Case Study : Merger of ARCELLOR and MITTAL

ABESH CHATTERJEE, ARIJIT GOVEAS, JEEBENDU MANDAL, PRASHASTI PRAKASH (PGDIM - 13, NITIE), K.V.S.S. Narayana Rao

INTRODUCTION TO CASE

ArcelorMittal is the largest steel company in the world. The company was founded in 2006 when Arcelor and Mittal Steel company merged. The company is headquartered in Luxemberg City, in southern Luxemberg, the former seat of Arcelor.

Arcelor Mittal produces as much as 110 million tons of steel a year, about 10 percent of world output. The company also controls the biggest bulk handling port in Mexico, from where it imports iron ore and exports semi-finished steel products.
Laxmi Mittal (owner of Mittal Steel) is the president and chairman. Mittal's familyl holds a 43.6% stake in this company. Counting all shareholders, 50.6% will be former Arcelor shareholders and 49.4% will be former Mittal shareholders.

In addition to Lakshmi Mittal as president and chairman, the Board of Directors of the company consists of eighteen non-executive members with six nominated by Mittal, three chosen independently, six nominated by Arcelor, three chosen by existing Arcelor shareholders and three employee representatives.

MERGER PROCESS

Mittal Steel Announcement Offer for Arcelor Merger proposal to create first 100 million ton plus steel producer US$40 billion merger marks step change in steel sector consolidation

Mittal Steel N.V. (“Mittal Steel”) on 27 January, launched an offer to the shareholders of Arcelor SA (“Arcelor”) which would create the world’s first 100 million ton plus steel producer. The offer valued each Arcelor share at €28.21 which represented a 27% premium over the closing price and all time high on Euronext Paris of Arcelor shares on 26 January 2006, a 31% premium over the volume weighted average price in the preceding month, and a 55% premium over the volume weighted average share price in the preceding 12 months.

This offer valued Arcelor at an equity value of €18.6 billion on a fully diluted basis.

The new company was expected to have:

– Unprecedented scale, scope and synergies
– Pro-forma* 2005 annual revenues of approximately US$69bn and EBITDA of
US$12.6bn (*IBES estimates)
– Pro-forma market capitalisation of approximately US$40 billion
– Leading positions in NAFTA, EU, Central Europe, Africa and South America
– Expected synergies of US$1 billion from purchasing, marketing and manufacturing efficiencies
– Exceptional raw material resources with a high degree of iron-ore self
sufficiency
– Reduced volatility through geographic and product diversification
– Security of long-term contracts through high value-added products
– Low cost profile and high growth prospects from developing markets
– Leading position across a range of key product segments
– Ability to supply customers on a global basis
– A dividend policy representing c. 25% of earnings over the cycle

Under the terms of the offer, Arcelor shareholders were expected to receive 4 Mittal Steel shares and €35.25 cash for every 5 Arcelor shares (equivalent to 0.8 Mittal Steel shares plus €7.05 cash for each Arcelor share). In addition, they were to have the right to receive a cash or stock mix in any proportion they elect, provided that 25% of the aggregate consideration paid to Arcelor shareholders was paid in cash and 75% in stock. The maximum amount of cash to be paid by Mittal Steel was to be approximately €4.7bn and the maximum number of Mittal Steel shares to be issued were approximately 526.6 million, assuming the conversion of the outstanding Arcelor Convertible Bonds (2017 OCEANEs).

Mittal Steel also announced that it had entered into an agreement with ThyssenKrupp AG (“ThyssenKrupp”) to resell to ThyssenKrupp all the common shares of Dofasco Inc (“Dofasco”) that Arcelor purchases in its pending tender offer for Dofasco or later, at a price equal to the Euro equivalent of C$ 68.00 per share, adjusted based on changes in net financial debt and net working capital from the date of acquisition of Dofasco by Arcelor and the date of resale to ThyssenKrupp.

