Mittal Steel Co., already the world’s largest steelmaker, on Friday announced an unsolicited $22.8 billion offer for rival Arcelor SA in an attempt to form a global powerhouse capable of producing more than 100 million tons a year.
But Luxembourg-based Arcelor called it a hostile takeover attempt and said the company’s directors will meet shortly to take a position on the offer.
“Arcelor underlines the hostile character of this move that takes place without prior discussions or consultations between both companies,” the company said in a statement.
Before Arcelor’s reaction, Mittal Chief Executive and Chairman Lakshmi Mittal had himself acknowledged at a news conference in London that Arcelor Chief Executive Guy Dolle had rejected the idea of a merger during brief talks on Jan. 14.
While the unsolicited cash and stock bid for Arcelor caught the market by surprise, the steel industry has been consolidating rapidly in recent years and Mittal has been openly looking for acquisitions to increase its market share as demand from China and India rises.
Mittal surpassed Arcelor to became the world’s largest steel company in 2004, when it acquired International Steel Group Inc. of Richfield, Ohio, which itself had acquired the steel assets of bankrupt LTV Corp. of Cleveland and Bethlehem Steel Corp. of Pennsylvania.
The offer values Arcelor shares at 28.21 euros ($24.50) each, a 27 percent premium to Thursday’s close. Trading in Arcelor’s shares had been halted ahead of the announcement but surged 33 percent after they resumed trading, to 29.66 euros ($36.25), indicating investors believe the offer will have to be sweetened.
Mittal shares, which also had been suspended before the announcement, rose 9 percent to 28.40 euros ($34.71).
If the deal goes ahead, Mittal said it will sell Canadian automotive-steel maker Dofasco Inc. — which earlier this week agreed to a $4.85 billion takeover by Arcelor — to German-based steelmaker ThyssenKrupp AG.
ThyssenKrupp, which had dropped out of the bidding war for Dofasco, noted that Mittal is offering to sell the Canadian company for around 68 Canadian dollars ($59) a share, equal to the final offer the German company made to Dofasco’s shareholders. ThyssenKrupp shares leapt 7.7 percent on the Frankfurt exchange to 21.88 euros ($26.80) on news of the proposed deal.
The combined Mittal and Arcelor would have a market capitalization of $40 billion and Mittal said it anticipated annual synergies of $1 billion. Mittal would acquire a host of assets in Europe and break into South America under the deal.
Hilary Cook, of Barclays Stockbrokers, said the unsolicited approach could spark a bidding war.
“I don’t think we have seen the end of the story,” she said. “Other people in the industry will be looking at this. They are not going to let Mittal have Arcelor on the cheap.”
Mittal said that he had no intention of raising the offer, but declined to categorically rule it out.
“We have offered a very attractive price to Arcelor shareholders ... I don’t think we will need to increase or revise our offer,” he said.
European Union spokesman Jonathan Todd said antitrust regulators had not yet been officially informed about the deal, but would study it carefully if they receive notification. Lakshmi Mittal said he planned to discuss the offer with EU authorities soon.
Rabo Securities analyst Richard Brakenhoff called the bid “ambitious, but smart” and said he did not envisage any obstacles from antitrust authorities in Europe or the United States, following the decision to sell of Dofasco, which makes steel used by Detroit. automakers.
“Even though they will be producing 100 million tons, this won’t give them pricing power because the market is still a very fragmented market,” he said. “They are still too small for that, but it will give them a huge advantage over competitors, in terms of cost savings and know-how in the fields of automotive and construction.”
Lakshmi Mittal said both companies have been at the forefront of consolidation of the steel industry.
“This is not about creating a giant,” he said. “It’s about creating the sustainability of the steel industry.”
“The industry has gone through so much of a downturn ... that globally led to a lot of bankruptcies and job losses. This is a big forward for the industry’s sustainability.”
Mittal, based in Rotterdam, Netherlands, is 88 percent owned by the Mittal family.
Arcelor, created in 2002 through the merger of Usinor SA of France, Arbed SA of Luxembourg and Aceralia Corp. Siderurgica SA of Spain, makes around two-thirds of its sales to high-end European automotive and packaging companies, which means its profit margins are high.
However, late last year it moved into Latin America, taking control of Brazilian stainless-steel producer Acesita SA after it bought out two Brazilian pension funds.
Under the terms of Friday’s offer, Arcelor shareholders will receive four Mittal Steel shares and 35.25 euros ($30.61) cash for every five Arcelor shares.