The Stel Salaried Pensioners Organization wishes to
thank The Hamilton Spectator for permission to post the following article by
Reporter Steve Arnold published in the January 28, 2006 edition
By Steve Arnold
The Hamilton Spectator
(Jan 28, 2006)
Dofasco's unwanted suitor has become a takeover target
itself -- a twist analysts say could be very good for the Hamilton steelmaker.
In a move that surprised the global steel industry
yesterday, Arcelor SA, which recently won a competition for the shares of
Dofasco, suddenly found itself the target of a $22.8 billion US takeover bid by
Mittal Steel, the largest steelmaker on the planet. Mittal announced it had
signed a deal with another European industrial giant to sell Dofasco as soon as
possible.
ThyssenKrupp AG, of Germany, will get Dofasco for $5.26
billion if the Mittal deal is successful. The German firm has been trying to
get Dofasco since November when it was recruited to play the white knight
against a hostile bid by Arcelor. It dropped out of the competition last week
after Arcelor upped its bid to $71 a share.
Mittal president, Aditya Mittal, told a news conference in
London, England, Dofasco is simply too small to interest his firm.
"Dofasco is a significantly smaller producer than our
assets in the United States," he said. "It's the number 5 producer,
we're number 1. It's number 4 in automotive, we're number 1. Dofasco, for us,
is redundant and subscale. We ... do not need these facilities."
The company that Mittal finds too small, however, would be a
treasured acquisition for ThyssenKrupp, industry analysts conclude.
"The news that (Mittal) is going to sell Dofasco is
very good news for Dofasco," said Joe D'Cruz, of the University of
Toronto's business school.
"Dofasco's parent should treat it as a strategic asset,
not as just a financial asset," he said. "For Mittal, Dofasco would
be merely a financial asset. What that means is they'll run it for cash and
they won't invest in it. For ThyssenKrupp, Dofasco becomes a really strategic
asset. It will be the platform from which they expand their operations in North
America so they will invest in it. They will treat it as something they want to
grow, where for Mittal it would be simply a cash cow."
When they were actively competing for Dofasco, both Arcelor
and ThyssenKrupp said they wanted the Hamilton firm as an entree to the North
American steel business, especially the automotive trade. That value just
doesn't exist for Dofasco under a Mittal-Arcelor combination, D'Cruz said.
Selling Dofasco would also sharply reduce the cost of the
Mittal-Arcelor deal, said American analyst Chuck Bradford -- as long as the
sale is voluntary.
"If antitrust agencies object and force Mittal to sell
Dofasco then their ability to sell it at a decent price really decreases,"
he said. "This one I didn't expect, but it's a brilliant move."
Under the Mittal proposal ThyssenKrupp would be able to buy
Dofasco for $68 a share, but would have to reimburse the $215 million break fee
it received from Dofasco when the Hamilton company walked away from a deal to
accept the larger offer from Arcelor. That $5.4 billion would pay for almost 25
per cent of the total acquisition.
Peter Warrian, of the University of Toronto's Munk Centre
for International Studies, said the Mittal-Arcelor deal is the first step in
the next stage of evolution for the world steel industry, a stage that will see
five or six huge companies dominate the global business.
Dofasco produces about 5 million tons of steel a year, while
the Mittal-Arcelor combination would create the world's first 100
million-ton-per-year operation.
Lakshmi Mittal, chief executive of the company, made that
point clear in his British news conference.
"I think this is a great opportunity for both of us to
take the steel industry to its next level," he said. "This is a truly
global transaction for the steel industry that will bring it to the next
level."
Both Arcelor and Mittal are products of that consolidation
wave -- Arcelor was created in 2002 through the merger of steel firms in
France, Luxembourg and Spain. Last year, it expanded into Brazil. Mittal has
completed 48 acquisitions in the last five years. The combined group will have
320,000 employees, annual sales of more than $69 billion US and annual
production of about 115 million tonnes.
Warrian speculated the next Canadian takeover target in this
drive could be Stelco.
"Obviously the owners of Stelco aren't going to hold it
forever," he said. "All of the steel companies in Canada are in play
now and Mittal may come looking for Stelco because this is not an industry for
orphans.
"It's not off the wall to consider a merger between
Mittal and Stelco. There's more to come on this," he said. "The big
Canadian steel companies are now looking like pawns in a global game."
Mittal has already purchased former Stelco subsidiary
Stelwire. Arcelor made no firm comment on the Mittal bid yesterday, other than
to issue a terse press release saying "Arcelor underlines the hostile
character of this move," adding its board of directors "will meet
shortly to take position on this offer."
Under the offer, Arcelor shareholders would receive four
Mittal Steel shares and $30.61 US cash for every five Arcelor shares.
Dofasco's comment on the deal was limited to a similarly
brief news release saying the board of directors "has no reason to believe
that the (sale to Arcelor) will not close in the ordinary course."
sarnold@thespec.com
905-526-3496
With files from Canadian Press
CHRONOLOGY OF A BIDDING WAR
Nov. 23, 2005 -- Arcelor SA, the world's second biggest
steelmaker, makes a hostile takeover bid for Dofasco of $56 per share, or $4.3
billion.
Nov. 28, 2005 -- ThyssenKrupp AG emerges as Dofasco's
"white knight" with a friendly counter-bid of $61.50 per share, or
$4.8 billion. Dofasco's board of directors immediately support the offer.
Dec. 24, 2005 -- Arcelor comes back with a bid of $63 per
share, pushing the value of the company to just under $5 billion.
Jan. 3, 2006 -- ThyssenKrupp matches Arcelor's bid of $63.
Although the offers are of equal cash value, Dofasco's board endorses
ThyssenKrupp's bid because it carries fewer conditions.
Jan. 15, 2006 -- ThyssenKrupp makes a surprise bid of $68
per share, increasing its own high bid by $5. It also nearly doubles its break
fee to $210 million, a cost Dofasco would have to pick up if it went with
another bidder.
Jan. 16, 2006 -- Arcelor bashes back with a bid of $71 per
share. Dofasco's board acknowledges the bid as superior but notes that
ThyssenKrupp has five days to counter-bid.
Jan. 23, 2006 -- ThyssenKrupp finally walks away from the
bidding.
Jan. 24, 2006 -- Dofasco embraces $71 per share takeover bid
by Arcelor, which amounts to $5.5 billion.
Yesterday -- Mittal Steel Co., the world's largest
steelmaker, makes a hostile bid of $22.8 billion US for its nearest rival,
Arcelor, saying it will sell Dofasco to ThyssenKrupp for its final offer of $68
a share if the deal goes ahead. Dofasco says it expects its deal with Arcelor
will still proceed.