HIGHLIGHTS OF THE OFFER

The offer valued each Arcelor share at €28.21 which represented a 27% premium over the closing price of Arcelor shares on Euronext Paris as of 26 January 2006, a 31% premium over the volume weighted average price in the preceding month, and a 55% premium over the volume weighted average share price in the preceding 12 months. Mittal Steel offerd to acquire all of the outstanding Arcelor shares through three offers:

- a primary mixed cash and exchange offer for Arcelor shares consisting of 4 new
Mittal Steel shares and €35.25 in cash for every 5 Arcelor shares;

- a secondary cash offer consisting of €28.21 per each Arcelor share;
- a secondary exchange offer consisting of 16 new Mittal Steel shares for every 15
Arcelor shares.

Arcelor shareholders could tender their shares in either the primary offer or either or both of the secondary offers, but the two secondary offers will, in the aggregate, comprise 75% in Mittal Steel shares and 25% in cash.


Mittal Steel also offered to acquire Arcelor Convertible Bonds (OCEANEs 2017)
based on the following exchange ratio: 4 new Mittal Steel shares and €40 in cash for every five Arcelor Convertible Bonds.The offer was conditioned on the tendering of more than 50% of Arcelor’s share capital and voting rights on a fully diluted basis, the extraordinary shareholders’ meeting of Mittal Steel having approved the issuance of new Mittal Steel shares to Arcelor shareholders (the Mittal family having undertaken to vote in favour of the issuance of such new Mittal Steel shares) and the absence of events or actions that would alter
Arcelor’s substance.

The draft offer document was filed with the Luxembourg Commission de Surveillance du Secteur Financier (the “CSSF”). In order to coordinate the process in the various jurisdictions in which Arcelor securities are listed, the offer was also filed with the competent authorities in other countries, including in Spain and Belgium. A draft share offering prospectus was filed with the Dutch AFM and with the French AMF. A registration statement was filed with the US SEC.

In addition, this transaction was reviewed by antitrust authorities in the EU, the US and possibly other jurisdictions around the world.



SYNERGIES CLAIMED:

1.1 Step change in steel sector consolidation

The combination of Mittal Steel and Arcelor represents a step change in the consolidation of the steel sector. The combined group was expected to have approximately 320,000 employees worldwide, annual sales of more than US$69 billion and annual crude steel production of approximately 115 million metric tons, which represents a global market share of approximately 10 per cent by volume. This transaction was expected to create a steel company with unprecedented scale, a strong global presence and a broad based product offering. This unique platform was expected to provide the combined company with unrivalled financial strength and strategic flexibility to pursue growth and value creation opportunities. Despite a trend towards increasing consolidation over the past few years, the global steel industry remained relatively fragmented compared to end-market customers and raw materials suppliers. Recent consolidation has led to increased focus amongst producers on adjusting production to market conditions. The combination of the top two steel companies in the world was expected to represent a further step towards achieving a sustainable operating environment for the steel industry.

1.2 Expanding geographic footprint with leading positions in a number of regions

The geographic overlap between Mittal Steel and Arcelor was limited. This combination was expected to create a truly global steel company with leading
positions in the five main regions (South America, NAFTA, European Union, Central Europe and Africa). Geographic diversification was expected to reduce volatility for the enlarged group while presenting numerous strategic opportunities. Through its diverse asset base in both emerging and developed markets, the company was expected to be ideally placed to take advantage of multiple market opportunities.
Mittal Steel’s North American activities were to be complemented by Arcelor’s strong position in Western Europe. These developed markets had expertise in producing highly value-added products and provided opportunities for new product development. Mittal Steel had leading positions in emerging markets in Eastern andCentral Europe, Asia and Africa. These regions offered low cost production, high growth prospects and in many cases, access to significant raw material reserves.

1.3 Strengthening the range of products and solutions for global customers

The enlarged group was expected to have leading positions in a number of product segments and have the ability to supply customers across a range of geographic regions and in end-markets such as automotive, domestic appliances, packaging, construction and oil and gas. The company was also expected to have a strong value-added contract business which will allow for reduced pricing volatility.
In the automotive sector, the new group was expected to be the leader in both the
European Union and NAFTA regions and will also have leading positions in South America, Eastern Europe, Africa and Asia. In appliance and packaging, the group was expected to be the leader in the NAFTA region and one of the leaders in the European Union. In construction, the group will have a leading position in most of the markets it serves and a growing presence in the oil and gas sector. The expertise of both groups in the various applications and end markets could be combined to develop new market opportunities.

