Mittal after Arcelor cash?

Luxembourg: As the row over steel magnate Lakshmi Mittal's proposed takeover of rival firm Arcelor continued, Arcelor boss Guy Dolle said the deal would amount to a raid on its cash flow to fund the rebuilding of Mittal's plants. Mittal maintains that Europe needs a stronger steel sector to compete with China.

The Luxembourg and French governments are both opposed to the 18.6billion Euro ($22.6billion, £12.7billion) bid by Mittal Steel to take over Arcelor, the world's largest steel producer in terms of turnover and the second largest in terms of steel output.

Healthy or hostile?
Mittal has struggled to convince European leaders about the merits of his firm's bid. Speaking after meeting with French President Jacques Chirac, Mittal insisted the merger would be "healthy" for both companies. "I am not scared about the politicians' reaction," he said, "I feel saddened about it. It is a process of educating and informing the politicians about the importance of the deal," he added.

On Tuesday, Luxembourg Prime Minister Jean-Claude Juncker said his government would oppose Mittal's hostile bid, which the Luxembourg-based firm has already rejected. French Prime Minister Dominique de Villepin has described the bid as "hostile offer" and promised a hostile reaction. The proposed takeover would create an industry giant, accounting for about 10 per cent of world steel production.

Compromise calls
To address concerns about the deal, Mittal Steel has said it would move its headquarters to Luxembourg and ensure a strong independent representation on the combined company's board. But Dolle said Arcelor's cash would be used to modernise Mittal's older plants in eastern Europe and the US, if the takeover went ahead.

"Mittal has invested very little in its plants," he said on Wednesday, "it is better that Arcelor's cash flow goes to Arcelor shareholders through its own industrial projects." Arcelor was created in 2002 by merging French, Belgian, Luxembourg and Spanish steel companies, and has large workforces in each of the four countries.

The French government is particularly worried about the possible impact of a Mittal takeover on Arcelor's 28,000 French employees, despite assurances from Mittal that jobs would be protected.

Meanwhile, European Union anti-monopoly chief Neelie Kroes said she was not opposed to a large steel merger in principle, and would meet with Mittal later in the week.