Britain's richest man, the Indian-born steel magnate Lakshmi Mittal, launched an audacious bid yesterday to corner a tenth of the world steel market through the $40bn (£23bn) merger of his family-controlled company with Arcelor, its Luxembourg-based rival.
But Arcelor was poised to reject the deal last night, noting the "hostile character" of the approach from Mittal Steel and the lack of prior discussions or consultation.
The deal, if it succeeds, would bring together the world's number one and two steel makers to create a combined company with sales of $69bn and 320,000 employees in 27 countries, producing 115 million tonnes of steel a year - three times more than its nearest rival Nippon Steel. It would have 10-12 per cent of the world steel market.
The merger would be achieved through the €18.6bn (£12.7bn) takeover of Arcelor by Mittal Steel, which is 90 per cent controlled by the Mittal family and run by Mr Mittal and his son Aditya.
The board of Arcelor was meeting last night to consider its response. But with the company's shares surging above the Mittal Steel offer price of €28.21, it was certain to reject the bid. Mr Mittal said that he had approached Arcelor a fortnight ago to propose a merger but was rebuffed and had again tried to contact his opposite number at Arcelor on Thursday without success.
The offer is financed 75 per cent in Mittal Steel shares and 25 per cent in cash and is the first time the Mittal family has tried to fund a deal largely using its own stock. It has grown steadily through acquisition in the past five years, buying up 20 steel companies.
In an effort to overcome corporate governance concerns, Mr Mittal said his family would reduce its voting rights in the enlarged company from 88 per cent to 64 per cent and agree to the majority of its directors being independent.
But it was not clear whether this would be enough to overcome opposition to the merger from Arcelor shareholders and the French political establishment. Arcelor was created from the merger of France's Usinor-Sacilor, Arbed of Luxembourg and a Spanish steel maker. A large number of its manufacturing facilities remain in France.
Mr Mittal said the merger would produce savings of $1bn but he ruled out any plant closures or job losses. Mr Mittal also said he did not expect any regulatory difficulties because the two companies were complementary.
"There are no competition issues because there is hardly any overlap in terms of products, geographic areas or customers," he added. Mittal Steel is strong in the US and central Europe, whereas Arcelor is prominent in western Europe.
Mr Mittal said he would consider switching the company's headquarters from Rotterdam to Luxembourg but he had no intention of moving there himself. "My home is London, that is not changing," he said.
Arcelor shares rose 29 per cent to €28.7 - some 2 per cent above the offer price. Mittal Steel shares gained €1.47 to close at €27.5. The offer is at a 27 per cent premium to Arcelor's all-time high and a 55 per cent premium to its average price over the past 12 months.
Mr Mittal described the deal as a "merger of equals" and said he was keen for the management of Arcelor to help run the combined company. But he said he could not imagine a situation arising in which Mittal Steel would agree to be taken over by Arcelor.
As part of the deal, Mittal Steel has also agreed to sell the Canadian steel producer Dofasco to ThyssenKrupp of Germany for €3.8bn. Arcelor had been due to buy the business from Mittal but it will now be sold to the German steel maker at a discount price of C$68(£33)-a-share. Mr Mittal said he no longer needed to own Dofasco because it was "redundant and sub-scale".
If the Arcelor merger comes off, it will increase Mittal Steel's debts to $14bn. The €4.7bn cash portion of the deal is being financed through a $5bn syndicated loan facility led by Goldman Sachs.
The £12bn man with the ear of Blair
Lakshmi Mittal's father, Mohan, told his son: "The day you go high profile is the day you begin to fall." After decades spent quietly creating a huge global steel empire, in recent years Lakshmi Mittal has burst into public consciousness as a result of the sheer scale of his riches, his expensive habits, and the high-profile business deals he has pulled off.
Although Mr Mittal retains an Indian passport, he is easily the richest man living in Britain, with personal wealth of at least £12bn. He has great dynastic ambitions, speaking admiringly of the longevity of the Ford brand and the founding family's continued involvement at the helm as a model for his own company.
He hit the headlines in spectacular fashion in 2001 when it emerged that Tony Blair had sent a letter to the Romanian government backing his purchase of the country's state-owned steel company. His LNM was not a British company in any meaningful sense and, more crucially, he had given £125,000 to the Labour Party just months earlier. Since then he has given a further £2m to the Labour Party and he is hotly tipped for a peerage.
The marriage of his daughter Vanisha in 2004 also caused a media sensation, with a £30m ceremony in the Palace of Versailles. Mr Mittal lives in a 15-bedroom mansion in Kensington that he bought in 2003 for £57m from the Formula One magnate Bernie Ecclestone.
The scale of Mr Mittal's wealth was not apparent to the outside world until late 2004, when he announced a complex deal in which all his steel interests combined into a publicly listed company. His private LNM Holdings was taken over by his listed entity, Ispat International. He paid himself a £1bn dividend in the process. The merged company then took over ISG, the leading North American player, for $4.5bn (£2.5bn), to form Mittal Steel Company.
At the age of 21, Mr Mittal started working in the small family steel business, Ispat, which at the time operated in Indonesia. The company grew and took advantage of the recession of the late 1980s and early 1990s by making a string of acquisitions, entering markets such as Mexico, Trinidad and Canada.
Saeed ShahReuse content