516 18 Takeover Defences
nally disclosed the €4 billion Term Loan Facility and said that the facility would
be used by Arcelor “to maintain its financial flexibility after recent acquisitions”.
Although Arcelor did not mention it, it was clear that Arcelor had to fund the fol-
lowing takeover defences.
General remarks about Arcelor’s defensive measures. On 3 April 2006, Arce-
lor’s board decided to take measures allegedly “in the interest of its shareholders”.
The board disclosed three things. Their hidden purpose was to increase share price
(and make the takeover more expensive ex ante), reduce distributable assets and
increase debt (and make refinancing more difficult after the completion of the
takeover), and transfer important assets away from Mittal’s reach (the crown jew-
els defence). Those defences were followed by a white knight defence.
Dividends. The first defensive measure was a proposal to increase dividends
from €1.20 to €1.85 per share. According to an earlier proposal submitted by the
board, the general meeting of shareholders to be held on 27 April 2007 had been
asked to approve the distribution of a gross dividend of only €1.00 per share with
respect to 2006, compared with €1.20 per share for 2005. The new proposal did
not infringe the provisions of the Directive on takeover bids, as the payment of
dividends to shareholders had to be decided on by shareholders under the govern-
ing law anyway.^58
Other distributions. The second measure was to distribute a further €5 billion to
shareholders as would later be decided by the board. The board indicated that such
payment “could take the form of a share buyback, an extraordinary dividend pay-
ment or a self tender offer in between the date of the annual general meeting ...
and the end of the 12th month following the withdrawal or failure of Mittal Steel’s
hostile offer on Arcelor”. On 12 May 2006, Arcelor called an extraordinary gen-
eral meeting of shareholders for 19 May 2006. The agenda contained a draft reso-
lution providing for a public offer to buy back shares of the company for the pur-
pose of their cancellation.
Transfer of Dofasco. The third proposal was controversial. According to Arce-
lor’s board, shares in Dofasco would be transferred to an independent Dutch foun-
dation named “Strategic Steel Stichting” (S3). Arcelor would retain full control
over Dofasco, including all decision-making power and all economic interest re-
lating to Dofasco, with the exception of any decision to sell Dofasco. The S3
Board members would have independent control over any decision to sell Do-
fasco. According to the Directive on takeover bids, decisions which may result in
the frustration of the bid would nevertheless need to be ratified by the general
meeting.^59 On 3 April 2006, Arcelor transferred 89% of the shares of Dofasco to
the Stichting, thereby removing Arcelor’s ability to sell or otherwise dispose of
such shares without the Stichting’s consent. This decision came to haunt both Ar-
celor and Mittal later (see below).
White knight. On 26 May 2006, Arcelor and Severstal announced that they had
agreed to merge. (a) In the proposed deal Arcelor would buy the 90% stake of
Severstal belonging to Alexei Mordashov, as well as all of his other steel and min-
(^58) See also Article 9(2) of Directive 2004/25/EC (Directive on takeover bids).
(^59) Article 9(2) of Directive 2004/25/EC (Directive on takeover bids).