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ArcelorMittal to Increase Stake in China Oriental

12/14/2007 - ArcelorMittal enters into a shareholders’ agreement with the controlling shareholders of China Oriental Group that will enable ArcelorMittal to eventually raise its equity stake in the company to 73.13%.

ArcelorMittal has entered into a shareholders’ agreement with the controlling shareholders* of China Oriental Group Co. Ltd., which will enable ArcelorMittal to eventually raise its equity stake in the company to 73.13%.
 
The Shareholders’ Agreement is a significant step forward for ArcelorMittal’s strategy of strengthening its presence in the Chinese market. It follows ArcelorMittal’s December 6 announcement it had entered into a Business Cooperation Agreement with China Oriental. Key terms of the Business Cooperation Agreement will take effect upon the Shareholders’ Agreement becoming unconditional.
 
Under that agreement, ArcelorMittal will share technologies, technical expertise and know-how to help transform the company and its subsidiaries into a leading producer of heavy sections in P.R. China. ArcelorMittal will also assist the Group in sourcing iron ore and coal.
 
The Shareholders’ Agreement will allow ArcelorMittal to purchase the Controlling Shareholders’ existing 45% stake in China Oriental over an agreed period of time, ultimately enabling it to become the company’s majority shareholder. This transaction is subject to anti-trust clearance by the Ministry of Commerce and the PRC State Administration for Industry and Commerce.
 
In line with the Takeovers Code, ArcelorMittal will make a general offer for the China Oriental shares not owned by it and the Controlling Shareholders at a share offer price of HK$6.12 (which represents the price at which ArcelorMittal acquired a 28 per cent stake in China Oriental in November 2007) plus an amount of between HK$0.235 and HK$0.706 per share, being the cash consideration for a put option granted by ArcelorMittal to the Controlling Shareholders for sale of China Oriental shares, which was not granted to other shareholders. The maximum consideration payable by ArcelorMittal will be approximately HK$6 billion (assuming full acceptance of the offer, and the exercise of all outstanding share options).
 
ArcelorMittal intends to maintain China Oriental’s listing status after the close of the offer.
 
“Strengthening our position in the fast growing PRC market is one of the important elements in ArcelorMittal’s strategy,” said Lakshmi Mittal, ArcelorMittal’s President and CEO. “The purchase of a 28% stake in China Oriental earlier and the signing of the Shareholders’ Agreement allow ArcelorMittal to be better positioned to participate in the attractive growth of the PRC construction steel market and to develop China Oriental into a leading producer of heavy sections, focusing on leadership, quality and sustainability. “
 
“Part of ArcelorMittal's growth over the years has been through strategic acquisitions and subsequently creating value through active management of the companies acquired,” continued Mittal. “I am confident that our agreements will be further examples of how ArcelorMittal adds value through the transfer of technology and technical know-how, training, financial management, mergers and acquisitions, supply chain management and marketing as well as sustainable and resource efficient production.”
 
Han Jingyuan, Chairman and CEO of China Oriental said, “We are delighted to have the world's leading steel company as our strategic partner. We look forward to working with ArcelorMittal closely to further enhance the operations of our company.”
 
ArcelorMittal’s existing investments in China’s steel industry include an approximately 29% interest in Hunan Valin Steel Tube and Wire Company Limited and a 12% interest in the Baosteel-Nippon Steel / ArcelorMittal Automotive Sheet joint Venture.
 
Shareholders’ Agreement—The Shareholders’ Agreement between the Controlling Shareholders and ArcelorMittal includes a First Call Option, a Put Option and a Second Call option. Pursuant to the agreement, within a 12-month period (commencing 18 months after the Shareholders’ Agreement becomes unconditional), ArcelorMittal can exercise the First Call Option to acquire shares from the Controlling Shareholders, allowing it to increase its total equity interest in China Oriental to 50.1% at an exercise price of no less than HK$6.12 per share. Within a 36-month period from the completion of the sale and purchase of the First Call Option Shares, the Controlling Shareholders can exercise the Put Option to sell to ArcelorMittal all or part of their remaining shares in China Oriental. During a 12-month period after the expiry of the Put Option, ArcelorMittal can exercise a Second Call Option to purchase the remaining shares of the Controlling Shareholders. Following completion of the exercise of the First Call Option, and the Put Option and/or the Second Call Option (as the case may be) ArcelorMittal will hold 73.13% of the issued share capital in the company.
 
The Shareholders’ Agreement is conditional upon ArcelorMittal obtaining the requisite anti-trust clearance from the Ministry of Commerce and the PRC State Administration for Industry and Commerce in respect of each of the First Call Option, the Put Option and the Second Call Option.
 
Business Cooperation Agreement—Under the Business Cooperation Agreement, for so long as ArcelorMittal is interested in 25% or more of the issued shares in China Oriental, it will provide technologies, technical expertise, and mergers and acquisitions expertise, in addition to financial and funds management expertise, and assistance in exploring overseas marketing opportunities. ArcelorMittal will also source a fixed minimum quantity per year of iron ore to be sold to China Oriental; provide assistance in the sourcing of coking coal; and contribute to the company’s capital requirements. Key terms of the Business Cooperation Agreement will take effect upon the Shareholders’ Agreement becoming unconditional.
 
* Shareholding of China Oriental as of December 13, 2007—The Controlling Shareholders currently own approximately 1,320 million China Oriental shares, which represents an approximate 45 per cent equity interest in the Company. Controlling Shareholders include Wellbeing Holdings Limited and Chingford Holdings Limited, which are respectively majority and solely owned by Han Jingyuan, Chairman and CEO of China Oriental.
 
Mittal Steel Holdings AG, a wholly owned subsidiary of ArcelorMittal, purchased approximately 820 million China Oriental shares (an approximate 28% equity interest in the company) from Smart Triumph Corp. and Ms. Chen Ningning for a total consideration of HK$5.02 billion on November 8, 2007, which resulted in ArcelorMittal becoming China Oriental’s second-largest shareholder.
 
China Oriental has a production plant located in Hebei Province, which has one of the richest iron ore reserves in the PRC. China Oriental has also invested in GuangDong FoShan JinXi JinLan Cold Rolled Sheets Co., Ltd., which mainly produces cold rolled and galvanized sheets. The Group’s products are mainly sold to downstream iron and steel manufacturers in northern PRC. The Group also processes its billets and strips into downstream steel products primarily for use in the construction and machinery manufacturing industries. To diversify its product mix and achieve business integration, China Oriental also produces other downstream products, such as cold rolled sheets, galvanized sheets, and H-section steel.
 
ArcelorMittal is the world's largest steel company, with 320,000 employees in more than 60 countries. The company leads a number of major global markets, including automotive, construction, household appliances and packaging, with leading R&D and technology, as well as sizeable captive supplies of raw materials and strong distribution networks. An industrial presence in 27 European, Asian, African and American countries exposes the company to key steel markets, from emerging to mature, positions it will be looking to develop in the high-growth Chinese and Indian markets.
 
ArcelorMittal’s key pro forma financials for 2006 show combined revenues of USD 88.6 billion, with a crude steel production of 118 million tonnes, representing around 10% of world steel output.