Courts Won't Stop ArcelorMittal Merger

Legal actions by three hedge funds and by an activist shareholder both rejected by judges, clearing hurdles for the creation of the world's largest steel maker.

ROTTERDAM, Netherlands (AP) β€” Courts in the Netherlands and France refused Monday to grant injunctions blocking Mittal Steel Co. NV's proposed $41 billion acquisition of rival steel maker Arcelor SA.
 
Legal actions launched in Rotterdam by three hedge funds and in Paris by an activist shareholder were both rejected by judges, clearing hurdles to the creation of the world's largest steel maker as measured by sales.
 
The steel companies already call themselves ArcelorMittal.
 
In the Netherlands, three funds β€” SRM Global Master Fund Ltd., Trafalgar Catalyst Fund and Trafalgar Entropy Fund β€” went to court last week seeking to block the first phase of the two-step deal, when Rotterdam-based Mittal is to combine with ArcelorMittal SA, a Luxembourg holding company.
 
In the second phase, ArcelorMittal would combine with Luxembourg-based Arcelor, likely before year's end.
 
Rotterdam Court judge A.A. Rijperman agreed with Mittal lawyers that she did not have jurisdiction in the case because ArcelorMittal and Arcelor are based in Luxembourg.
 
''The plaintiffs will be able to fight the second phase of the merger in Luxembourg,'' Rijperman said. ''There is no way an injunction can take measures in what will be a Luxembourg matter.''
ArcelorMittal welcomed the ruling.
 
''We have always been convinced that the merger process was transparent and fair to all shareholders in both companies,'' the company said.
 
The hedge funds' legal team argued that the two-step process was designed to sidestep Dutch courts, which it said were generally more sympathetic to activist shareholders than courts in Luxembourg.
 
The funds also claimed they were shortchanged because they did not take up an initial offer in August 2006 that would have given them 11 ArcelorMittal shares for seven Arcelor shares.
 
After most shareholders took advantage of the offer, it was revised in May to eight ArcelorMittal shares for seven Arcelor shares.
 
''We are only getting 3.3 percent of a valuable company, and we should be getting 4.4 percent,'' Philip Price, chief operating officer of SRM Global, told reporters on Wednesday after a hearing in the case.
 
The funds said the difference in the exchange ratio would cost them 152 million euros ($207 million).
 
Because the court ruled the case would best be dealt with in Luxembourg, it did not consider the issue of the different exchange ratios.
 
In France, an injunction request by an activist shareholder also upset by the change in the share swap ratio was rejected.
 
Philip Price, chief operating officer of SRM, said the hedge funds were ''actively considering their options to appeal.''
 
''Far from the total victory which is being claimed by Mittal lawyers, it is clear to us that the judge did not rule on the fairness of the eight for seven ration,'' Price added.
 
An injunction would have thrown into doubt a special meeting of Mittal shareholders scheduled for Tuesday, at which approval was to be sought for the deal.
 
If shareholders approve the deal, as expected, Mittal wants to complete the first phase of the deal with ArcelorMittal by Sept. 3.
 
While the minority shareholders now seem unlikely to stop the deal, they may still consider suing Mittal for the money they say they lost.
 
The Dutch legal battle is the latest hurdle faced by Arcelor and Mittal in their quest to create a company that would control around 10 percent of global steel production.
 
Brazilian authorities forced Mittal to pay more for Arcelor's Latin American units, adding nearly 4 billion euros ($5.46 billion) to the cost of the deal. The companies had to sell plants in Europe and the U.S. to win regulatory approval.
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