1.4 Maximising opportunities with a global distribution and trading network

Mittal Steel and Arcelor together was expected to have the ability to optimise
production and distribution on a global basis. The international production base of the group was expected to facilitate global sourcing of materials and products that can be directed to the markets where they are ultimately required. The combined company’s access to a broad range of customers enabled the group to capitalise on market opportunities and expand into new areas. The combined company was expected to eliminate cross-border trade flows and thus generate substantial savings.

1.5 Increasing efficiency of the combined asset base through investment and operational excellence

Mittal Steel aimed to maximise the value and opportunities within the combined portfolio of assets. Major initiatives included:
(i) Leveraging Mittal Steel’s R&D capabilities for processing and product innovation
(ii) Improving productivity through global benchmarking and continuous improvement programmes across the network of operating units
(iii) Maximising industrial potential between units, for example through product specialization by unit
By organising and optimising product flow and investments throughout the production system, the company was expected to have the ability to realize
more potential and value from its asset base.

1.6 Controlling input costs by maximising the synergies from integration of
mining and steel making

Integration of mining activities with steel production was a key element of the group’s strategy. The combined company was expected to be one of the five largest producers of iron ore worldwide and also have direct ownership of DRI plants, coal mines, coke production and certain infrastructure assets. The group was expected to have the opportunity to expand its mining operations in order to reduce the dependency on third-party supplies of iron ore and coal. By 2010, the combined group aimed to be about 50 per cent self -sufficient in iron ore.

1.7 Targeting operational synergies of US$1 billion

Target annual cost synergies were expected to reach US$1 billion before tax by the end of 2009. The integration and restructuring costs to realize this level of synergies were expected to be minimal. The industrial plan for the combined entity identified several synergies, primarily from purchasing, marketing opportunities and manufacturing process optimization.

1.8 Maximising financial opportunities

Based on the closing Mittal Steel share price on the New York Stock Exchange of US$32.30 (equivalent to €26.45 per share at an exchange rate of US$1.2214 per €1) on 26 January 2006, the pro forma equity market capitalisation of the enlarged group was expected to be approximately US$40 billion and the free float was to be significantly increased to approximately 43% (assuming 100% acceptance of the Offer). The Group was expected to benefit from a lower cost of capital, improved access to the capital markets, enhanced profile with investors and a high level of liquidity for trading of the company’s shares. Finally, the financial resources of the enlarged company were expected to provide the flexibility for the Group to pursue both internal and external growth opportunities. Mittal Steel was committed to maintaining an investment grade rating.







GAINS FOR ARCELOR…

Operations in high-growth economies with
low-cost, profitable assets and local
operating expertise in numerous emerging
markets

Leadership position in high-end segments
in North America, with strong R&D
capabilities

Access to raw materials and upstream
integration

Access to very low cost slab potential in
Ukraine to serve West Europe

GAINS FOR MITTAL STEEL…

Leadership position in high-end segments in
Western Europe, with strong R&D capabilities

Low-cost slab manufacturing in Brazil that
can be expanded for export to Europe and
North America

Increased free float and liquidity

Successful distribution business in Europe

SUMMARY TERMS AND CONDITIONS OF THE OFFER:

Mittal Steel offered to acquire all outstanding Arcelor ordinary shares and Arcelor Convertible Bonds (2017 OCEANEs), as follows:

– 4 new Mittal Steel shares and €35.25 in cash for every 5 Arcelor ordinary
shares;
– 4 new Mittal Steel shares and €40 in cash for every 5 Arcelor Convertible
Bond.

Holders of Arcelor shares in lieu of this mix of Mittal Steel stock and cash, could make the following elections with respect to the consideration to be received:

– Elect to receive 16 new Mittal Steel shares for every 15 Arcelor shares; or
– Elect to receive €28.21 in cash for each Arcelor share.

