Hostile Bids, Hostile Shareholders

Monday witnessed two notable unconsummated takeovers, one in Europe and one in the United States.
Stephen TaubJune 12, 2006

For a second time Luxembourg-based steelmaker Arcelor has rebuffed a takeover offer by its Netherlands-based rival Mittal Steel to combine the two companies. Mittal’s latest offer was valued at $29.3 billion, according to Bloomberg.

Arcelor instead announced its intent to proceed with its purchase of OAO Severstal, Russia’s third-largest steelmaker. That deal value Arcelor at $56 per share, compared with Mittal’s valuation of slightly less than $48 per share, Bloomberg reported.

According to the Associated Press, Arcelor said Mittal’s offer “is inadequate as it continues to undervalue” the company and called the Severstal transaction “a more attractive alternative from a strategic, financial, and social point of view.” The Financial Times reported that Arcelor was prepared for directors to meet with Mittal to discuss a possible improved offer. According to the Associated Press, however, Mittal stated that it “has not made any proposal to improve the financial terms of its offer and has no intention to do so.”

The Mittal statement reportedly continued: “We have made a very compelling offer to shareholders offering a 70 percent premium to the pre-offer all-time-high share price of Arcelor. The idea that the Severstal transaction values Arcelor at 44 euros is entirely fictitious and without market substantiation.”

Also on Monday, energy company Mirant withdrew its proposal to acquire NRG Energy for $8 billion, citing opposition from its target.

“We are disappointed that NRG was unwilling to sit down with us to discuss what would have been a compelling opportunity to create significant value for both companies’ shareholders,” said Mirant chairman and chief executive officer Edward R. Muller, in a statement. “It is clear, however, that a long and contested pursuit is not in the best interests of Mirant and its shareholders and, as a result, we are withdrawing our proposal to acquire NRG.”

Another factor in the failed bid, though unacknowledged by Muller, may have been opposition from activist shareholders. Among others, hedge funds Pirate Capital and Jana Partners had fired off letters opposing the transaction and urging Mirant to put itself up for sale instead.

In a letter dated January 12, Thomas R. Hudson Jr., portfolio manager for Pirate, asserted: “Unfortunately, despite the vocal and overwhelming opposition from Pirate Capital and others, the company appears to be continuing to waste valuable time and resources pursuing the NRG acquisition. We call upon you, the independent members of the board of directors, to respect the will of your stockholders and immediately reverse course.”