Democratie a la Russe

26 May 2006 By Hugo Dixon Follow @hugodixon

Whether the deal is any good is another matter. The terms aren’t transparent and the idea the deal values Arcelor at E44/share is fanciful. Shareholders aren’t being given a fair chance to assess this deal compared to Mittal’s hostile offer. This is democracy Russianstyle.

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Arcelor and Severstal announced that the two companies intend to merge. Arcelor will issue 295m shares to Alexey Mordashov in exchange for:

• Mordashov's 89.6% interest in Severstal;

• Mordashov's other Russian mining assets which are due to be merged into Severstal before it merges with Arcelor

• Mordashov's 51% interest in Lucchini, an Italian steelmaker;

• E1.25bn in cash.

If the merger is approved, Mordashov will control 32% of the Arcelor shares, a proportion that would rise to 36% if he does not participate in the planned share buyback. He will be allowed to nominate six of the 18 members of a new board of directors. He has committed himself to support the decisions of the whole board of directors.

The Severstaal minority will remain quoted. Mordashov will also retain a 25% voting interest in the Severstal, although he won't hold any shares directly in it.

The transaction is expected to be presented to shareholders on June 28. The deal will go ahead unless 50% of the shares outstanding vote against it.

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