Holders were required to make the same election for all Arcelor shares tendered, and either of these elections may be made for all or some of the Arcelor shares to be tendered. However, these elections were subject to aproration and allocation procedure to ensure that 75% of the tendered Arcelor shares were exchanged for new Mittal Steel shares and 25% were exchanged for cash.

If certain actions were taken by Arcelor including distributions or share buybacks
the consideration set forth above were to be adjusted accordingly.The offer was made for all issued and outstanding Arcelor shares, as well as for all Arcelor shares that are held in treasury stock and all Arcelor shares that were or were expected to become issuable prior to the expiration of the Offer due to the conversion of Arcelor Convertible Bonds or the exercise of Arcelor stock subscription rights.

The completion of the offer was to be subject to the following conditions:

(i) the number of Arcelor shares tendered to the offer represents on the closing date of the offer more than 50% of the total share capital and voting rights in Arcelor, on a fully diluted basis;

(ii) the extraordinary general meeting of shareholders of Mittal Steel approved the acquisition of Arcelor as contemplated by the offer and the issuance of the new Mittal Steel shares; the Mittal family which held 97% of the voting rights in Mittal Steel had undertaken to vote in favor of such resolutions; and

(iii) during the offer period, no exceptional events occur and Arcelor does not take any actions that (in either case) would in Mittal Steel’s view alter Arcelor’s substance, including but not limited to share repurchases, acquisitions or disposals of material assets and any distribution of dividends or assets, whether such distribution is paid out of current earnings, retained earnings or reserves.

TAKEOVER DEFIANCE:

Arcelor later implemented a white knight defence through a transaction structure contemplating the issuance of shares to a friendly strategic partner (SeverStal of Russia), which was also a technique allowed in certain jurisdictions in Europe (but not in the U.K.) and used in the U.S. Just as Arcelor took actions to protect Dofasco with the S3, Arcelor believed that an opportunity to acquire SeverStal was consistent with Arcelor’s corporate interest and should, if possible, be presented as a viable alternative to Mittal Steel’s original offer, which Arcelor believed was an inadequate offer. While Arcelor had a previous mandate from its shareholders to issue the Arcelor shares proposed to be issued to Mr. Mordashov (SeverStal’s controlling shareholder), the Arcelor Board felt it was important to give the shareholders an opportunity to express their opinion on the transaction, in particular given the outstanding takeover offer from Mittal Steel. The Arcelor Board called an extraordinary meeting of shareholders on June 30, 2006, to vote on the SeverStal transaction. Unless more than 50% of the then outstanding Arcelor shares opposed the transaction, the merger with SeverStal would proceed. While the 50% unwind mechanism was criticised by the market, including institutional investors, the SeverStal transaction caused Mittal Steel to increase the price of its offer and to deliver better overall corporate governance and other terms. And in the end, the proposed SeverStal merger was unwound as over 50% of Arcelor’s shareholders voted to unwind it.


MERGER OFFER AND SUBSEQUENT NEGOTIATIONS:

Jan 27, 2006: Mittal Steel unveils €18.6b cash and share offer for Arcelor

Jan 29: Arcelor directors reject Mittal’s offer as “150 per cent hostile”, saying the companies “do not share same vision, business model and values”

Jan 31: Jean-Claude Juncker, prime minister of Luxembourg, which holds 5.6 per cent of Arcelor, vows to use “all necessary means” to fend off Mittal’s unsolicited offer

Feb 16: Arcelor raises 2005 dividend by 85 per cent.

Apr 4: Arcelor says it will distribute €5bn to shareholders. Raises 2005 dividend to €1.85

Apr 28: Arcelor chairman says supervisory board would think again if Mittal made a cash
bid

May 9: Mittal says it is willing to revise terms if Arcelor board recommends its bid

May 12: Arcelor says it will implement €5bn share buy-back

May 17: Mittal launches offer after regulators approve terms of the deal

May 18: Mittal raises offer by 34 per cent to €25.8bn with a 57 per cent increase in cash component. New deal would relinquish Mittal family control of group.

