Monday, June 19, 2006

Russian tycoon ready to bargain for steel producer Arcelor

The head of Russian steel giant Severstal, Alexei Mordashov, will not back down on a merger with Arcelor; potentially, he is prepared to offer better terms than the company's rival, Mittal Steel. This is because top-level politics has become involved in the deal, so Mordashov already has no right to lose.

For Russia's top brass, the project is a matter of international prestige - the deal has been endorsed by President Vladimir Putin himself. If Severstal succeeds, Russia will be respected in Europe as a politically strong partner, one that saved Luxembourg-registered Arcelor from a takeover.

For the time being, Severstal has the upper hand in its battle against Mittal Steel. On June 11, Arcelor's board of directors unanimously turned down a Mittal Steel bid, and recommended that its shareholders vote for a merger with the Russian company at a meeting on June 30. However, some Arcelor shareholders are critical of the Severstal offer, mainly because it is less transparent. They say Mittal Steel's offer is more understandable, and the information it contains is more detailed and clearer.

Troika Dialog analyst Sergei Donskoi said both companies have room for maneuver. Mordashov may increase the size of his offer or reduce his stake in Arcelor, but Severstal is not financially as well-heeled as Mittal Steel.

"Mordashov will not gain from lowering his stake in Arcelor," said Finam analyst Natalia Kocheshkova. "On the contrary, he is anxious to increase it. Severstal must have a blocking stake at all costs, otherwise the deal has no purpose, because Mordashov would then swap greater control over Severstal for less control over Arcelor."

BrokerCreditService analyst Vyacheslav Zhabin said the deal with the Russian company has the support of the Arcelor management, who, if Severstal wins out, will keep their posts for four more years, as proposed by Severstal. "Arcelor managers will have to demand a higher offer from Mordashov to hold on to their positions. Otherwise they will be unable to explain to their shareholders why they should agree to the Severstal proposal, even though it offers less cash," the analyst said.

Gazeta.ru, RIAN

Related Article:

Arcelor's management should listen to its shareholders - The Economist

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