LNM may withdraw from S. Africa if Iscor bid fails

Tuesday, 21 January 2003, 08:00 Hrs
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JOHANNESBURG: Steel magnate Lakshmi Mittal's LNM Group has hinted that it will withdraw from South Africa if its move to take control of the formerly state-owned steel producer Iscor fails.

LNM wants Iscor shareholders to vote in favour of a waiver of local regulations that require a stakeholder who acquires more than 35 percent of a company's shares to make a full offer to minorities.

LNM made a partial offer of 30 rands a share to Iscor minority shareholders in December, conditional to them approving the waiver at a meeting Wednesday.

Groups representing minority shareholders in Iscor are split on whether to vote.

Given the uncertainty, an unnamed LNM spokesman told Business Day here that LNM would be forced to review its investment if the shareholders do not vote.

"We are hopeful of success as failure would cause us to reconsider our investment. It is possible we would withdraw from South Africa in due course."

The Iscor board, having received advice from an investment bank that the offer was fair and reasonable, recommended that shareholders approve the waiver.

If approved, LNM's stake in Iscor, which it helped turn around within 18 months of moving in, would rise from just under 35 percent to 47 percent.

But large companies representing many minority shareholders, especially pension funds, began raising doubts about approving the waiver last week.

This prompted LNM to make a further offer Friday, in which it pledged that it would make a full offer to minorities if its stake in Iscor reached 60 percent.

This move eased concern among some investors about the erosion of liquidity by LNM's acquisitions. But analysts Tuesday said there was still enough concern over a number of issues to cause an upset at the meeting Wednesday.

These issues are that the offer price of 30 rands may be too low; LNM could acquire control of Iscor without a further premium; the precedent that could be set for other companies if the waiver loophole in local regulations is approved; and the new pledge by LNM not being guaranteed.

The veiled withdrawal threat from LNM has serious implications for South Africa, as LNM helped Iscor through a massive cash injection, technological assistance, and access to foreign markets.

LNM's total investment in Iscor could be in excess of $500 million after the latest offer.

Both Iscor and government sources, known to be concerned about Iscor falling into foreign hands, would not comment on the LNM statement.

But analysts here said there would definitely be some desperate behind-the-scenes negotiations going on ahead of Wednesday's meeting.

Some said the threat by LNM might in fact be counter-productive to its objectives, adding that LNM had shown right from the time it teamed up with Iscor that the intention was to eventually take control of the company.

At the same time, a withdrawal by LNM would have huge implications for Iscor to find a new partner. There are fears that no other large steel conglomerate would be willing to enter South Africa if LNM walks off.

LNM entered into a business assistance agreement with Iscor two years ago, in terms of which it would gradually receive a larger stake if the agreements helped turn around the fortunes of Iscor. This has been happening regularly.
Source: IANS
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