May 25: Arcelor agrees to join forces with Russian steelmaker, Severstal

May 30: Leading Arcelor shareholders speak out against proposed Severstal merger

May 31: More than a third of Arcelor investors sign a letter demanding the right to vote on a deal

June 7: Arcelor agrees to meet representatives from Mittal

June 11: Arcelor formally rejects Mittal’s €25.8bn bid and reiterates plans to press ahead with Severstal merger, but leaves the door open for an increased offer from Mittal and gives shareholders the chance to vote

June 18: Arcelor cancels shareholder vote on Severstal

June 20: Spanish investor forces Severstal rethink after calling for management changes at Arcelor

June 21: Severstal changes terms of its proposed merger with Arcelor to counter shareholder fears

June 25: Arcelor recommends upgraded €26.9bn Mittal offer after intensive talks

Finally deal was finalised when Arcelor accepted €33.5bn offer from Mittal.




STRUCTURING OF THE DEAL:

The proposed transaction presented by the member
Joseph Kinsch Chairman, Arcelor ,Lakshmi N. Mittal Chairman & CEO, Mittal Steel, Gonzalo Urquijo SEVP-CFO, Arcelor, Aditya Mittal President & CFO, Mittal Steel
were as follows……..

Offer

• 13 Mittal Steel shares plus €150.6 cash for 12 Arcelor shares4.
– Ability to elect to receive more cash or shares, subject to 31% cash and 69% stock paid in aggregate
– Very significant premium to Arcelor’s pre bid all time share price high
– 10.1% further improvement in the offer based on latest MT share price
– 7.0% further improvement in the offer based on 19 May revised offer

• Values Arcelor shares at €40.4 as at 23 June close

Conditions

• Minimum acceptance >50.0%
• No change in Arcelor or Mittal Steel substance during offer

Process:
• Expect to file revised offer shortly
• Closing of the tender offer expected to be extended by a few days beyond
5 July



Key contract terms:

• Other offers

Arcelor agreed to accept no other offer for Arcelor shares unless it was a
superior offer for the entire share capital of Arcelor

– No break-up fee required in contract
– If shares are issued under the Strategic Alliance Agreement, corporate governance rules and certain other conditions terminate

• Standstill

Mittal family agreed to a standstill at 45% of share capital. Exceptions in
certain circumstances - consent of a majority of the independent directors or in
case of passive crossing of such thresholds

• Lock up

Mittal family agreed to a 5-year lock-up, subject to certain exceptions,
including the right to dispose of up to 5% of the share capital after the 2nd year.

High standards of corporate governance:

• Shareholder voting rights
– All shares with identical voting and economic rights: One share - one vote regardless of holding period

• Composition of initial Board of Directors

– Mr Kinsch to be Chairman, Mr Mittal to be President
– Upon Mr Kinsch’s retirement, Mr Mittal becomes Chairman
– The Board of Directors will be composed of 18 members, all non executive (majority independent)
• 6 members from Arcelor
• 6 members from Mittal Steel
• 3 current representatives of existing Arcelor major shareholders
• 3 employee representatives

– After expiry of three year period, shareholders to elect Board of Directors


• Board Committees

– an Audit Committee composed solely of independent directors
– an Appointments and Remuneration Committee composed of 4 members, including
the Chairman, President and 2 independent directors

• Composition of Management Board

– The Management Board will be comprised of 7 executive members
• 4 current Arcelor executives, CEO to be proposed by the Chairman
• 3 Mittal Steel executives


ACCOUNTING AND ADJUSTMENT:

Purchase price allocation

The Company was in the process of allocating the purchase price for its acquisition of
Arcelor. It should be noted that all of the purchase price allocation adjustments made and
reflected in the Company’s December 31, 2006, financials (Income statement and Balance sheet) were still preliminary and could materially change as a result of the finalization of the purchase price allocation process . It was expected that this allocation would be finalized in Q2 2007.

The Company recorded the following significant preliminary purchase price adjustments:

Inventory

Inventory was increased by $1.1 billion as of the acquisition date (August 1, 2006). The
pro forma income statement excludes the effects of this adjustment.

