Steel Giant Mittal Makes $22.8B Bid for Rival Arcelor

Mittal Steel Co. (MT) on Friday announced a surprise $22.8 billion offer for rival Arcelor SA , a deal that would unite the world's largest steelmaker with its closest rival to create a global powerhouse capable of producing more than 100 million tons a year.

While the bid for Arcelor caught the market by surprise, the steel industry has been consolidating rapidly in recent years and Mittal has been openly looking for acquisitions to increase its market share as demand from China and India rises.

The offer values Arcelor shares at 28.21 euros ($24.50) each, a 27 percent premium to Thursday's close. Trading in Arcelor's shares had been halted on the Euronext exchange ahead of the announcement but surged 35 percent to 29.97 euros ($36.71) when they resumed. Mittal's shares also were halted pending the announcement, and Dutch regulators said the stock would resume trading Friday afternoon.

If the deal goes ahead, Mittal said it has agreed to sell Canadian automotive-steel maker Dofasco Inc. — which earlier this week agreed to a $4.85 billion takeover by Arcelor — to German-based steelmaker ThyssenKrupp AG.

ThyssenKrupp, which had dropped out of the bidding war for Dofasco, noted that Mittal is offering to sell the Canadian company for around 68 Canadian dollars ($59) a share, equal to the final offer the German company made to Dofasco's shareholders. ThyssenKrupp shares leapt 7.7 percent on the Frankfurt exchange to 21.88 euros ($26.80) on news of the proposed deal.

The combined Mittal and Arcelor would have a market capitalization of $40 billion and Mittal said it anticipated annual synergies of $1 billion. Mittal would acquire a host of assets in Europe and break into South America under the deal.

Arcelor spokesman Jean Lasar in Luxembourg offered no comment on the bid, adding that the company might react later in the day after assessing the bid.

Rabo Securities analyst Richard Brakenhoff said the surprise move was "ambitious, but smart." Brakenhoff added that he did not envisage any obstacles from antitrust authorities in Europe or the United States, following the decision to divest Dofasco.

"Even though they will be producing 100 million tons, this won't give them pricing power because the market is still very fragmented market," he said. "They are still too small for that, but it will give them a huge advantage over competitors, in terms of cost savings and know-how in the fields of automotive and construction."

Mittal Chief Executive and Chairman Lakshmi Mittal said both companies have been at the forefront of consolidation of the steel industry and "share a similar vision for the future of our industry."

"This combination accelerates this process and leaves us uniquely positioned to benefit from the opportunities created," he added.

Mittal, based in Rotterdam, Netherlands, overtook Arcelor as the world's largest steelmaker by buying U.S.-based International Steel Group, snapping up steel mills in Eastern Europe and paying about $4.8 billion in October to acquire Ukraine's state-owned Kryvorizhstal.

Mittal, which is 88 percent owned by the Mittal family, has also signed a memorandum of understanding with local authorities in India to set up a 12 million ton site in Jharkland.

Arcelor, created in 2002 through the merger of Usinor SA of France, Arbed SA of Luxembourg and Aceralia Corp. Siderurgica SA of Spain, makes around two-thirds of its sales to high-end European automotive and packaging companies, which means its profit margins are high.

However, late last year it moved into Latin America, taking control of Brazilian stainless-steel producer Acesita SA after it bought out two Brazilian pension funds.

Under the terms of Friday's offer, Arcelor shareholders will receive four Mittal Steel shares and 35.25 euros ($30.61) cash for every five Arcelor shares.