The courier arrived at midnight on Wednesday. He drove through the silent streets of the Plateau Bourbon, Luxembourg’s historic city centre, and stopped on the Avenue de la Liberté at the gates of the imposing, chateau-style headquarters of Arcelor, Europe’s biggest steelmaker.
He buzzed the security staff on duty, and handed them an envelope addressed to Joseph Kinsch, the chairman.
The letter was one Kinsch hoped would never arrive. It was signed by the investment officers of 69 financial institutions, including some of the world’s biggest banks, investment groups and hedge funds. Together they speak for nearly 30% of Arcelor’s shares.
Although couched in polite language, the letter had a simple message — the big money men felt they were being ignored by Kinsch and chief executive Guy Dollé, and they didn’t like it. It was the business equivalent of being given the black spot.
The midnight letter was the latest twist in the long-running fight for Arcelor, a multi- billion-pound takeover battle that could decide who controls the world steel industry.
In one corner stands Lakshmi Mittal, Britain’s richest man and already the world’s biggest steel tycoon. He wants to buy Arcelor, and has made a $32 billion (£16.9 billion) hostile bid for the company.
Opposing him are Kinsch, the moustachioed Dollé, and Alexei Mordashov, their newly found white knight. Mordashov, an oligarch with a personal fortune of £4 billion, impeccable English and an MBA from the University of Northumbria, owns Severstal, one of Russia’s biggest steel companies.
To escape Mittal’s clutches, Kinsch and Dollé want to combine Arcelor with Severstal.
But their plan is not going smoothly. Last week’s letter was an attempt by financial institutions to force greater shareholder scrutiny of the Russian tie-up.
Arcelor’s board meets this week to decide its response. If it defies the call — which sources close to the company say it may do, by deciding to press ahead with its original plan to approve the deal — it risks a head-on confrontation with a large number of the company’s owners.
Investment bankers in the Mittal camp claim the Arcelor directors may face legal action by shareholders if they pursue their plan, or the threat of another general meeting to censure them. Arcelor’s advisers say the company is acting entirely legally, and has done enough to allow shareholders to express their opinions.
The stakes could not be higher. The combination of Mittal or Severstal with Arcelor would create the biggest steel group the world has ever seen, accounting for up to 10% of global production.
And as well as size, the new group would have within its grasp the industry’s Holy Grail — sufficient market muscle and pricing power to withstand and even break the vicious boom and bust cycles that have been the industry’s bane since the second world war, launching a new era of profitability for an industry that the new group would dominate.
MORDASHOV, the newest player in the Arcelor drama, has had a busy week. He has spent the past five days racing across Europe in his private jet, meeting Arcelor investors to explain why his relatively unknown Russian group is their best bet.
On Monday he was in Paris, on Tuesday and Wednesday in London, Brussels on Thursday, and Madrid on Friday.
He does not fit the oligarch stereotype. Tall and softly spoken, Mordashov is more like the polished chief executive of a FTSE 100 group than the boss of a company assembled during the rough-and-tumble of Russian privatisations in the post-Yeltsin era.
Yet his history has much in common with that of more famous oligarchs like Chelsea’s Roman Abramovich. He is the son of two steelworkers from Severstal’s home territory of western Russia. A trained engineer and accountant, he graduated from the Leningrad Institute of Engineering and Economics, and went on to collect an MBA from Northumbria University business school.
In 1992 he became chief financial officer of Severstal. A year later, at the age of only 27, he bought his key stake in the company through the privatisation of what was a state-owned enterprise. The company was then making a loss and was worth only $6m. He said: “I was young enough and stupid enough to have a go.”
It was a gamble that paid off handsomely. Not only does Mordashov now own a business empire worth billions — he now holds 90% of Severstal — but he is, with the Arcelor deal, set to become the first oligarch to swap his business for a big stake in a large western company. He would continue to be an important player in the new group, with a 32% stake and the role of president.
Mordashov said his company had long-standing links with Arcelor, and had toyed with the idea of a merger in the past.
“I first met Guy Dollé when he was the head of strategy at Usinor (one of Arcelor’s predecessor companies). We have a joint venture with them, and we have always thought of each other as the most likely merger partner because we have such similar strengths and goals,” he said.
Mordashov’s message on his European tour is a simple one — that a deal with Severstal would create more value for Arcelor shareholders than the rival Mittal proposal.
“Like Arcelor, we’ve concentrated on high-value steel, like that used in the automotive industry. With Mittal you get size, but with us you get size and a more profitable, more resilient business concentrated on the top end of the market,” he said.
He plans to take a group of Arcelor’s top shareholders to Cherepovets, Severstal’s main plant, to educate them about the group’s operations.
The Russian tycoon has also been telling shareholders they should be wary of Mittal’s corporate-governance record — a contentious issue throughout the battle for Arcelor.
Even though Mordashov owns such a large stake in Severstal, he claimed his corporate-governance standards were higher than those of Mittal.
“We are clear about the separation of executive and non-executive roles, and we do not have different classes of directors, as Mittal has. He has only made changes to his corporate-governance standards because he has been forced to by the market during the course of the bid,” Mordashov said.
