18.11 Example: Arcelor and Mittal 517ing assets. Alexei Mordashov, in return, would receive Arcelor shares and buy
more with cash. This would give him a 32% stake in the new Arcelor. (b) Sever-
stal (Alexei Mordashov) was entitled to a €140 million “break-up fee” in the event
that the deal failed. (c) Arcelor’s managers claimed that, according to Arcelor’s
by-laws, they did not have to ask for shareholders’ opinion on the Severstal deal at
all. Shareholders were nevertheless told that they would be given a chance to veto
the Severstal transaction. According to the proposal, a simple majority of votes
cast would not be sufficient to veto the transaction; at least 50% of the shareholder
base would have to vote against it. Losing the vote was unlikely, because on aver-
age only about a third of shareholders turned up at meetings of Arcelor’s share-
holders. (d) The board of Arcelor tried to benefit from several loopholes in Com-
munity law. The Directive on takeover bids provides that the board may not,
without the consent of shareholders, take any action which may result in the frus-
tration of the bid, but the Directive permits the board to seek alternative bids and
look for a “white knight” without the consent of shareholders.^60 The Second Di-
rective provides for the pre-emptive rights of shareholders, but this requirement
does not apply where, as is the case here, capital is increased by consideration
other than in cash.^61 The Second Directive does require that any increase in capital
must be decided upon by the general meeting,^62 but the Directive does not require
any particular majority.^63
On 11 June 2006, Arcelor’s board formally decided to reject Mittal Steel’s re-
vised offer and to recommend that shareholders support the proposed merger with
Severstal. By this time, shareholders and the media nevertheless had become in-
creasingly critical about the governance of Arcelor.^64
Acceptance of offer. On 25 June 2006, Arcelor’s board finally decided to rec-
ommend Mittal Steel’s improved offer to shareholders. The board of Mittal Steel
recommended the transaction to Mittal Steel’s own shareholders. The combined
group would be domiciled and headquartered in Luxembourg and named Arcelor
Mittal. The Mittal family would own 43% of the combined group.
In September 2006, 93.7% of Arcelor shareholders tendered their shares to Mit-
tal Steel. The laws of Luxembourg provided for a sell-out right.^65 Arcelor and Mit-
tal encouraged shareholders to exercise that right. They also announced that Mittal
would use its squeeze-out right under the Directive on takeover bids.^66
A two-step merger process between Mittal Steel and Arcelor followed in 2007.
In the first step, Mittal Steel merged into its subsidiary ArcelorMittal S.A, a com-
pany founded under the laws of Luxembourg. Mittal Steel shareholders voted on
(^60) Article 9(2) of Directive 2004/25/EC (Directive on takeover bids).
(^61) Article 29(1) of Directive 77/91/EEC (Second Company Law Directive).
(^62) Article 25(1) of Directive 77/91/EEC (Second Company Law Directive).
(^63) See Article 40 of Directive 77/91/EEC (Second Company Law Directive).
(^64) Arcelor, up in arms, The Economist, April 2006; Treating shareholders as pig iron, The
Economist, June 2006; Cast-iron, The Economist, June 2006.
(^65) Article 16 of Directive 2004/25/EC (Directive on takeover bids).
(^66) Article 15 of Directive 2004/25/EC (Directive on takeover bids).