Tangible fixed assets

The Company is being assisted by an independent appraisal firm in valuing the tangible
fixed assets acquired and assessing the remaining useful lives of these assets. Based on
the preliminary estimates, the Company increased the value of the tangible fixed assets
acquired by $12.3 billion. The Company also assessed the remaining useful lives of
these assets and concluded that the assets acquired have a longer average remaining
useful life than previously estimated by Arcelor. The Company therefore estimates, on a
preliminary basis, the annual additional depreciation charge to be insignificant.

Goodwill

As a result of the preliminary purchase price allocation, the Company currently estimates
goodwill related to the acquisition of Arcelor at $6.6 billion. This amount is still preliminary and could materially change as a result of the finalization of the purchase price allocation process.

SUBSEQUENT PERFORMANCE :

Pro forma results twelve months ended December 31, 2006 versus twelve months
ended December 31, 2005 1

Arcelor Mittal pro forma net income for the twelve months ended December 31, 2006,
was $8.0 billion, or $5.76 per share, as compared with pro forma net income of $8.3
billion, or $5.97 per share for the twelve months ended December 31, 2005.
Pro forma sales and operating income for the twelve months ended December 31, 2006,
were $88.6 billion and $11.8 billion, respectively, as compared with $80.2 billion and
$11.6 billion, respectively, for the twelve months ended December 31, 2005.
Total steel shipments for the twelve months ended December 31, 2006, were 110.5
million metric tonnes as compared with 102.9 million metric tonnes for the twelve months ended December 31, 2005. Pro forma depreciation for the twelve months ended December 31, 2006, increased to $3.4 billion as compared with $3.3 billion for the twelve months ended December 31, 2005.Pro forma net financing costs for the twelve months ended December 31, 2006, remained flat as compared with $1.3 billion for the twelve months ended December 31, 2005. Pro forma net financing costs for the twelve months ended December 31, 2006, include a charge of $367 million OCEANES1 and a gain of $450 million resulting from a Canadian dollar swap. Pro forma income tax expense for the twelve months ended December 31, 2006, increased to $1.7 billion as compared with $1.4 billion for the twelve months ended December 31, 2005. The effective tax rate for the twelve months ended December 31, 2006, was 14.9% as compared with 12.6% for the twelve months ended December 31, 2005. Pro forma minority interest for the twelve months ended December 31, 2006, remained flat at $1.5 billion as compared with the twelve months ended December 31, 2005.

Pro forma results three months ended December 31, 2006 versus three months ended September 30, 20061

Arcelor Mittal pro forma net income for the three months ended December 31, 2006, was
$2.4 billion, or $1.72 per share, as compared with pro forma net income of $2.2 billion, or $1.58 per share for the three months ended September 30, 2006. Pro forma sales and operating income for the three months ended December 31, 2006, were $23.2 billion and $3.2 billion, respectively, as compared with $22.1 billion and $3.4 billion, respectively, for the three months ended September 30, 2006. Total steel shipments for the three months ended December 31, 2006, were 26.7 million metric tonnes as compared with 26.9 million metric tonnes for the three months ended September 30, 2006. Pro forma depreciation for the three months ended December 31, 2006, decreased to $875 million as compared with $910 million for the three months ended September 30, 2006. Pro forma net financing costs for the three months ended December 31, 2006, was $4million income as compared with $352 million expense for the three months ended September 30, 2006, primarily due to a gain resulting from a Canadian dollar swap in the three months ended December 31, 2006. Pro forma income tax expense for the three months ended December 31, 2006, decreased to $642 million as compared with $669 million for the three months ended September 30, 2006. The effective tax rate for the three months ended December 31, 2006, was 18.6% as compared with 20.5% for three months ended September 30, 2006. Pro forma minority interest for the three months ended December 31, 2006, increased marginally to $443 million as compared with $420 million for the three months ended September 30, 2006.

