S&P keeps Arcelor on watch

Standard & Poor's said it kept Arcelor SA's BBB corporate credit rating on CreditWatch with developing implications and A-2 short-term corporate credit rating on CreditWatch with negative implications following the announcement by Arcelor of an agreed merger with Russia-based integrated steelmaker OAO Severstal (B+/positive watch).

The proposed merger transaction with Severstal is planned as a share swap. Controlling stakes in Severstal and resource subsidiaries, currently owned by Alexey Mordashov, will be exchanged for 295 million of newly issued Arcelor shares, representing about 32% of the enlarged Arcelor group. Mordashov is also expected to pay €1.25 billion in cash from his own holdings to Arcelor.

The announced merger transaction with Severstal comes at a time when Arcelor remains subject to an unsolicited takeover bid by Mittal Steel Co. NV. The agency said this adds to the uncertainty surrounding the outcome of these competing transactions, which are subject to regulatory and shareholder approval and appear on current terms to be mutually exclusive.

S&P also said the business risk profile of the enlarged group for the proposed merger transaction with Severstal will likely improve compared with that of Arcelor on a stand-alone basis due to increased geographic diversity, greater scale and potential operational synergies.

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