Arcelor to merge with Severstal

Arcelor (Luxembourg) and Severstal (Russia) have agreed to merge. The transaction values Arcelor at EUR 44 per share, excluding EUR 1.85 dividend, representing a premium of 100% over Arcelor’s closing price on 26 January 2006, the day before Mittal Steel announced its hostile offer, and 36.6% over Arcelor’s closing price ex-dividend on 25 May 2006. In addition, up to EUR 7.6 billion cash will be returned to shareholders, including via dividends and OPRA (self tender). The combination of Arcelor and Severstal will create a steel company with EUR 46 billion in sales, EUR 9 billion in EBITDA and 70 million tonnes of production, based on each company’s pro forma 2005 results.
Alexey A. Mordashov, Severstal’s controlling shareholder, will contribute all 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 make a cash payment of EUR 1.25 billion to Arcelor in exchange for shares at a price of EUR44 per share. In total, Mr. Mordashov will receive about 32% of the enlarged Arcelor’s assets. Arcelor’s existing shareholders will retain about 68% of the enlarged Arcelor.
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 Orël and various industrial cooperation projects.
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 oppose this transaction, the transaction will go forward and is expected to be finalised by the end of July.

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