Mittal unlikely to buy Rio stake soon

LONDON (Reuters) - Steel magnate Lakshmi Mittal considered buying a stake in bid target Rio Tinto RIO.L to expand his interests in iron ore but has decided against it for now, sources familiar with the matter said on Monday.

President and CEO of ArcelorMittal Lakshmi Mittal speaks in Bangkok April 9, 2008. REUTERS/Chaiwat Subprasom

The sources told Reuters that Mittal, the main shareholder in the world's biggest steelmaker ArcelorMittal ISPA.AS, decided several months ago not to buy a holding in miner Rio RIO.AX, which is resisting a takeover bid from rival BHP Billiton BLT.L.

Mittal, also chairman and chief executive of ArcelorMittal, has not completely ruled out a future purchase, but it would be extremely unlikely in the short term while BHP seeks competition approval for the all-share takeover, they added.

ArcelorMittal declined to comment.

The news comes after the Financial Times reported on Monday, quoting people familiar with the situation, that Mittal is considering entering the Rio Tinto takeover battle.

“Mr. Mittal has considered some involvement in the takeover, such as the idea of taking a stake in Rio through buying from existing shareholders,” it quoted an unnamed banker as saying.

“On the other hand, he could wait until later, when quite possibly some of the iron ore assets (of Rio) go on sale as a result of demands by antitrust regulators,” the FT quoted an unnamed banker as saying.

Steelmakers across the world have vowed to oppose the marriage of Rio and BHP, which would combine the world’s second- and third-biggest producers of iron ore.

The producers, hit by prices rises this year of 65-97 percent for the raw material used in steelmaking, fear the merged firm would have too much pricing power.

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Analysts said Mittal may have considered buying a stake to influence any future disposals of iron ore assets, mirroring a move by China’s state aluminium group Chinalco, which bought a 9 percent stake in Rio in February.

“Do somehow people think that the Chinese have some leverage over BHP now in the process? Mittal could get into that position too, i.e. we will vote for this deal if we get this and this,” analyst Michael Rawlinson of Liberum Capital said.

The Chinese could possibly team up with Mittal and several institutions to block the deal, which has a 50 percent acceptance condition, he added.

Rio’s share price has been dampened by the uncertainty surrounding the review by competition regulators, which is expected to drag on until the end of the year.

Rio’s shares in London, up 2.8 percent to 6,000 pence by 2:02 p.m. British time, are trading at a 9 percent discount to the value of BHP’s all-share offer, currently worth around $170 billion (85.4 billion pounds).

BHP shares gained 1.8 percent to 1,908 pence, while ArcelorMittal’s shed 1.3 percent to 62.85 euros.

ArcelorMittal has been less exposed to surging raw materials prices than many competitors due to its strategy to buy iron ore and coal assets.

Malay Mukherjee, a member of ArcelorMittal’s management board, told Reuters in April that the company aimed to supply up to 70 percent of its own iron ore by 2012 to protect itself against surging raw material prices.

This would lift its self-sufficiency of the iron feedstock from 45 percent now as the company seeks to boost its steel production 18 percent to 130 million tonnes per year by 2012.

Mukherjee said at the time his group’s raw material expansion plans could be achieved with additional investments. Most of this growth would be organic through expansion of ArcelorMittal’s existing operations in emerging markets including China, Russia, and Brazil. The company was also planning greenfield expansion in India.

Mittal built his group by transforming ailing steel companies around the world into more profitable ventures. He and his family together own over 43 percent of ArcelorMittal, which accounts for about 10 percent of the world’s steel output.

Mittal, one of the world's richest men, has joined the board of directors of Goldman Sachs Group GS.N, the world's largest securities firm said on Sunday.


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