September 06, 2008

SRM attacks Mittal Steel’s financial advisers for Arcelor merger

Financial Times reported that SRM Global Fund, the investment fund run by the former UBS trader Mr Jon Wood, has attacked the investment banks advising Mittal Steel on its EUR 26 billion merger with Arcelor over their alleged material conflicts of interest.

SRM claims that the banks, which include Goldman Sachs, Morgan Stanley, Fortis and Société Générale, did not provide independent advice in issuing their fairness opinion relating to the treatment of Arcelor’s minority shareholders. Along with other minority holders, SRM accounts for 6% of Arcelor’s capital. It said it was evaluating its options for legal recourse against Arcelor, Mittal Steel and the banks.

SRM said that “We note from regulatory filings that Goldman Sachs and Morgan Stanley have together received fees of in excess of USD 70 million from Arcelor and Mittal Steel. In view of this significant fee income, SRM questions whether both of the banks can provide objective fairness opinions.”

SRM’s claim is that offer was made in June 2006 by Mittal Steel of 11 shares in ArcelorMittal in exchange for 7 Arcelor shares. The value of this exchange ratio was cut by about 30% in May 2007 when Mittal Steel offered 8 ArcelorMittal shares for 7 Arcelor shares. It said that the new terms amounted to a difference of about EUR 900 million.

Mittal Steel said the terms were supported by fairness opinions provided by several banks. It is seeking to impose the terms on minority shareholders at an extraordinary meeting in Luxembourg on November 5th 2007. ArcelorMittal said that “The exchange ratio has been calculated on the intrinsic value of both companies and subject to independent fairness reports. We strongly believe that the ratio is equitable to both Arcelor minorities and ArcelorMittal shareholders.”