Did Mittal yield too much to Arcelor?

29 June 2006

If Mittal Steel had succeeded in acquiring Arcelor as per the terms of its original bid announced in January, it would have been the end of Arcelor and its management. It would have created one giant Mittal Steel, double its original size, and LN Mittal would have remained the lord and master of a global steel empire.

The deal as it is finally negotiated and recommended by the Arcelor board is vastly different. The price being offered by Mittal now is nearly 90 per cent higher than his original price, which means the Mittal family's stake in the merged entity would be just 43 per cent. Besides, Mittal Steel seems to be doing almost everything possible to meet Arcelor's demands.

The Arcelor chairman becomes the chairman of the merged entity and its CEO remains on the management board despite his known hostility to Mittal. Arcelor would nominate a majority of the directors and even the CEO is likely to be an Arcelor nominee.

The Mittal family would also have to go by the board decisions and vote accordingly for a period of three years, unless LN Mittal uses his veto powers. The family cannot increase its stake beyond 45 per cent for a period of five years.

Worse still, the merged company would be registered and based in Luxembourg and would be called, not Mittal Steel and not even Mittal-Arcelor, but Arcelor-Mittal. So, who is acquiring who?

Why did Mittal bend over backwards and give in to all of Arcelor's demands? Wouldn't he have been better off building new plants in emerging markets like India while looking for smaller acquisition opportunities? Why was he so eager to acquire Arcelor?