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. Last Updated: 07/27/2016

Arcelor Team Goes on a PR Offensive

European steel giant Arcelor went on a PR blitz in Moscow on Thursday to promote its merger with Alexei Mordashov's Severstal, as plans for a legal challenge to the deal by shareholders mounted.

At a Moscow metals conference, attended by six top Arcelor officials, the talk was feverish about possible further consolidation of the country's steel industry after No. 2 steelmaker Evraz confirmed Wednesday it would sell a "substantial" stake to Roman Abramovich.

Recent speculation that the state is seeking to create a national steel champion, possibly centered on Abramovich, left few unmoved. An executive of one Russian steelmaker said the company would fight absorption into the London-based billionaire's orbit to the last.

"We'll go to [President Vladimir] Putin if we have to," he said, speaking on condition of anonymity on the sidelines of the conference.

Abramovich has also been linked in media reports to Anglo-Dutch steelmaker Corus, though both parties strongly denied Thursday that any talks had taken place.

The stream of steel consolidation news this week has worked to pull Russian steelmakers into initial talks with one another, another top steel company executive said on the sidelines of the conference, which was organized by Metal-Bulletin and Eurasian Metals. "Anything can happen," he said, eyes trained on a distant spot of the carpet.

Official statements were few and far between Thursday.

Vladimir Nastich, director of No. 4 steelmaker Novolipetsk Steel, said the company was "looking to acquire a controlling stake in, or build, a plant to nprocess slab and is close to the markets" in Europe or the United States.

Corus has said it was seeking a partnership with a low-cost producer of slabs -- thick, flat semi-finished steel products -- or raw materials in emerging countries, including Russia.

Nastich and spokespeople for Corus in London declined to name specific targets Thursday.

In Moscow, the Arcelor team was the star turn.

Fielding a stream of questions, Arcelor's top official at the conference, senior executive vice president Roland Junck, touted the advantages of merging with Mordashov's steel and raw material assets. The deal could derail a bid by the world's biggest steel producer, Mittal Steel, which has sought to buy out its Luxembourg-based rival for five months.

"Look, let me name you three figures," Junck said. "A combination with Severstal offers 20 percent higher value per share, an 80 percent higher EBITDA and a 250 percent higher capex than the Mittal offer."

A merged Severstal and Arcelor would be able to push for more global consolidation, Junck said, with buys in China high on its agenda.

Arcelor will seal a joint venture with China's Laiwu Steel next month, he said.

"And there's still a lot to do," Junck said, sporting a lapel pin on his jacket with "I love Arcelor" on it, "love" being represented by the company's heart-shaped logo.

That consolidation work may have to wait, however.

Earlier this week, U.S. investment bank Goldman Sachs called in a letter to Arcelor chairman Joseph Kinsch for Arcelor's shareholders to demand a tougher benchmark to approve the Severstal merger, while two groups of shareholders said separately they were considering legal action.

French shareholders lobby group ADAM said Wednesday that it backed Goldman Sachs' letter. Meanwhile, Michael Modrikamen, a Brussels-based lawyer representing foreign institutional shareholders of Arcelor, noted that Mordashov could fall foul of a new Luxembourg law unless his merger bid was followed by a full public takeover offer.

"Severstal will be ultimately forced to launch a takeover of all the Arcelor shares," Modrikamen said Wednesday by telephone from Brussels.

Several days before last week's deal, Luxembourg's government issued a new directive that obliges a shareholder that buys more than a 33.3 percent stake in a company to launch a full takeover, Modrikamen said.

Mordashov will receive 32.2 percent of Arcelor under the proposed merger. His bid, however, states that he would vote in accordance with the wishes of the board of directors, on which sit several other shareholders, including representatives of Luxembourg's government and Belgium's Walloon region.

"This would be seen as Mordashov and the other shareholders acting in concert," and would thus require Mordashov to make a full takeover bid, Modrikamen said.

Luxembourg, with a 5.6 percent stake, is currently the largest single shareholder in Arcelor.

Under the directive, a takeover bid by Mordashov would need to offer the same price per share as in the merger bid: 44 euros ($56).

At a news conference in Brussels on Thursday, Mordashov reiterated that he would not seek to increase his stake to 45 percent, a long-term option allowed under the merger terms, because he lacked the finances, Reuters reported.

If Mordashov did not attempt a full takeover bid, it could lead to court action in Luxembourg, Paris or Brussels, Modrikamen said.

At the Moscow conference, Junck said he did not see why Mordashov would have to make a takeover bid.

"We are not in that situation. Mr. Mordashov has 32.2 percent and that is how we see it," Junck said, adding that Mordashov would "indefinitely" vote together with the board on key decisions.

Junck's comments appeared to contradict earlier statements by Mordashov that he was bound to vote with the board for three years.

There would be no sanction if Mordashov voted against the board, Junck said.

Despite high audience interest in Arcelor's team, Yevgeny Shashkov, editor of industry monthly Eurasia Metals, looked distinctly rueful at the lack of other attractions at the conference.

"This is where Alexander Grigoryevich [Abramov] was going to announce the deal with Abramovich," he said.

Although most Evraz executives attended, Abramov was notably absent Thursday, as was another key invited speaker, Vladimir Lisin, majority owner and chairman of Novolipetsk. Lisin had bid to buy 15 percent of Arcelor's shares with a cash-only offer, before being rejected in favor of Mordashov.

A spokeswoman for Severstal Group said Mordashov, like the majority of Severstal's executives, were otherwise engaged and could not attend.

"As you can see, none of the major owners in this industry are here today," said Oleg Soskovets, a former first deputy prime minister who oversaw 1990s steel privatizations. He was also a Soviet-era general manager at the Karaganda steel plant in Kazakhstan when Lisin worked there as an engineer.

"We are just looking after the routine business," Soskovets added with a wry smile.

Staff Writer William Mauldin contributed to this report.