Mittal, meanwhile, is scornful of the Severstal deal, likening the Russian group to his company’s plants in Kazakhstan and Ukraine. “It’s a completely second-rate, inferior transaction,” Mittal said. “In no way is it as good as ours. Not only are we offering more value to the shareholders of the company, but our business has much more to offer — greater size, greater geographical reach, a big presence in North America — it just doesn’t compare.”
Mittal added the letter from the Arcelor shareholders was “an unprecedented event in a European takeover”.
He said: “I think it is a real wake-up call, not only to the Arcelor board but to all boards who think they can ignore their shareholders.”
But Mordashov said the letter from the rebellious shareholders would not change his plans. “We have a valid agreement with the board of Arcelor. Shareholders have their chance to express their views at the meeting on June 28 — or, of course, they could choose to take up the Mittal offer,” he said.
Such is Mordashov’s confidence that the deal has only two conditions. First, it has to be approved by the competition authorities in Europe and America, something that should pose little problem given the two companies’ lack of geographical overlap. Second, should Mittal achieve his goal of having more than 50% of Arcelor shareholders accept his offer, Mordashov will walk away.
AFTER a takeover battle that has dragged on since January — when Mittal first announced his intention to bid — Arcelor’s future should finally be decided over the next six weeks.
The battle has already been highly charged, with accusations of racism, nepotism and protectionism. It has even resulted in testy exchanges between senior politicians in France, Luxembourg, Belgium and India.
But the denouement could be even more messy with a flurry of shareholder meetings, bid deadlines and likely legal wrangling. The key date is June 28, when the Severstal deal will go before the Arcelor annual meeting. Arcelor says that Luxembourg’s corporate laws would allow them to go ahead with the Severstal deal without consulting shareholders at all.
The law permits directors to issue new shares — the method by which the two companies will be merged — without needing shareholder approval.
Even so, the company says, the proposal will face scrutiny at the meeting. It can be stopped there, but only if more than half of all shareholders vote against the move.
“Although the relationship with some shareholders may have become a little strained, there is no doubt that they have a clear chance to make their voice heard,” said one adviser working in the Arcelor- Severstal camp. “If more than 20% can be gathered to sign a letter within a few days, then it should be possible for 50% to vote against it on June 28.
“In fact you could say the Arcelor management have actually done well by giving shareholders three choices — they can vote for an independent Arcelor, go for Severstal, or go for Mittal,” the adviser said.
But last week’s letter made it clear that some Arcelor shareholders see the June 28 meeting as little more than a fig leaf. Commenting on the plan to treat the deal as approved unless half the company’s investors vote against, the shareholders said: “We note that attendance rates at Arcelor shareholders’ meeting have never in the past exceeded 35%.
“Given the significance of the transaction, we would like to have the proposed Severstal combination be proposed and approved by shareholders in a manner consistent with widely followed procedures across Europe ... Specifically, we would propose the approval procedure to consist of a two-thirds majority vote of all shares present or represented at a properly convened extraordinary general meeting of shareholders,” the letter says. The Arcelor board is this week expected to approve the shareholder request — but it may not agree to hold the meeting requested before the one on June 28. Such a move would anger the signatories to the letter, who might seek further action against the directors. They could petition for another general meeting to censure the Arcelor board, or examine the possibility of legal action against the directors — an uncertain and time- consuming course. Instead, some analysts say, shareholders may choose to register their displeasure simply by deciding to accept the Mittal offer, documentation for which should arrive with most shareholders over the next week. The Mittal offer closes on July 5 — but Arcelor’s fate may be decided well before then.
The industry's leading tycoons
THE battle to control Arcelor is a graphic demonstration of how the steel industry has gone from being a business backwater to the latest hot sector for mergers and acquisitions.
Lakshmi Mittal has been one of the prime movers in the change. The scion of an Indian steel family, Mittal has preached the need to consolidate for years, and has put his words into action by buying up steel mills around the world over the past two decades. For much of his career Mittal was regarded as a maverick, buying up orphan assets that the big boys of the industry did not want.
Mittal and other steel tycoons have brought business acumen to an industry traditionally dominated by myriad small, state-owned companies, and by engineers rather than hard-headed, commercially minded executives.
Having a steel mill was for many countries a matter of national prestige, resulting in a plethora of competing mills and chronic industry overcapacity.
Now, after a rash of deals by, first, Mittal and then Arcelor, the industry’s big boys are racing to secure the best assets. Recent deals in Turkey and Ukraine have led to sky-high prices being put on low-cost steel producers.
Arcelor is not the only steel group in play. Roman Abramovich, the billionaire owner of Chelsea Football Club, is expected to take a large stake in Evraz, a Russian group, which may in turn renew its overtures towards Corus, the Anglo-Dutch company.
Other Russian oligarchs are also prowling, notably Vladimir Lisin, the oligarch who owns Novolipetsk.
And there is a new breed of steel tycoons coming forward — last week The Sunday Times revealed that Kazakhstan producer ENRC plans to list in London in a deal that would value it at about $5 billion (£2.65 billion).
