Takeover battle sends steel shares soaring

PARIS - Shares of global steelmakers surged after Arcelor rejected Mittal's hostile US$23 billion ($33.75 billion) bid and both sides prepared to win support from shareholders in a public relations clash in Paris.

A deal that could put many of Arcelor's 28,500 French jobs at risk also poses a sharp test for French Prime Minister Dominique de Villepin's policy of "economic patriotism", especially with employment likely to be a key issue in French presidential elections next year.

The impact of the bid was being felt across the world's steel industry and stock markets, with shares of major steelmakers rising sharply in Asia yesterday.

Investors are betting that a bidding war could lift share prices across thesector.

"The deal may raise speculation that there might be more mergers and acquisitions in the industry," said Yoshiyuki Takano, an analyst at Tokai Tokyo Research Centre.

"If the deal goes through, there would be a possibility that steelmakers have more power to negotiate prices with mining companies."

The board at Arcelor, the world's second largest steelmaker, unanimously rejected the bid by the world's top steelmaker yesterday, but Mittal and Arcelor both scheduled news conferences in the French capital to bolster their positions.

Meeting in Luxembourg, Arcelor's board members urged shareholders not to tender their shares in the proposed offer by the Rotterdam-based Mittal Steel, 88 per cent owned by Indian-born Lakshmi Mittal, the world's third richest man.

The conservative French Government was widely reported to be embarrassed by the bid. Finance Minister Thierry Breton said he would be asking the steel magnate to supply more details.

"I am very surprised by (Mittal's) way of proceeding," he said.

Arcelor was created in 2002 by the merger of France's Usinor, Spain's Aceralia and Luxembourg's Arbed. Its French workforce makes up 30 per cent of its staff.

Although it is not a French company, Arcelor's shares are traded in Paris and the unsolicited bid affects a vital industry.

Attempts to shield French companies from hostile foreign bids in sensitive sectors such as defence exclude steel.

The Government wants to avoid allegations of protectionism even as it seeks to support French jobs.

Luxembourg's government also spoke out against the deal at the weekend, expressing its concern about how it would affect the state's 5.62 per cent stake in the company, arguably the jewel in the crown of the country's economy.

Mittal said on Friday it was offering 28.21 euros a share, a 27 per cent premium to Arcelor's closing price on Thursday.

Arcelor's shares jumped as much as 41 per cent to a high of 31.29 euros before closing on Friday at a record 28.5 euros, up more than 28 per cent, on speculation that Mittal would have to raise its bid.

Mittal rallied 6 per cent to a 10-month high of 27.6 euros on the Amsterdam exchange amid a surge in European shares.

Mittal offered a total of US$23 billion ($33.77 billion) in cash and shares to create a company capable of producing 100 million tonnes of steel and reaping annual sales of more than $69 billion.

The group would be three times the size of its nearest rival Nippon Steel.

In Asian trade yesterday, Nippon Steel shares climbed 2.3 per cent, and JFE Holdings, the world's fourth largest steel firm, rose 6.2 per cent.

Australia's top firm in the sector, BlueScope Steel, jumped 4.9 per cent.

Analysts see the bid by Mittal as a way of addressing oversupply in the steel industry and it is widely expected to prompt consolidation in the sector.

Following the bid announcement, shares of other European and United States steelmakers also rose.

Nucor shares added 6.3 per cent, while in Europe the share prices of Britain's Corus and Germany's Salzgitter added 14.7 per cent and 8.6 per cent, respectively.

- REUTERS