Monday, June 26, 2006

The fallout from the Arcelor-Mittal merger

[Update 2]

An agreement has been reached between Mittal Steel and Arcelor to form Arcelor Mittal, the world’s biggest steel company. Although there has not been a response from Severstal or Mr. Mordashov yet, others reacted with anger.

Viktor Khristenko, Russian's energy minister, has accused Europe of ‘russophobia’, as it tries to block the global ambitions of the strengthening Russian economy.

Others believe that Severstal was used as nothing more than a bargaining chip to get Mittal to up the stakes in the battle to merge and to push up Arcelor’s capitalisation.

Although, some analysts affirm that Mr. Mordashov is not going to be too downbeat on the failure to push the proposed merger through. According to a Prospect analyst, Mr. Mordashov could be looking at Corus as the next likely candidate for a merger proposal.

The perceived damage to Russia’s reputation (after all the Severstal-Arcelor deal was personally approved by the president) could be repaired by Roman Abramovich. The Chelsea owner could have been possibly given an order to create another steel empire. The new union of steel companies could include Evraz (41 percent belongs to Mr. Abramovich), Severstal and possibly Corus. Then, Roman Abramovich would try to sell the resulting company to Arcelor-Mittal for an undisclosed stake in the newly formed company, thus repeating the Kremlin-endorsed strategy.

Another source points to the possibility of Abramovich financing Severstal’s improved bid for Arcelor.

What is clear is that the steel market could change radically in the near future. In fact, as the author of a letter to the FT rightly suggested, the newly merged company should be called M&A Steel.

Gazeta, Vedomosti, RusEcon and other sources.

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