SOURCE: Arcelor

June 26, 2006 01:46 ET

ARCELOR : Arcelor recommends improved Mittal Steel offer - Proposed creation of Arcelor-Mittal

Luxembourg -- (MARKET WIRE) -- June 26, 2006 -- Arcelor recommends improved Mittal Steel offer

Proposed creation of Arcelor-Mittal

The Board of Directors of Arcelor unanimously recommends the Mittal Steel offer

Proposed creation of Arcelor-Mittal

49% improvement compared to the initial offer of 27 January (+108% improvement of the cash component)

The industrial and corporate governance model will be based on Arcelor's model

Luxembourg, le 25 June 2006 - The Board of Directors of Arcelor, chaired by Mr. Joseph Kinsch, has met today to evaluate and compare:

- proposed revisions to the strategic alliance with SeverStal; and

- proposed improvements to Mittal Steel's offer.

The Board has concluded that Mittal Steel's improved offer consists of a merger proposal effected by way of a mixed share and cash offer that will be followed by the merger of Mittal Steel into Arcelor. The new group, which will be called Arcelor-Mittal, will be listed in New York, Paris, Madrid, Amsterdam, Brussels and Luxembourg.

The Board believes that Mittal Steel's new offer represents a substantial improvement compared to Mittal Steel's preceding offer announced on 19 May. In particular, the Board notes that all of the key conditions established by the Board and presented by the Management Board as well as the observations made by the European works council in terms of valuation, industrial plan and corporate governance, have been met.

The proposed merger agreed by Arcelor and Mittal Steel provides that:

The value proposed to shareholders will be once again significantly increased (+10%)

A mixed offer at a price equal to 13 Mittal Steel shares and ⁄150.6 in cash per 12 Arcelor shares, or ⁄12.55 in cash and 1.084 Mittal Steel shares per Arcelor share

A cash offer at a price equal to ⁄40.4 per Arcelor share

An exchange offer at an exchange ratio of 11 Mittal Steel shares per 7 Arcelor shares

A mixed offer for Arcelor convertible bonds (OCEANEs) at a price equal to 13 Mittal Steel shares and ⁄188.42 in cash per 12 Arcelor OCEANEs

Tenders to the offers above will be subject to a pro-ration and allocation procedure that will ensure that in the aggregate the portion of the consideration paid consisting of Mittal Steel shares and the portion of the consideration consisting of cash will be 69% and 31%, respectively.

This improvement represents :

. An improvement of 49% to Mittal Steel's initial offer

. A premium of approximately 100% excluding dividend on the closing price of Arcelor shares on the day preceding the announcement of Mittal Steel's starting offer

. A 108% increase of the cash offer

. A 32% increase of the exchange offer

The negotiated exchange offer ratio implies relative valuations of 60% for Arcelor shareholders and 40% for Mittal Steel shareholders. Therefore, taking into account the cash portion of Mittal Steel's offer, the shareholders of Arcelor and Mittal Steel will hold 50.5% and 49.5% of Arcelor-Mittal, respectively.

Consistent with the Arcelor model, the combined group will be based on the following principles :

. an integrated model based on leadership in high value added steel, on the one hand, and capturing growth in low cost developing markets, on the other,

. industrial excellence through state of the art assets sustained by sound capital expenditure levels

. upstream vertical integration for cost leadership

. focusing on research and development

. commercial leadership based on Arcelor's strong distribution channels

. best standards in terms of health and safety and protection of the environment

. best standards in terms of ethics standards and sustainable development

. best practices in terms of social dialogue and social responsibility

. commitment to comply with industrial plans and social commitments of both companies

. no restructuring plans nor employee reduction plans within Arcelor in Europe resulting from the merger

. high profitability targets, including a 30% dividend payout target, as part of a broader effort to maximize shareholder returns

. a sound capital structure

Arcelor continues to be opposed to the sale of Dofasco.

The corporate governance model Arcelor's current practices :

. there will be only one class of shares, and each share will have one vote

. the board of directors and the management board will be separate bodies and the board of directors will be constituted by a majority of independent directors

. the board of directors of the combined group will have 18 members, 12 members currently in place at Arcelor, including Arcelor's 3 employee representatives, and 6 members nominated by Mittal Steel, of which 3 will be independent directors. Every director will have one vote.

. the Mittal family will own 43% of the combined group

. the Mittal family will agree to a lock-up for 5 years and a standstill combined group's share capital

. the combined group will be domiciled in Luxembourg

. of the the Management Board of the combined group will be constituted by 7 members, the 4 current Arcelor members, including the chief executive officer, and the 3 members nominated by the Mittal Steel board of directors.

The Board of Directors has evaluated Mr. Mordashov's new proposal in a detailed manner and compared the merits of the two projects submitted to it from a financial perspective as well as from the standpoint of their respective industrial plans, governance and social commitments. Whilst the Board recognizes that Mr. Mordashov's new proposal represents a significant improvement compared to the arrangements under the existing strategic alliance agreement, the Board believes that Mittal Steel's revised offer is superior as a whole. Accordingly, the Board has unanimously resolved to recommend the improved Mittal Steel offer.

Joseph Kinsch, chairman of the board of directors said: "Intense discussions with Mittal Steel in the past weeks have resulted in a significantly improved offer by Mittal Steel that the Board of Directors is unanimously recommending. The merger will give rise to the leading steel company in the world. The managers and employees of Arcelor have made extraordinary efforts and produced exceptional results in the course of the last five months, which were difficult and full of uncertainties. I congratulate them and thank them on behalf of the Board of Directors. The should be proud and confident in the future."

A joint press conference of Arcelor-Mittal will be held on Monday 26 June at 14h00 at Arcelor's headquarters at 19, avenue de la Liberté L-2930 Luxembourg. Details on the electronic transmission of this conference will be published on press.arcelor.com.

About Arcelor

Arcelor is the number one steel company in the world with a turnover of 32.6 billion euros in 2005. The company holds leadership positions in its main markets: automotive, construction, household appliances and packaging as well as general industry. The company -number one steel producer in Europe and Latin America -targets further expansion internationally in order to capture the growth potential of developing economies and offer technologically advanced steel solutions to its global customers. Arcelor currently employs 110,000 associates in over 60 countries. The company places its commitment to sustainable development at the heart of its strategy and ambitions to be a benchmark for economic performance, labour relations and social responsibility. For more information visit www.arcelor.com


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