Bidding for Dofasco heats up
German giant ThyssenKrupp steps up to fend off Arcelor Canadian icon recommends deal but invites other offers
Dofasco Inc. has quickly found a white knight to fend off a hostile takeover, but the market is betting the eventual winning suitor will offer more. German industrial giant ThyssenKrupp AG announced a cash bid yesterday of $ 4.8 billion, or $ 61.50 a share, for all of Dofasco’s stock. But Dofasco closed at a 52-week high of $ 63.98, up $ 4.86, or more than 8 per cent, on heavy volume of 10 million in trading on the Toronto Stock Exchange.
That’s a strong indication investors expect a better bid for Hamilton-based Dofasco, the country’s biggest steel maker. At one point in yesterday’s session, the stock price reached $ 64.12. The offer from ThyssenKrupp, which has interests in Canada, tops an unsolicited bid of $ 4.3 billion, or $56 a share, from Arcelor SA of Luxembourg by almost 10 per cent.
ThyssenKrupp’s offer also represents a huge premium of 40 per cent on Dofasco’s stock price before Arcelor made its surprise bid last week and put the company into play.
Dofasco’s board is unanimously recommending that shareholders accept the offer, which would leave the company under foreign control for the first time in it’s 93- year history.
However, Don Pether, Dofasco’s chief executive officer, also said the company would consider other bids without engaging in a formal auction process.
“ Anybody can come forward and make a superior offer,” Pether told analysts. “And it would certainly be open for them ( Arcelor) to do that.”
Pether said other companies, which he did not identify, called Dofasco after Arcelor announced its bid last Wednesday, but none made an offer.
Pether also said he saw a good chance that ThyssenKrupp’s offer price “ would not be there going forward and might have been less” if the board had not supported the bid. The offer includes a break- up fee of $100 million, or 2 per cent
of the bid’s value, if the takeover does not proceed under certain circumstances.
After last week’s Arcelor offer, Dofasco advised shareholders to hang on to their stock while the company reviewed the bid and looked at “ alternatives.”
Pether said Dofasco and ThyssenKrupp have talked since February about strategic ventures, but “ the tenor changed” after the Arcelor offer. Within a few days, he asked ThyssenKrupp officials if they were interested in bidding.
Arcelor, the world’s secondbiggest steel maker, said in a statement that the company is evaluating the ThyssenKrupp bid and considering the options. But chief executive officer Guy Dollé said it appears ThyssenKrupp overvalued Dofasco.
At the same time, Dollé said at a news conference in Rio de Janeiro, “ it’s too early to say we’re not interested.”
Analyst John Novak, who follows the industry for CIBC World Markets, said he thinks Arcelor will make another offer.
“ Regardless if there is an auction process, the company ( Dofasco) has made it quite clear anyone can approach the board with a bid,” he added. “ It will be good for shareholders either way.”
Arcelor and ThyssenKrupp have both said Dofasco is a key in establishing a foothold in North America for their European companies during the international consolidation sweeping the steel industry.
Dofasco, a blue- chip industrial stock in Canada and a staple of many investor portfolios for generations, is considered one of the best steel makers on the continent and a prime candidate for a takeover because the company’s shares are widely held.
In a joint news conference, Karl Kohler, executive board chairman of subsidiary ThyssenKrupp Steel, said the takeover would create an excellent fit for the two companies. They both produce high- end steel, service their customers well, stress research and innovation and promote a corporate culture that includes profitsharing and caring for employees.
“ We place a high value on people. . . . We’re going to figure out away to make sure no one loses out,” said Kohler, who is also a member of the parent company’s executive board.
“ There will inevitably be a period of uncertainty. But I’m certain about this. We want to keep Dofasco’s management and we want to keep Dofasco’s name.”
Dofasco’s motto is: “ Our product is steel. Our strength is people.” The company employs about 11,000 workers and generated sales of $ 4.2 billion last year in hot rolled, cold rolled, galvanized, tubular and laserwelded steel for the auto, construction, appliance, energy and packaging industries. Dofasco also has operations in Kentucky and Mexico, owns 98.7 per cent of iron-ore producer Quebec Cartier Mining and runs numerous joint ventures. ThyssenKrupp has operated in Canada since 1914 and now has about 24 companies across the country, including an auto- parts maker in Kitchener and an elevatorservicing company in Toronto. ThyssenKrupp employs about 4,270 workers in Canada.