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. Last Updated: 07/27/2016

Arcelor Rebels Cast Doubt on Merger

LUXEMBOURG / LONDON -- Rebel shareholders in steelmaker Arcelor secured a special vote Monday that could jeopardize the firm's plans to merge with Severstal and boost a rival takeover bid by Mittal Steel.

The rebels, concerned they may fail to gain 50 percent support at a June 30 shareholders meeting to block the deal with Severstal, won the right to hold a second vote that day calling for another meeting in August to consider the deal under revised voting terms.

Arcelor's board said it saw the move as a spoiling tactic engineered by its rival. A vote in August would require two-thirds of the represented Arcelor shareholders -- rather than just 50 percent -- to vote in favor of the 13 billion euro Russian tie-up.

Luxembourg-based Arcelor's management favors the Severstal deal as a white knight that would ward off Mittal's cash and shares bid -- currently worth about 21.7 billion euros ($27.39 billion) -- which would combine the top two steelmakers in the world.

Arcelor formally rejected Mittal Steel's 22 billion euro unsolicited takeover offer after its board met Sunday but gave its management board the green light to talk to Mittal.

"Having noted that Mittal Steel recently indicated that it was prepared to further improve its offer in the context of a recommended transaction, the Arcelor board has mandated the group management board to meet with Mittal Steel," Arcelor said, to "explore such possible improvements" to Mittal's bid.

But Mittal said Monday that it had no plans to improve the financial terms of its offer but might make changes related to corporate governance.

Goldman Sachs, the investment bank advising Mittal Steel, has played a key role in helping shareholders with about 30 percent of Arcelor's capital call for a change in the voting requirements for approval of the merger.

If dissident Arcelor shareholders do not drum up the support of 50 percent of the steelmaker's capital to vote against the Severstal deal on June 30, they will be asked to vote on a resolution that calls for a special shareholders meeting to be held towards the middle of August.

Arcelor's board said it was concerned that this new shareholder meeting would give Mittal a decisive advantage due to timetable technicalities.

Mittal's current takeover offer is due to close on July 5 and it is yet unclear whether billionaire Lakshmi Mittal's company would keep a minority stake in Arcelor if it fails to get over 50 percent.

If Mittal did keep a minority stake, it could use it to vote at a special shareholders meeting, making it likely that the Severstal white knight deal would be killed off, Arcelor said.

Arcelor said it had set its buy-back scheme price at 44 euros per share.

Speculation continued over whether Arcelor would put its merger on hold if investors voted to hold a new meeting in August. "We wonder if this vote carries any legal weight, as Arcelor's articles of association allow the company to issue shares up to its existing capital," banking group Dexia said in a research note Monday.