Judging by the final deal between MittalSteel (NYSE: MT ) and Arcelor (Pink Sheets: ARLOY.PK), announced Monday, it's pretty clear that Mittal decided somewhere along the line that they had to have Arcelor, no matter what the cost. That's about the only way today's deal makes sense.
Over the weekend, the two companies hammered out a set of compromises and financial terms that Arcelor could finally live with and recommend. Or perhaps I should say that Mittal capitulated. When it was all said and done, Mittal upped its bid and gave in to a series of concessions on the business structure.
You can legitimately ask whether or not this is an expensive reverse-merger for Mittal shareholders. Arcelor shareholders will hold about 50.5% of the shares, the company will be named Arcelor-Mittal, and Arcelor's CEO and chairman will apparently retain their respective positions in the new company until their retirement (which is widely thought to be coming in a year or so).
In order, perhaps, to justify the higher price, Mittal upped its estimate of the synergies from the deal to $1.6 billion versus $1 billion. Funny, isn't it, how they just suddenly discovered a fresh $600 million of cost savings?
With Mittal and Arcelor coming together, Severstal (Arcelor's would-be white knight) is left to sit and fume in Russia. And that's precisely what they, and the Russian government, are doing. Perhaps not content to just take the $175 million break-up fee, Severstal is making noise about challenging this bid, though I'm not sure what they can hope to gain. For the government's part, they're whining about a bias against Russia in Europe. Gee, guys, you extort higher gas prices out of the Europeans this winter and suddenly they don't like you ... shocking.
One quick note on something I've seen a lot in media reports of this merger. Many reporters continue to repeat the mantra that Mittal makes "low-quality steel," while Arcelor makes high-quality products. I think that's deceptive and misleading. Mittal makes low-value steel -- commodity stuff, in other words -- while Arcelor makes higher-value steel products. Accordingly, there's some definite logic to combining the two -- even if the price and terms aren't exactly agreeable.
Who knows whether rivals like POSCO (NYSE: PKX ) or Nucor (NYSE: NUE ) will see the need (or the value) in doing deals of their own soon. Odds are, though, that the steel industry will continue to consolidate. In the meantime, I can't say that I'm thrilled with this deal, and I'm certainly going to revisit the original assumptions that went into my purchase of Mittal shares.
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Fool contributor Stephen Simpson owns shares of Mittal, but has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).