updated 11/23/2005 11:56:17 AM ET 2005-11-23T16:56:17

Luxembourg-based steel giant Arcelor SA made a $3.75 billion (4.4 billion Canadian dollars) hostile takeover offer for Canadian steelmaker Dofasco Inc. on Wednesday, just weeks after its rival Mittal Steel Co. outbid it for Ukraine’s biggest steel maker.

Arcelor said it was making a “very compelling offer” directly to shareholders because it had been unable to reach terms with Dofasco’s management despite several friendly approaches this year.

Dofasco mainly makes steel for U.S. automakers, producing around 5.5 million tons a year of flat steel usually used for cars. Buying the Canadian firm would raise Arcelor’s annual production by around 10 percent to 55 million tons.

The all-cash takeover bid of $47 (56 Canadian dollars) a share represents a premium of approximately 27.3 percent over the $37 (44 Canadian dollars) closing price of Dofasco’s common shares on Nov. 22, Arcelor said. It won’t buy shares until it can purchase at least 50 percent of the Canadian company.

“For Dofasco, the question is not if it should join forces with another industry player, but when, and with whom,” said Arcelor Chief Executive Guy Dolle. “We strongly believe that Arcelor is the best partner of Dofasco and that this is the right time.”

He said Dofasco would benefit from Arcelor’s technology and global reach to become a stronger, more competitive steel producer in an increasingly competitive North American market. The bid will be open for at least 60 days after it is formally launched.

Dofasco issued a statement urging its shareholders not to sell their stock until its board has reviewed the offer and made a recommendation. It said its board has established a special committee of independent directors to help review the offer and has hired RBC Capital Markets as financial advisers.

“The board will give due consideration to the Arcelor bid. Pending the board’s recommendation, shareholders are urged not to tender to the offer,” said Dofasco Chairman Brian MacNeill in the statement.

Arcelor’s first major move into North America comes after Mittal overtook it as the world’s largest steelmaker by taking over U.S.-based International Steel Group, snapping up steel mills in Eastern Europe and paying about $4.8 billion to acquire Ukraine’s state-owned Kryvorizhstal in a public auction last month. Arcelor also pulled out of a bid for Turkey’s Eregli Iron and Steel Works Co., know as Erdemir, earlier this year.

Arcelor’s shares opened lower Wednesday in Luxembourg, down 30 cents, or 1.5 percent, at $23.89 (20.25 euros).

Credit Suisse First Boston said in a research note that the market would need to be persuaded that Arcelor’s purchase of a developed-market steel producer made sense. “Many steel companies are attacking growth markets with low cost steel,” it said.

With worldwide sales of 30 billion euros last year, Arcelor is the world’s second biggest steel firm by sales but is facing tougher conditions in its core European markets where it supplies steel to carmakers. It said last month that it does not expect worldwide shipments to pick up until next year.

Almost two-thirds of Arcelor’s sales are to high-end European automotive and packaging companies, which means its profit margins are high.

Its move into Latin America has boosted results and the company also plans to buy a 38-percent stake in China’s state-owned steel firm Laiwu Steel.

Arcelor was created in 2002 through the merger of Usinor SA of France, Arbed SA of Luxembourg and Aceralia Corp. Siderurgica SA of Spain.

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