Arcelor

Arcelor

May 26, 2006 02:45 ET

Arcelor to Merge with Severstal

LUXEMBOURG, LUXEMBOURG and MOSCOW, RUSSIA--(CCNMatthews - May 26, 2006) -

Transaction will create the world's steel champion and the most profitable steel company

Arcelor valued at EUR44 per share (excluding dividend)

Arcelor, the world's number one steel company, and Severstal, the largest Russian steel company, announced today that they have agreed to merge, creating the world's steel champion and most profitable steel company. The combined company will rank amongst the world's most competitive steelmaking and resource assets in both developed and emerging markets, and will be the only one with leading positions in Brazil and Russia.

- Transaction highlights

The transaction values Arcelor at EUR44 per share, excluding EUR 1.85 dividend, representing a premium of 100% over Arcelor's closing price on January 26, 2006, the day before Mittal Steel announced its hostile offer, and 36.6% over Arcelor's closing price ex-dividend on May 25, 2006.

In addition, up to EUR7.6 billion cash will be returned to shareholders, including via dividends and OPRA (self tender).

The combination of Arcelor and Severstal will be the Number 1 steel company in the world with EUR46 billion in sales, EUR9 billion in EBITDA and 70 million tonnes of production, based on each company's pro forma 2005 results.

Under the definitive agreements signed by the parties,

- Alexey A. Mordashov, Severstal's controlling shareholder, will contribute all of his economic interests in Severstal's steel business (including Severstal North America), as well as Severstal- Resource (iron ore and coal assets) and his ownership interest in Italian steelmaker Lucchini, to Arcelor.

- Mr. Mordashov will also contribute a cash payment of EUR1.25 billion to Arcelor in exchange for shares at a price of EUR44 per share.

- In total, Mr. Mordashov will receive 295 million newly issued Arcelor shares at a price of EUR44 per share, representing approximately 32% of the enlarged Arcelor.

- Arcelor's existing shareholders will retain approximately 68% of the enlarged Arcelor.

- Creating a Global Steel Champion

The combined entity will consolidate Arcelor's technology leadership and experience and will be the undisputed world leader in all product segments including flat carbon steel, long carbon steel and distribution. The combination will strengthen Arcelor's Number 1 global position in the automotive steel segment (with Number 1 positions worldwide with a global market share over 20% - more than double that of its nearest competitor).

The combined company will offer an exceptional, balanced geographic presence with leadership both in developed and emerging markets and in particular will:

- Be Number 1 in Europe, Russia and South America

- Take advantage of its leading position in North America

- Further grow strong industrial presence and partnerships globally

With geographically balanced contributions, over 40% of 2005 pro forma EBITDA generated in Brazil and Russia.

The two companies have a longstanding relationship and know each other well from their Russian joint-ventures which include the Severgal galvanizing plant in Cherepovets, wire drawing operations in Orel and various industrial cooperation projects.

The combination of high value-added products, low-cost operations and ownership of key raw materials will result in a combined company with one of the highest profit margins in the industry, generating a 2005 pro forma EBITDA per tonne of EUR130. The combined company will have outstanding resilience through the steel cycle.

- Compelling Value Creation for Shareholders

- Targeted normalized EBITDA of EUR10 billion

- Accretive on earnings as early as 2006, before synergies

- Synergies of EUR590 million and potentially more from capital expenditures

- ROCE above Arcelor's current 15% target

- Strong balance sheet allowing financial flexibility for growth and consolidation

- Up to EUR7.6 billion cash to be returned to shareholders including dividends and OPRA (self tender)

- Continuation of Arcelor's Best Practice Corporate Governance Model

- 1 share, 1 vote

- All board members are non-executive

- 18 board members, at least 9 being independent

- 3 board committees (Audit, Nomination and Remuneration, Strategy)

- All Audit Committee Members independent

- New Strategic Committee to be chaired by Mr. Mordashov

- Independent Chairman of the Nomination and Remuneration Committee

- Mr. Joseph Kinsch and Mr. Guy Dolle will continue to serve as Arcelor's Chairman of the Board of Directors and Chief Executive Officer, respectively, and Arcelor's executive management will remain in place, supplemented by Severstal executives.

- Mr. Mordashov will become non-executive President of the Arcelor Board of Directors. He will have the right to nominate 6 out of 18 directors on the Arcelor Board of Directors. Mr. Mordashov has agreed to vote his shares in accordance with the recommendations of the Board of Directors. In addition, he has committed to a standstill on Arcelor shares for 4 years and to a lock-up for 5 years.

The transaction is subject to antitrust approvals, which the parties expect will be obtained shortly. The transaction is expected to close in July 2006, subject to obtaining regulatory approvals.

