Arcelor needs to convince investors for Severstal

BRUSSELS/PARIS, May 29: Steel group Arcelor has to convince investors why it made a 13 billion-euro (.59 billion) deal with Russia's Severstal instead of talking to suitor Mittal Steel, analysts and shareholders said on Monday.

On Friday, Arcelor agreed to buy Severstal to create the world's biggest steelmaker.

Colette Neuville, president of French small shareholders lobby ADAM, which represents about 5 percent of Arcelor holders, said on Monday she was writing to Arcelor Chairman Joseph Kinsch and the Luxembourg regulator in order to get procedural clarification.

She said either Severstal makes an offer for all Arcelor shares or the two companies start a proper merger procedure with an independent valuation of assets and a shareholders meeting to vote on the deal.

Arcelor shares rose 1.65 percent to 32.10 euros on Monday morning, recouping part of Friday's loss, and Mittal's raised cash and share offer currently values it at 36.47 euros.

Analysts said the Severstal deal had its merits but was not necessarily better than Mittal's offer.

''Although we are refraining at this stage from saying whether this alternative project is more attractive than Mittal's or not, it would nevertheless be more appealing in the mid-term for current shareholders than a standalone Arcelor,'' said Oddo Securities analyst Harold de Decker.

At Exane BNP Paribas, analyst Sylvain Brunet said he needed more details from management on the Severstal deal on how they were going to keep control, and on whether they would study Mittal's bid at all.

''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,'' he said in a note on Monday.

''While involving Severstal is a smart negotiating tactic, it looks risky, given unwinding clauses in place,'' Brunet said.

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Arcelor, now the second-largest steelmaker behind Mittal in volume, said on Friday that the enlarged group would be the industry's most profitable, with 40 percent of its core earnings in the lucrative Brazilian and Russian markets.

The deal is expected to be put to Arcelor shareholders at a meeting provisionally on June 28. In order to reject the deal, a majority of all shareholders would have to vote against it.

Reuters reported on Friday that some Arcelor shareholders were trying to rally support to call an extraordinary general meeting to change the voting requirements for approval of the merger with Severstal.

Mittal said Goldman Sachs, the U.S. investment bank that has arranged loans for Mittal, was actively coordinating Arcelor shareholders to object to the deal and was confident of getting more than the 20 percent support required for the meeting.

A Mittal Steel spokesman said: ''We fully support this initiative. Many Arcelor shareholders have serious reservations about the Severstal deal and would like a proper vote on it, rather than the sham 'veto vote' currently proposed.'' RUSSIAN RICHES Severstal Chairman Alexei Mordashov, who owns 89.6 percent of the Russian group, is to provide 11.73 billion euros worth of assets and 1.25 billion euros in cash for new Arcelor shares issued at 44 euros each, for a stake in the new Arcelor of 32 percent. After a planned share buyback his stake may rise.

Interfax news agency quoted Mordashov as saying on Saturday he wanted a 45 percent stake in Arcelor, but regulatory authorities and the interests of other shareholders prevented him from doing so.

''We have the legal and technical means to carry out further mergers and takeovers. This could mean buying companies or merging with companies, if it's in the interest of shareholders,'' Severstal owner Alexei Mordashov told reporters.

''We are creating a strong, effective company capable of giving value to its shareholders everywhere in the world. Of course we have real plans to grow,'' Mordashov said.

Reuters