Thursday, December 13, 2007

ArcelorMittal Offers to Buy All China Oriental Shares

ArcelorMittal, the world's largest steelmaker, agreed to take over China Oriental Group Co. to gain a foothold in the fastest-growing steel market, valuing the company at a minimum of HK$18.6 billion ($2.4 billion). Stock in the takeover target surged the most in 45 months.

ArcelorMittal, which holds 28 percent of Hong Kong-listed China Oriental, offered at least HK$6.355 a share for the stock it doesn't own, the Luxembourg-based company said today in a statement. That's an 18 percent premium to the last traded price.

The takeover may allow Chief Executive Officer Lakshmi Mittal to bypass laws barring overseas control of steelmakers listed in mainland China. The Asian nation has accounted for 65 percent of global growth in steel production in the past 10 years, and is now four times the size of the U.S. steel industry.

``ArcelorMittal's China strategy is always aggressive as China is not a market that a leading steelmaker like it can afford to miss,'' said JPMorgan Chase & Co. analyst Feng Zhang.

China Oriental, which had been suspended since Nov. 7, restarted trade at 2:30 p.m. in Hong Kong after the takeover announcement. The stock jumped HK$1.04, or 19 percent, to close at HK$6.44, the biggest one-day advance since March 2004. ArcelorMittal declined 95 cents, or 1.8 percent, to 50.76 euros ($74.57) at 12:22 p.m. in Amsterdam.

Corporate Strategy

``Strengthening our position in the fast-growing Chinese market is one of the important elements in ArcelorMittal's strategy,'' Mittal said in a statement. He plans to develop China Oriental into a leading maker of so-called heavy sections.

China Oriental, which has its main plants in northern Hebei province and southern Guangdong province, controls closely held Hebei Jinxi Iron & Steel Co., the nation's 29th-biggest steelmaker, according to the company Web site.

Hong Kong's takeover panel on Dec. 6 ordered ArcelorMittal to make a general offer for China Oriental, ruling it had worked with China Oriental Chairman Han Jingyuan and associates to buy the 28 percent stake from former board member Chen Ningning last month. The regulator said then that ArcelorMittal's offer must at least match the HK$6.12 a share paid for Chen's stake.

``ArcelorMittal can use China Oriental as a platform to buy more assets, building up exposure in the mainland,'' Zhang said. It ``can replicate this model to expand quickly in China by acquiring privately owned steel mills if the deal gets approval.'' China doesn't have clear rules on overseas investments in non-state steelmakers, he said.

China Ventures

ArcelorMittal already holds about 29 percent of Hunan Valin Steel Tube and Wire Co., which trades in Shenzhen, and has 12 percent of a Shanghai-based venture with Nippon Steel Corp. and Baoshan Iron & Steel Co. that supplies auto sheets.

Mittal is still waiting for approval for his 2006 accord to buy a 38 percent stake in state-owned Laiwu Steel Corp. after the Chinese government last year tightened scrutiny of acquisitions by overseas companies. Laiwu trades in Shanghai.

ArcelorMittal today said it agreed Nov. 9 to buy from Han and associates their 45 percent stake in China Oriental, starting with an acquisition at HK$6.12 a share that would raise ArcelorMittal's holding to 50.1 percent. The acquisitions would begin 18 months after ArcelorMittal gains Chinese antitrust approval.

The company today made a general offer to buy stock from all China Oriental shareholders for between HK$6.355 and HK$6.826 a share, which is based on the offer price to Han for his shares and the value of an option granted to him and his associates allowing them to force ArcelorMittal to buy some of their stock.

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