Arcelor shareholders will have the opportunity to express their choice about this transaction at a shareholders meeting. Unless more than 50% of the currently outstanding shares opposes this transaction, the transaction will go forward and is expected to be finalized by the end of July.

Arcelor's Board of Directors was given a presentation by the advisors of the company and also received a fairness opinion from its own financial advisor in connection with the Arcelor/Severstal transaction.

Mr. Joseph Kinsch, Chairman of Arcelor's Board of Directors, said: "Arcelor's Board of Directors believes that the merger with Severstal fully recognizes the value inherent in Arcelor, and offers Arcelor shareholders superior industrial logic, greater value and the highest standards of corporate governance compared to Mittal Steel's offer. Therefore we believe this deal is in the best interests of Arcelor's shareholders.

Mr. Alexey A. Mordashov, Severstal's Chairman and controlling shareholder, said: "I am delighted about our merger with Arcelor. Arcelor is a superb company with highly successful management, world-class assets that produces extremely high quality products. Severstal's top management team, highly profitable assets and low cost operations, together with Arcelor's attributes, will position the combined company to lead the way in the consolidation of the steel industry".

Mr. Guy Dolle, Chief Executive Officer of Arcelor said: "The merger with Severstal represents a breakthrough transaction for Arcelor that positions the combined company in the forefront of the international steel industry. The transaction is consistent with Arcelor's strategy of value before volume, and was negotiated in the best interest of both groups. The merger is consistent with Arcelor's growth strategy in the BRIC markets. We are creating a truly extraordinary growth platform for investors and a much better choice for our shareholders. We are confident that they will support the Arcelor way". He added: "Long-lasting relationships, existing successful partnerships and a friendly approach guarantee limited risks of execution and therefore increase the chances to make this merger a massive success".

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 - ambitions to further expand internationally in order to capture the growth potential of developing economies and offer technologically advanced steel solutions to its global customers. In 2006, Arcelor 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.

About Severstal

Severstal is the largest Russian steel producer, with 2005 annual steel production of 17.1 million tonnes. It is the second largest flat steel producer in Russia with annual steel production of 10.9 million tonnes. In addition, Severstal owns Severstal North America, the fifth largest integrated steel maker in the U.S. with 2005 production of 2.7 million tonnes, and Lucchini, Italy's second largest steel group with 2005 production of 3.5 million tonnes. Severstal is one of the world's lowest cost and most profitable steel producers, with 2005 EBITDA per tonne of approximately 150 euros per tonne.

Severstal-Resource owns 70 years of iron ore reserves and 84 years of coal reserves. 2005 revenue and EBITDA were approximately EUR1.12 billion and EUR506 million, respectively. Severstal- Resource produces coking coal, thermal coal, iron ore pellets and iron ore concentrate.

Note to the editor:

A press conference will take place on Friday May 26 at 14.00 CEST (12.00 GMT) at Arcelor's headquarters in Luxembourg, at the following address:

19, avenue de la Liberte

L-2930 Luxembourg

The press conference will also be webcast: for details please check http://press.arcelor.com

The appendixes relating to the press release are available on http://www.companynewsgroup.com

This information is provided by CompanynewsGroup

Contact Information

  • Arcelor Contacts
    Corporate Communications
    +352 4792 5000
    press@arcelor.com
    or
    Patrick Seyler:
    +352 4792 2360
    or
    Luc Scheer:
    + 352 4792 4455
    or
    Jean Lasar:
    +352 4792 2359
    or
    Spain
    Ignacio Agreda:
    +34 94 489 4162
    or
    Oscar Fleites:
    +34 98 512 60 29
    or
    France
    Sandra Luneau:
    +33 1 71 92 00 58
    or
    Brasil
    Eimar Magalhaes:
    +55 31 3219 1257
    or
    Investor Relations
    investor.relations@arcelor.com
    or
    Martine Hue:
    +352 4792 2151
    00 800 4792 4792-(toll free from the EU and Switzerland)
    or
    France
    +33 1 71 92 0090
    or
    Brasil
    Christiano Woelffel:
    +55 31 3219 1245
    or
    Severstal Contacts
    Contact for Europe
    Marie Rouet
    + 33 6 03 81 51 37
    or
    Alpana Kar
    + 33 6 98 18 31 47
    or
    Edelman
    + 33 1 56 69 75 74
    severstal@edelman.com
    or
    Contact for Americas
    Gregory Pettit, Hill & Knowlton
    +1 (212) 885 0301
    +1 (917) 450 6267
    gregory.pettit@hillandknowlton.com
    or
    Contact for Russian & CIS
    Olga Antonova
    +7 (495) 540 7765 ext. 6447
    antonova@severstalgroup.com