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Merging Mittal Steel’s family-controlled business with Arcelor’s old-school European management structure was never going to be straightforward. But complications with Dofasco, the Canadian steelmaker, and Arcelor’s Brazilian minorities have lent new meaning to the phrase “integration risk”.
Arcelor wants to keep Dofasco, while Mittal has a binding agreement to sell it to ThyssenKrupp. Remarkably, the two sides have agreed to differ on the fate of a $5bn asset. At Wednesday’s joint interim results Arcelor’s position had not softened; it made it clear that Dofasco would remain in a Dutch trust for 5 years, with there being no way to sell, or lease it, to Thyssen. Mittal says it has not compromised, but admits that, if the trust cannot be legally unwound, other US assets would have to be sold to satisfy antitrust regulators. Given that Mittal will not control the merged entity’s board, it cannot force Arcelor to give way.
Fortunately, that lack of outright control may help Mittal avoid a buy-out of the minority shareholders in Arcelor Brasil. The local securities regulator has said Mittal must make an offer, although the price and mix of cash and shares that might be required are unknown. At a similar takeover premium to Mittal’s offer for Arcelor, a cash offer could cost $6.5bn.
Mittal is confident in its legal appeal that there has been no change of control, since, based on full acceptances, Arcelor would control 50.5 per cent of the new company and the majority of its board. Losing the argument would at least mean acquiring the rest of Arcelor Brasil’s strategically attractive assets. But this would strain the balance sheet and – on a current enterprise free cashflow yield of well below 10 per cent – the assets would not come cheap.
Most mergers are in fact takeovers, but Mittal may yet rue the subtle distinctions between the two.