The agreed merger of Mittal Steel and Arcelor provoked a storm of protest in Russia yesterday, amid threats of lawsuits and rumours of a Russian counter-bid.
While Lakshmi Mittal hailed the deal as a "seminal day" for the steel industry, Arcelor's jilted former merger partner, Russia's Severstal, said it was "reviewing its options". This included the possibility of suing for breach of contract. The Russian group claimed its agreement required Arcelor's board to recommend the Severstal deal.
The Arcelor board switched from backing the Severstal transaction to a sweetened Mittal offer on Sunday night, after five months in which the Luxembourg-based Arcelor had spurned all Mittal's advances.
Speculation also emerged yesterday that Severstal, owned by Alexey Mordashov, might mount a counter-bid for Arcelor, possibly in alliance with the fellow Russian oligarch Roman Abramovich. According to market sources, Severstal has secured a multibillion-euro loan facility from the investment bank ABN Amro to give itself firepower.
Mr Abramovich, the owner of Chelsea Football Club, agreed last week to buy a 41 per cent stake in Evraz Group, Russia's largest steel maker by volume, in a deal worth about $3bn (£1.6bn).
Severstal, under the previously agreed merger proposal with Arcelor, would have ended up with 25 per cent of the enlarged group. It is now entitled to a €140m (£97m) break fee.
In Russia, Arcelor's rejection of the tie-up with Severstal led the country's politicians to declare that Russian companies were being discriminated against in the West. The country's Industry and Energy minister, Viktor Khristenko, who had warned of "Russophobia" last week, said yesterday "double standards" were in evidence in Arcelor's decision to pick Mittal Steel over Severstal. "I am completely dissatisfied with this decision and regard it as a bad sign," he said.
Mr Khristenko added: "As soon as the Russian economy strengthened and became open, we began to meet with certain attitudes - and more than once," referring to the Arcelor deal and political opposition to Gazprom's attempts to buy the British gas distributor Centrica.
Boris Gryzlov, the speaker of the Duma, Russia's lower house of parliament, said: "I consider the events taking place around this deal as an example of Russian business facing serious obstacles when trying to expand into global markets. The unprecedented propaganda campaign that has been launched around the merger of Russian company Severstal with Europe's Arcelor shows that people don't want to let us into global markets." Alexander Shokhin, head of the industry lobby the Russian Union of Industrialists and Entrepreneurs, said: "It looks like some people don't want to see Russia as a strategic partner in some countries."
The Severstal deal will still be put to Arcelor shareholders at an extraordinary meeting on Friday. To defeat the Russian deal, 50 per cent of Arcelor's entire issued share capital must vote against it. However, if Severstal gets through the EGM, it can still be subsequently annulled if more than 50 per cent of Arcelor shareholders accept the Mittal deal - which seems likely now it has the board's backing.
The Mittal cash-and-stock offer values Arcelor at about €24.6bn after Mittal shares fell in trading yesterday. The combined group would be three times larger than its nearest rival and would rank as the 40th biggest company in the world.
Under the deal, Arcelor shareholders will have 51 per cent of the new company, with Mittal investors owning the rest. Lakshmi Mittal's personal stake in the enlarged business will be 43 per cent.Reuse content