Men of steel vie for shareholder support

Guy Dollé, the chief executive of Arcelor, will fly into London tomorrow with the Russian billionaire Alexey Mordashov, to persuade investors of the merits of his company's proposed €13bn (£9bn) acquisition of Severstal, aimed at derailing Mittal Steel's hostile offer for Arcelor.

Mr Mordashov, who owns Severstal, and Mr Dollé received a mixed reception when they announced the deal on Friday, with many Arcelor shareholders expressing concerns about the Russian company's lack of transparency and poor corporate governance.

Several key shareholders are concerned that Arcelor may be overpaying for its Russian rival, and have demanded to see the Deutsche Bank report which justifies Severstal's €13bn price tag.

An analyst's note published by Commerzbank on Friday asserted that the true value of Severstal was closer to €10bn, not €13bn, claiming that "Arcelor shareholders will have no benefit at all from the supposed value of €44 per Arcelor share that is said to be implied in this deal".

Under the terms of the merger, Mr Mordashov, who is one of Russia's wealthiest men with a personal fortune of some £4.5bn, would receive a 38 per cent stake in the merged entity, which would become the world's largest steel producer.

Arcelor has moved on Severstal in the hope of derailing Mittal Steel's €26bn offer for the group. If it pulls off the Severstal deal, Arcelor would put itself well beyond the reach of Mittal.

Mr Dollé claims that after the acquisition of Severstal, Arcelor would be worth some €44 a share, double the price at which they were trading in January before Mittal made its bid. Mittal's offer values the company at €37 a share.

Mittal, which is headed by the Indian steel magnate Lakshmi Mittal, said at the weekend that it would push ahead with its bid regardless of the Severstal situation. Already, several key Arcelor shareholders, including Commerzbank, have said they continue to support the Mittal offer over the Severstal deal.

Arcelor does not need to seek approval from shareholders for the Severstal deal. However, Mr Dollé said on Friday that he had scheduled an extraordinary general meeting for 28 June, where he would give investors the chance to vote on the proposal. The board needs only a simple majority to push ahead.

The Severstal deal remains conditional on the Mittal bid failing. Mittal's offer closes in early July, and also requires the backing of only a simple majority of shareholders to succeed. However, Mr Mordashov and Severstal have the option to walk away from the deal if Mittal manages to build up a significant stake in Arcelor over the coming weeks.

If the Severstal deal is not completed, Arcelor will have to pay the Russian company a break fee of €140m. A combined Arcelor and Severstal would have a 22 per cent market share in the global automotive steel industry, with about 40 per cent of its profits coming from countries such as Russia and Brazil where costs are lower.

Mr Dollé says the deal would create cost savings of more than €500m and assured shareholders that he would still push ahead with plans to buy back around 25 per cent, or €5bn, of Arcelor shares. If Mr Mordashov did not participate in the buy-back, his stake in the company would rise from 32 to 38 per cent.

Mr Mordashov told a Russian newswire yesterday he would also look to increase his stake further still if the deal was completed.

Elsewhere, it emerged yesterday that the Kazakh steel magnate Patokh Chodiev is considering a £3bn float of his metals business on the London market next year. The move would probably propel the business straight into the FTSE 100, joining the copper producer Kazakhmys, another Kazakh metals giant, which floated in London last October.

Mr Chodiev's company, Eurasian Natural Resources Corporation, first needs to overcome several corporate governance hurdles before it will be eligible to list in London.