L N Mittal, chairman and CEO, Mittal Steel Co, has ruled out raising his offer to take-over Luxembourg-based Arcelor S A. (Arcelor investors favour Mittal but want more ) On January 27, 2006, Mittal Steel had made an unsolicited €18.6 billion ($22.6 billion, £12.7 billion) open offer for the European steel company, barely three days after Arcelor had acquired Canada's Dofasco in a hostile take-over.

Announcing Mittal Steel's fourth quarter and annual results yesterday, (Mittal Steel's 4Q net up, full year profits decline) he said that he was very pleased with the response of Arcelor shareholders to his offer and was convinced that this was the right transaction for Arcelor's and Mittal Steel's shareholders.

Mittal used Mittal Steel's fourth-quarter results to reiterate his logic behind a combined steel entity leveraging the synergies and strengths of Arcelor and Mittal Steel. Mittal Steel's net income declined from $4.7 billion in 2004, regarded as a record year for steel makers, to $3.36 billion for the full year in 2005, despite increased sales. He stressed that the improvement in performance between the third and fourth quarters, pointed to the fact that steel prices had flattened after the cyclical downturn in the industry.

Mittal said that Mittal Steel's strong performance despite the current market conditions pointed to the increased stability achieved by industry consolidation (Mittal acquired the US-based ISG from investor Wilbur Ross and the state-owned Kryvorizhstal steel mill in Southern Ukraine, since renamed Mittal Steel Kryviy Rih). "This same logic lies at the heart of our proposed strategic merger with Arcelor," he pointed.

Mittal disclosed that he had met 30 to 40 per cent of Arcelor shareholders who had been favourable to the idea of the deal. He said that he had told them that the offer was already very sweet and attractive, when asked if he would further sweeten it.

The Arcelor board has rejected the offer and is being supported by some European governments, particularly France, Luxembourg and Spain, who have rebuffed Mittal's bid to allay their fears of job cuts after the merger or his logic of a stronger European steel maker to withstand Chinese competition. Several EU parliamentarians have opposed the bid on nationalistic grounds.

Mittal, however, is optimistic that the governments of Luxembourg, Belgium, France and Spain, who have professed a concern for their citizens who are employed at Arcelor's plants in these countries, would ultimately accept his logic for consolidation in a highly fragmented global steel industry.

The discussions with European governments is now becoming more business-like as they begin to understand the rationale behind his offer, says Mittal.

France has already toned down its hostility to Mittal's take-over proposal. Earlier its foreign minister Thierry Breton, had reacted to the news of Mittal's bid by touring European capitals to drum up support against the proposed offer. (See: EU Competition Commissioner attempts to calm hostility to L N Mittal's Arcelor bid)

Mittal was appreciative of the decision of the governments of Belgium and Luxembourg to appoint Lazard and JPMorgan, respectively, to advise them on Mittal Steel's proposal, being interpreted by some analysts as economic reasoning beginning to overtake the initial knee-jerk hostility.

Though Arcelor CEO Guy Dollé remains firmly opposed to Mittal's take-over proposal, he told the French newspaper Le Figaro, in an interview that appeared this morning, that he would consider the offer only if it were made entirely in cash.

Since Mittal Steel launched the offer for its closest rival, shares in both Mittal and Arcelor have climbed, adding about $8 billion to the combined worth of the companies.

Some investors have expressed reservations that a merged company would not deliver dividends as high as those offered by Arcelor. Mittal Steel has announced dividends of 12.5 cents a share. Arcelor, on the other hand, is expected to announce much higher dividends when it announces its 2005 results.