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During the past 20 years, the author has watch China move from being a developing country into an industrial superpower
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|  | FEBRUARY 17, 2006
Arcelor CEO: Seller BewareThe steel giant's Guy Dollé says Mittal's stock-and-cash offer needs to get a lot sweeter before it makes senseGuy Dollé, CEO of Luxembourg-based steel giant Arcelor, has been on the defensive ever since Indian-born steel magnate Lakshmi Mittal made a $23 billion offer for his company on Jan. 27. At first, Dollé looked for political protection from the French and other European governments worried that a big steel merger would lead to a loss of jobs. Now, Dollé is focusing on the numbers, and they're looking good. On Feb. 16, Arcelor released impressive results despite a soft steel market. Net income was up 65% for 2005, to $4.5 billion, on revenues of $36 billion. STRONG RESULTS. Arcelor benefited from having a large portion of its output locked up in contracts rather than at the mercy of a weak spot market. By contrast, Mittal Steel (MT ), which is more dependent on the spot market, reported a 23% drop in pretax profits, to $4.7 billion, on Feb. 15. Arcelor also promised to almost double its dividend, to $1.43 a share, in what seemed an effort to court investors. Despite the strong results, Dollé still has a problem. Investors like the idea of a combination, and Arcelor's stock price rose sharply after Mittal's offer. Unless he comes up with a sweet alternative to Mittal's mixed stock-and-cash offer, Dollé risks alienating his shareholders. In an interview with BusinessWeek London Bureau Chief Stanley Reed on Feb. 17, Dollé, 63, said that were Mittal to make a much higher all-cash offer, the Arcelor board must take it seriously. Here are excerpts from the conversation. What's your analysis of how the takeover fight is going? I think that after the release of our yearly results, we show that our model is working very well. These are fantastic results. There is also the [improvement] of our results between 2004 and 2005 compared to Mittal Steel. We have healthy growth and less volatility. This is linked to our [having a large share] of contract and specialty steels. Despite some advantage that Mittal was supposed to have in raw materials, we performed much better than his company in 2005. With our future synergies and cost-cutting and growth in Canada and Brazil, we will be able to deliver very good growth for shareholders. Will next year be better than last year? I think it will be a little bit less. But we will have the advantage of newcomers, including [the recently acquired Dofasco in Canada]. At the end of the day wouldn't it be better if there was some combination of the two companies? I think the models are very different. For [the deal] to make sense you would have to have a common model. [Just because the two do not overlap] in geography does not improve efficiency. When you look at mergers, 80% of mega-mergers fail -- because of culture. Culture is linked with the history of the company. I think it is very important to understand that. To be successful a mega-merger has to be very carefully prepared to deliver what you expect. This is an important question, especially when the shareholder is mainly being paid in shares. It is much more risky because of the country, because of volatility, because of corporate governance. [Mittal's offer] is difficult to evaluate. That is why shareholders need a cash offer and at a much better price than [Mittal] has offered to pay. Would you give an all-cash offer serious consideration? The board has to take it seriously. [If it were] 100% cash, and if it is a much higher value, the board has to evaluate it. Have you talked to Mittal? I saw him two weeks ago [at a steel conference] in Paris. I shook hands with him. We talked about a lot of issues. We did not discuss [the offer]. How do you see this year shaping up for the industry? I think it will be better in volume, especially in Europe and the U.S. Last year was very depressed. After some decrease in spot prices in the second half [of 2005], I see the possibility of price increases in the second quarter. A lot of people are concerned about China. They started a price war, but it is an internal price war to kill less well-performing companies. There will be no consequences from this war in terms of increased exports from China. I don't think it is a major issue in terms of China becoming a strong net exporter to Europe and the U.S.  Get BusinessWeek directly on your desktop with our RSS feeds.  Add BusinessWeek news to your Web site with our headline feed. Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or video. To subscribe online to BusinessWeek magazine, please click here. Learn more, go to the BusinessWeekOnline home page  | | |
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