May 25 (Bloomberg) -- Arcelor SA, the world's second-biggest steelmaker, may sell a 33 percent stake to Russian steelmaker OAO Severstal to block a hostile bid from Mittal Steel Co., according to people with knowledge of the plan.
The deal would be valued at almost 7.3 billion euros ($9.3 billion), based on Arcelor's closing share price today in Paris. Severstal is owned by Russian billionaire Alexei Mordashov. The accord may be made public tomorrow, one of the people said, declining to be identified because the transaction hasn't been announced. Mittal, the world's biggest steelmaker, increased its bid for Arcelor to 25.8 billion euros on May 19.
Arcelor Chief Executive Officer Guy Dolle has opposed Mittal's offer, refusing to talk to his billionaire counterpart, Lakshmi Mittal. Luxembourg, where Arcelor is based, passed a law on May 4 that allows companies to erect takeover defenses, such as a so-called poison pill, or to find another buyer to protect themselves from bids, without shareholder consent.
``It's just a slap in face to corporate governance,'' Matthew Halbower, a portfolio manager for Deephaven Capital Management LLC in New York, which holds both Mittal and Arcelor shares, said in a telephone interview today. ``To not consult shareholders when a bid is on the table is wrong.''
Jean Lasar, a spokesman for Arcelor in Luxembourg, and Olga Antonova, a spokeswoman for Severstal, declined to comment. Severstal, based in Cherepovets, Russia, and the nation's third- biggest steelmaker, already has a venture with Arcelor in Russia making steel for cars.
Shares Surge
Shares of Rotterdam-based Mittal Steel soared as much as $5.43, or 18 percent, to $34.98 in New York and were $2.34 higher at $31.89 as of 3:40 p.m. local time. Shares of Arcelor closed 46 cents, or 1.4 percent, higher at 34.06 euros in Paris, valuing the company at 21.79 billion euros. They have gained 53 percent since Mittal made its first bid Jan. 27.
``We're concerned that Arcelor is contemplating a dilutive transaction, possibly without recourse to its shareholders, which could potentially thwart the Mittal Steel offer,'' said Nicola Davidson, a London-based spokeswoman for Mittal Steel.
Lakshmi Mittal wants to create a steelmaker three times larger than any other. The enlarged company will own 10 percent of the world's steel industry, becoming the No. 1 supplier to automakers such as Toyota Motor Corp. and Ford Motor Co. Mittal said the deal may help the combined group gain more bargaining power with iron ore suppliers and higher prices from customers.
Steel Products
Mittal says the merger makes sense because the companies make different steel products on different continents. Mittal is the biggest supplier of steel for cars in the U.S., while Arcelor is the largest in Europe. Mittal has plants in Algeria, South Africa and Kazakhstan, and Arcelor has plants in Brazil.
Severstal is also expanding overseas. It bought Brescia, Italy-based Lucchini SpA in 2005, and in 2004 acquired Dearborn, Michigan-based Rouge Industries Inc., which supplies steel to Ford, the second-largest U.S. automaker.
Mordashov owns almost 83 percent of Severstal, according to a filing made by the company in November. He is the world's 64th richest man, with $7.6 billion, according to Forbes magazine.
Arcelor has sought to fend off Mittal by paying out bigger dividends to shareholders, offering to buy back shares and placing its Dofasco Inc. unit in a Netherlands-based trust. Arcelor bought Hamilton, Ontario-based Dofasco last month for $5.5 billion. Mittal had agreed to sell the unit to Germany's ThyssenKrupp AG should its offer for Arcelor succeed.
Citigroup Inc., HSBC Holdings Plc, Goldman Sachs Group Inc., Credit Suisse Group and Societe Generale SA are advising Mittal.
Arcelor's advisers include BNP Paribas SA, Calyon, Deutsche Bank AG, JPMorgan Chase & Co., Merrill Lynch & Co., Morgan Stanley and UBS AG.