Hedge Funds To Sue Over ArcelorMittal Merger

Nov 5 2007 | 4:36pm ET

Three hedge funds say they will sue ArcelorMittal, the world’s largest steelmaker, after Arcelor shareholders approved its €30 billion (US$43.5 billion) merger with Mittal Steel.

The outcome was never in doubt: Only 6% of Arcelor shares remained in free float on Euronext Paris after 94% tendered their stakes in exchange for shares in ArcelorMittal, at a rate of 11 ArcelorMittal shares for seven Arcelor shares. ArcelorMittal later cut the exchange ratio to eight to seven, angering the hedge funds who snapped up the few remaining Arcelor shares.

After failing in several earlier attempts to block the merger or to force ArcelorMittal to offer more favorable terms, Deminor Investment Management, SRM Advisers and Trafalgar Asset Management said Monday—after the merger was officially approved at a meeting in Luxembourg—that they would sue ArcelorMittal over the merger terms. The hedge funds, which claim the new ratio would cost Arcelor investors €1 billion (US$1.5 billion).

“ArcelorMittal has taken €1 billion of value from Arcelor minorities and its actions are a flagrant abuse of European corporate governance standards,” the hedge funds said in a statement. The funds, which plan to file suit in the Grand Duchy, also threatened to sue “any party liable, without distinction, in any possible jurisdiction, in order to recover losses resulting from the dilution.” The warning is said to be directed at ArcelorMittal board members.

For its part, ArcelorMittal dismissed the hedge funds’ claims, saying, “the exchange ratio reflects the intrinsic value of those companies and that we are confident it is fair to all shareholders.”

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