It takes a lot to shake a world made of metal, but the steel world shook indeed yesterday, as news of Netherlands-based Ispat International's
The ISG/Ispat transaction goes as follows: A gentleman by the name of Mr. Lakshmi Mittal (according to the British paper The Independent, the U.K.'s richest man) owns a private firm, LNM Holdings, and a publicly listed firm, Ispat. Ispat will first buy out LNM and rename itself in honor of the architect of this plan: the Mittal Steel Company. Then Mittal will buy out ISG for $4.5 billion in cash and stock. By the time all three firms have been combined, Mr. Mittal's family will own 88% of this conglomerate.
According to the terms of the buyout, each of ISG's shares will fetch $21 in cash and $21 in Mittal stock. News of the deal initially sent ISG shares soaring 19% in price to reach $35.25 on Monday, then another 6% to $37.34 by the end of Tuesday (with shares of peer steelmakers Nucor
Worst-case scenario: the deal doesn't go through, and an investor gets "stuck" with shares of a solo ISG -- a company that just reported earnings suggesting it will make about $5.50 in profit this year, giving it a forward P/E ratio of less than 7 even after its share price jump.
Confused about "buyouts" and "arbitrage" on offer prices? Visit this classic string from the Fool's Imperial Parking discussion board and see how the Foolish arbitrageurs analyzed that situation.
Fool contributor Rich Smith has no interest in any of the companies mentioned in this article.