Harish Palaniappan's: The Arcelor ball game

Are you following the Arcelor steel hostile bid by Mittal Steel and recent drama by the board of both the companies confusing investors to the maximum.

Game history:
Arcelor Steel and Mittal steel which are considered first two of world's very large steel companies, are in a tussle. In a hostile attempt Mittal steel(world's largest) has been trying to acquire Arcelor steel(world's second largest and major competitor to Mittal), to become the monopolistic large steel company in the world.

Arcelor being a large company itself, obviously not willing to be acquired that too by chief competitor Mittal, called for various methods to counteract the hostile attempt of acquisition by Mittal.

(For newbies to public share based company manipulations: If a major part of shares of a company is acquired by a person or another company, the other company is said to be acquired since the buyer being the major stock holder gets the largest voice in the company's business and operations. So, someone needn't actually request a company to accept acquisition.. its often forced acquisition like this with almost all big companies, Database Software giant Oracle acquiring CRM & Management software giant peoplesoft (which was leader in the domain) to give a big entry for Oracle in the sector, is another forced acquisition example which happened last year)

Arcelor in this situation had sought even legal sanctions from its country's government to block the acquisition attempt by Mittal, and a lot of activity has been happening since then. On the Mittal side, Mr. Lakshmi Mittal considered one of the most wealthiest in Britain is doing everything legally and informally possible to make the acquisition flow through, since it will allow Mittal to dominate the market and today steel is hot cake next only to Oil.

Lately...
Lately there was a protest by Arcelor employees against the acquisition which failed to gain momentum but made Mittal increase the bid amount by almost 30% of an earlier bid.. Lastly Mittal's asking was "25. point nuts billion Euros". Arcelor ignored this offer too and was busy working ways to stop Mittal.

Counteraction later, led to Mittal going to the stock market and announcing an open offer to buy all Arcelor stocks traded, for a premium, if investors wanted to sell it to Mittal. The offer is currently open.

Arcelor's turn again.. and ball is being given another shot.. Arcelor yesterday announced a tie-up with a russian steel maker 'Severstal', and the chairman of Severstal Alexei Mordashov will sell his majority stake in the company.. which will make Arcelor the major stake holder of the Russian firm, and in return Mordashov will get 32% of the merged Arcelor-Severstal steel Co. ..which takes Mardashov directly to the big board of Arcelor.

This new tie-up will need Arcelor's public stake holders approval, as like any company level decision.. and the approval will be sought by June 28th.

There are two things now.. If Arcelors investors approve of the tieup the new company cannot be acquired by Mittal probably because it will be bigger and have more share holders to woe. But if before july Mittal makes more than or close to 50% of shares of Arcelor in its open offer making Mittal major stake holder of Arcelor, then Mittal will obviously cancel the tieup with the russian giant and remain the major share holder.

So, the ball is now rolling.. July will decide where Arcelor settles.

There are many reasons why Arcelor would not like to be acquired by Mittal.
* Arcelor is already a giant in steel, and is a core competitor to Mittal, just that it has less money than Mittal shouldn't become its weakness and give into Mittal's bid. It affects mindset of Arcelor employees and directors who are currently working with "their" company Arcelor. (If Mittal takes over, it could be more Mittal's company)

* Mittal groups corporate governance, they say has more of his family, bringing more family interests, and that, Arcelor says, is not convincing that Mittal will be able to carry the new merged business better than what Arcelor is now.

* Mittal is an indian settled in Britain.. and this may disturb or atleast raise some eyebrows if he becomes more heavier in an industry dominated by Europeans since industrial revolution.

Small investor interests anybody ?
This is like the arranged marriage system in India.. where parents arrange for two people to get married based on everything else except the bride and the groom who stand strangers till almost 2-3 months after marriage.

What I mean is... Whatever said, Investors are plain simply considered traders on the stock market by all public companies and not actually people who the company. There are rules that things need be transparent with the investors, much more stricter rules like the recent SOX compliance, but its still left to the board of the companies to decide what information goes out..

The interests of the carefully appointed board of the company are the core of the business, and share holders are only for annual body meetings and approval votes. Even if the general public share holders vote against a company decision, its highly probably and most often still approved since the major stake holders who are on the board, approve it. And what not, major stake holders are not people who buy here..there and gain a major share, they are always business contacts of the other major stake holders of the company.

The background processing
In my opinion, its hightly unlikely that Mittal wins... because there are always political interests in large companies and there will background dealing which will decide what happens. And for that, Mittal could already be working in the background to attract medium -majority stake holders to his offer.

Processing.. please wait.
Lets wait to see how this game turns...Mittal or Arcelor.

Harish Palaniappan's

The Arcelor ball game

written on: May 27, 2006