Arcelor Mittal agrees to cut Laiwu stake -sources

SHANGHAI, Aug 10 (Reuters) Arcelor Mittal, which has agreed to buy 38.41 percent of China's Laiwu Steel Co., has accepted a paring of its stake to improve its chances of winning government approval, sources familiar with the situation said on Friday.

They added, however, that Arcelor Mittal would have to raise the price significantly in order to clear regulatory hurdles, since the Chinese company's share price has risen sharply since the deal was originally struck.

In February 2006, before merging with Mittal to form the world's biggest steelmaker, Arcelor agreed to pay 2.085 billion yuan (5.4 million) for the stake, or 5.888 yuan per share, a roughly 15 percent premium to Laiwu's net asset value.

The proposed deal gave Arcelor a stake equal to Laiwu Steel's state-run parent, which would also hold 38.41 percent.

But the deal failed to win regulatory approval.

''Arcelor Mittal has agreed in principle to scale back the stake by 0.5 percentage point to hand over control of Laiwu to its parent, to improve its chances for regulatory approval, just as Mittal did with Valin back in 2005,'' said one of the sources.

The source was referring to Mittal's reduction of its proposed stake in mid-sized Valin Steel Tube&Wire Co. to 36.7 percent from 37.17 percent, in deference to a new Chinese steel policy banning foreign control of the country's major steel mills.

Arcelor Mittal and Laiwu are now in a fresh round of talks to renegotiate the pricing of the deal, as Beijing released new rules on mergers and acquisitions of domestically listed companies in the middle of this year mandating that the pricing of any equity deal be based on the target firm's share price, rather than net asset value.

Laiwu's A-shares, traded on the Shanghai Stock Exchange, fell 2.22 percent to 16.72 yuan in early trade, although they were still nearly triple what Arcelor agreed to pay in the original agreement.

Reuters AK DB0914