Arcelor's ring-fencing of Dofasco could stop Mittal

Arcelor, the European steel group, attempted to put in place a "poison pill" defence yesterday and offered its shareholders a €5bn (£3.5bn) cash payout as it continued to fight off a hostile bid from Mittal Steel.

A key Arcelor business, its Dofasco Canadian steel offshoot, cannot now be sold off by any acquirer of the group. A new three-person board at Dofasco, separate from the Arcelor management, must approve any change of ownership of the business.

Arcelor insisted it had put the measure in place because selling Dofasco, which serves the North American market, would have been against its shareholders' interests.

Mittal, whose chairman Lakshmi Mittal is London-based, had planned to divest of Dofasco if the €19bn takeover offer succeeded. The disposal would have roughly financed the €4.7bn cash element of the Mittal cash-and-shares offer. It would also have helped with US antitrust issues.

The combined Mittal-Arcelor would be the world's biggest steel producer. Mittal had already agreed to sell Dofasco to Germany's ThyssenKrupp. But Mittal insisted it would press ahead.

Mittal said: "Today's announcement by the board of Arcelor goes against the interests of its shareholders and is an attempt to deprive them of the right to decide on the merits of Mittal Steel's offer. Mittal's offer is not dependent on the sale of Dofasco and nothing in this announcement alters our resolve or ability to proceed with our offer."

Arcelor said Dofasco is strategically vital as it allows the company to serve the US automotive market for the first time. It also said the business has technology for galvanising steel that it did not want to see fall into a competitor's hands. Arcelor's chief financial officer Gonzalo Urquijo said: "We do not take poison pills and this is not a poison pill. Mittal can live very well with Dofasco.'

However, Colette Neuville, the head of the Association de Défense des Actionnaires Minoritaires, a French shareholder body, said: "I cannot accept the assets of a company can be put beyond the control of its managers. It means the managers no longer have control over the assets."

Arcelor raised its proposed dividend payout yesterday to €1.85 a share from €1.20. Mittal has said anything above €0.80 would come off the cash part of its offer. Arcelor also pledged to make a special cash payment worth €5bn to shareholders, a year after the Mittal bid fails.