European steelmaker Arcelor SA, which is embroiled in a fight to stave of a hostile takeover bid by rival Mittal Steel Co., said Friday it reached a deal that would give it a controlling stake in Russia's largest steelmaker Severstal and $1.59 billion in cash in exchange for 32 percent of Arcelor.But Mittal Steel Co. wasn't immediately pleased with the deal, calling it a "second-class combination." Representatives from Mittal said that Arcelor's board seemed to be manipulating shareholders to their own ends. Investors also appeared unhappy with the deal, sending shares of Arcelor down 3 percent and shares of Mittal up almost 5 percent.
Arcelor has complained about Mittal's corporate governance, saying it is heavily weighted toward the Mittal family. Arcelor also complained that Mittal's original offer of 18.6 billion euros ($23.75 billion) undervalued the company. Mittal offered last week to raise its bid to 25.8 billion euros ($33 billion).
According to a statement from Arcelor, Severstal's controlling shareholder Alexei Mordashov will pay Arcelor 1.25 billion euros ($1.59 billion) in cash and give it his stake in all of Severstal's steel assets and Italian steelmaker Lucchini SpA. In exchange, Mordashov will own 32 percent of the enlarged Arcelor. Existing shareholders, who will own the remaining 68 percent, can vote on the deal at a shareholders' meeting next month.
The deal is expected to be completed by the end of July provided shareholder approve it. Mittal said this was unprecedented and prevented shareholders from having a real choice in the future of the company. In a statement, the company said, "Arcelor's shareholders are being forced to hand over control of their company, whilst being denied a premium."