Liquidity and Capital Resources1

The liquidity position of the Company remains stable. As of December 31, 2006, the
Company’s cash and cash equivalents including restricted cash and short term
investments were $6.1 billion. The net debt, which includes long-term debt plus shortterm debt less cash and cash equivalents, restricted cash and short-term investments,
was reduced by $2.3 billion to $20.4 billion as compared to September 30, 2006.
In addition, the Company, including its operating subsidiaries, had available borrowing
capacity of $9.0 billion at December 31, 2006, as compared to $5.9 billion at September
30, 2006. On November 30, 2006, Arcelor Mittal entered into a credit facility, which is comprised of a _12 billion term loan and a _5 billion revolving credit facility (the “_17 billion facility”). The proceeds of the term loan were used to refinance Mittal Steel’s _3 billion refinancing facility, _5 billion acquisition facility and _2.8 billion bridge facility, along with Arcelor’s 4 billion term loan facility and a _3 billion revolving credit facility. The _5 billion revolving credit facility has remained unutilized and is fully available to Arcelor Mittal, the proceeds of which may be used for general corporate purposes. The _17 billion facility is unsecured and provides for loans bearing interest at LIBOR or EURIBOR (based on the borrowing currency) plus a margin based on a ratings grid.
Arcelor Mittal’s _3 billion refinancing facility, _5 billion credit facility and _2.8 billion bridge facility were repaid and subsequently cancelled on December 14, 2006. Arcelor’s _4 billion term loan was repaid and subsequently cancelled on December 14, 2006 and its
_3 billion facility was cancelled on December 5, 2006.
On September 27, 2006, Mittal Steel announced that its board of directors agreed upon a
new dividend and cash distribution policy. The new policy will be proposed to Mittal
Steel’s shareholders at the next general meeting. The new policy provides a mechanism
that will allow Mittal Steel to honor its commitment of returning 30% of net income to
shareholders every year through an annual base dividend, supplemented by additional
share buy-backs. Mittal Steel’s board of directors proposed an annual base dividend of
$1.30 (approximately 1 Euro at the current exchange rate). This base dividend has been
designed to guarantee a minimum payout per year and would rise in order to reflect the
underlying growth of Mittal Steel. Payment of this dividend will be on a quarterly basis.
In addition to this dividend, Arcelor Mittal’s board of directors proposed a share buy-back program tailored to match the 30% distribution pay-out commitment. As a consequence, the sum of the annual base dividend and the share buy-back program each year will represent 30% of annual net income. Based on the pro forma annual net earnings announced for the twelve months ended December 31, 2006, the group will implement a $590 million share buy-back and cash dividend of approximately $1.8 billion. This new distribution policy will be implemented as of January 1, 2007 for the 2006 results, subject to shareholder approval. On February 2, 2007, Arcelor Mittal declared an interim dividend of $0.325 per share.The cash dividend will be payable on March 15, 2007 to Euronext Amsterdam, Euronext Brussels, Euronext Paris, Luxembourg Stock Exchange and Spanish Exchanges shareholders (“European Shareholders”) of record on February 27, 2007, and to NYSE shareholders of record on March 2, 2007.

On December 15, 2006 Arcelor Mittal redeemed Arcelor's 3%[1] 2017 bonds convertible
and/or exchangeable into new and/or existing Arcelor shares. On December 26, 2006, Fitch Ratings affirmed the Company’s Issuer Default and senior unsecured ratings at “BBB” and Short-term rating at “F2” and removed the ratings from Rating Watch Negative.

Reference:
1. http://www.mittalsteel.com/NR/rdonlyres/277C38D1-AEAF-4554-9DEE-FF45603 AA8BC/1577/2007FebruaryARCELORMITTALREPORTSPROFORMAFULLYEARAN.pdf

2. http://www.mittalsteel.com/NR/rdonlyres/4EEFE0E4-ED69-4474-990B-B3CCFD4 C8DFE/712/2006JanuaryMittalannoucesofferforArcelor1.pdf
3. http://investors.arcelormittal.com

4. http://search.arcelormittal.com/search?Search=merger~section=selection~ selectionurls=http://www.arcelormittal.com/~results_option=scores~begin =0~wassite=1~method=Boolean%20search~searchterm=merger