Mumbai: Though they favour the $22.6 billion unsolicited take-over bid by L N Mittal's Mittal Steel, institutional shareholders in Arcelor SA, the world's second largest steel company, are holding out for a higher offer, as the battle for take-over moves to the shareholders' court.

Mittal Steel's €18.6 billion ($22.6 billion, £12.7 billion) bid translates to an offer of €28.21 a share for Arcelor - a 27 per cent premium over Arcelor's closing price of €22.20 on the day of the announcement on January 27, this year.

Ever since the announcement, Arcelor's prices have gradually risen. Its share traded at €30.12, in yesterday's trades.

Despite the apparent hostility to the bid by Mittal Steel, many investment analysts in Europe are bullish on the deal going in Mittal's favour. Some are even advocating selling out of Arcelor in favour of Mittal Steel.

The major argument in favour of the deal is that the combination of the world's two largest
Steel companies would boost valuations of steel shares through the consolidation of a fragmented industry (See table) and leverage the synergies of both companies.

Arcelor, as it exists today, is the product of a merger between Spain's Aceralia, France's Usinor and Luxembourg's Arbed four years ago. And just three days before Mittal announced its bid, Arcelor had taken over Canada's biggest flat steel maker, Dofasco, in a hostile $4.9-billion cash offer, beating Germany's ThyssenKrupp, which had tried to act the white knight. (See: ThyssenKrupp backs out, Arcelor wins Dofasco).

Arcelor accounts for half the steel used in European-made cars, and has plants across Europe and Latin America. Three-fourths of its revenues come from Europe, and 11 per cent from Latin America. North America accounts for 9 per cent of Arcelor's revenues.

The Mittal group became the biggest steel producer both in North America and the world in April 2005 when it snapped up Richfield, Ohio-based International Steel Group ISG for $4.5 billion from financier Wilbur Ross. The group owns steel mills from Kazakhstan, Ukraine and Poland to South Africa and the Caribbean. It aims to invest $9 billion in steel production in the state of Jharkhand in India.

A combined Mittal-Arcelor conglomerate would have a global market share of about 10 per cent, or more than three times larger than its nearest rival, Nippon Steel or the next three steel makers of the world put together..(see: table)

Global steel majors (in terms of production capacity)

Arcelor has termed the bid hostile and European politicians have criticised the deal amid fears of job losses. While Arcelor's largest shareholder, the government of the Grand Duchy of Luxembourg, with a 5.6 per cent stake, has been one of the most vocal opponents of the bid, the government of Belgium's Walloon region, which holds 2.3 per cent of Arcelor is reviewing the industrial plan behind Mittal's bid and has not yet taken a position.

Mean while the office of The European Competition Commissioner, Neelie Kroes is pouring over the draft prospectus of the Mittal offer, unveiled over two weeks ago.