses the clause to end its agreement with Arcelor. Analysts say Arcelor's high-margin car-steel business is one of its great attractions for Mittal.

''It does matter for Mittal,'' said a London-based institutional investor who owns both Mittal and Arcelor shares. ''I'm not sure if Mittal would walk away if Nippon Steel executes the clause, but it's less likely Mittal will sweeten the offer price for Arcelor (if that happens),'' the investor, who asked not to be identified, said.

Speaking at a news conference representing Japan's steel industry, Mimura also said commodity grade steel prices in China show signs of bottoming out, but a supply glut is continuing.

''Chinese steel prices are too low. A natural correction phase has begun, but inventory adjustments in the market are far from over,'' Mimura said, referring to recent price hikes announced by some Chinese steel makers.

REUTERS SD KN1731

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