Arcelor board finally agrees to €27bn offer from Mittal Steel

Mittal Steel sealed a €27bn merger with Arcelor yesterday, finally winning the unanimous backing of its Luxembourg-based rival's board after an acrimonious six month battle for a deal that will create a steel behemoth with sales of $70bn a year.

Mittal Steel raised its cash and paper offer to €40.4 a share over the weekend, valuing its rival at €27bn. The merged group will produce more than 100 million tonnes of steel a year from operations employing 320,000 in 27 countries around the world.

The new company will be called Arcelor Mittal, and Arcelor's current chairman Joseph Kinsch will retain the same role at the business for the next three years. Lakshmi Mittal will be president, while Arcelor's current chief executive, Guy Dollé remains part of the management team.

Under the terms of the deal, Arcelor shareholders will received 11 Mittal shares for every seven shares they own, or a cash alternative. The cash component of the offer is capped at €8.5bn.

Arcelor shareholders will end up owning 50.6 per cent of new company. The Mittal family, which currently controls 88 per cent of Mittal Steel, will have a 43 per cent stake in Arcelor Mittal, and has agreed not to raise his holding above 45 per cent.

The agreement leaves Severstal, the Russian group 90 per cent owned by the steel oligarch Alexey Mordashov, in line to receive a €140m break fee as its agreed merger with Arcelor is unwound.

Arcelor's defence against Mittal began to unravel last week when it became clear shareholders were likely to vote down a €5bn buy-back proposal that would have in effect acted as a poison pill to a Mittal takeover. The scheme would have seen Arcelor buy back 25 per cent of its stock at €44 a share. Combined with the deal to buy Severstal, which Arcelor shareholders were due to vote on Friday, the buy-back would have handed the Russian oligarch Mr Mordashov a 38 per cent stake in Arcelor, while bypassing the usual requirement in Luxembourg for an investor to table a full bid when their holding in a company passes 33 per cent.

Shareholder unrest forced Arcelor to cancel the buy-back vote, with one of the company's largest shareholders, the Spanish steel magnate Jose Maria Arsitrain, calling for the resignation of Messrs Dollé and Kinsch, accusing them of ignoring investors' wishes. Mr Mordashov had agreed to accept a reduced 25 per cent stake in Arcelor. A spokeswoman for Mr Mordashov last night declined to comment.

Mittal's board met in London yesterday afternoon while Arcelor's 18 strong board was holding its eight hour meeting in Luxembourg yesterday.

The Rotterdam-based Mittal Steel first tabled an offer for Arcelor in January, which was rejected as "150 per cent hostile" by Arcelor's board. The prime minister of Luxembourg - which along with Belgium's Walloon region owns an 8 per cent stake in the steel group, also rejected the deal in terms, while the French finance minister Thierry Breton told parliament he had never seen such a "badly prepared" approach.

Last night, Luxembourg's economy minister, Jeannot Krecke, said he was "very satisfied" with the deal. Arcelor said the latest offer had the merit of adopting its own corporate structure, with an 18 strong board overseeing the management team. Nine of the board members will be appointed by Arcelor, along with three employee representatives. Six board members, including three independent executives, will be named by the Mittal side.

Mittal improved its offer to one share and €1.10 cash May, agreeing to reduce its eventual stake to 45 per cent, in a deal that valued Arcelor at €23.3bn by the end of last week. The latest bid is a 16 per cent improvement on that offer and more twice the €20.95 value Arcelor shares were trading at the end of 2005.

The agreed deal needs to be approved by regulators in Europe and US, before it is put before shareholders, probably around the middle of July.