Antitrust Lawyer Blog Commentary on Current Developments

Justice Department Requires Mittal Steel to Divest Sparrows Point Steel Mill

On February 20, the DOJ announced Mittal Steel Company N.V. must divest its Sparrows Point facility, located near Baltimore, Maryland to remedy the competitive harm arising from Mittal’s $33 billion acquisition of Arcelor S.A. On Aug. 1, 2006, the Antitrust Division entered into a settlement agreement with Mittal and Arcerlor that provided for various options to resolve the anticompetitive concerns arising from the merger.

To remedy the Antitrust Division’s competitive concerns, the proposed consent decree required Mittal to divest a steel mill that supplied tin mill products to the eastern United States. Mittal’s first obligation was to attempt to divest Dofasco Inc., a Canadian company owned by Arcelor. However, the proposed consent decree anticipated the possibility that Mittal might be unable to sell Dofasco because Arcelor had, in an attempt to defeat Mittal’s hostile takeover bid, placed legal title to Dofasco into a Dutch foundation, the “Strategic Steel Stichting” (S3). Therefore, in the event the sale of Dofasco could not be carried out as required, the proposed consent decree gave the DOJ the right to select for divestiture either Mittal Steel’s Sparrows Point mill or its Weirton mill, located in Weirton, West Virginia.

Prior to Mittal’s acquisition of Arcelor, two large firms – Mittal and one other integrated steel producer – accounted for more than 74 percent of all tin mill product sales in the eastern United States. Arcelor, together with its subsidiary Dofasco, which operates a large integrated mill in Ontario, provided a significant competitive constraint on these two firms. By removing those constraints on anticompetitive pricing, the DOJ alleged that acquisition likely would have resulted in price increases of tin mill products to can manufacturers and other customers in the eastern United States. More specifically, tin mill products are finely rolled steel sheets normally coated with tin or chrome. Tin mill products are used primarily in the manufacture of sanitary food cans and general line cans used for aerosols, paints and other products.

The DOJ determined that the divestiture of Sparrows Point will remedy the anticompetitive effects of the acquisition. Sparrows Point is a profitable and diversified facility that has the capacity to produce more than 500,000 tons of tin mill products annually. Sparrows Point currently operates as an integrated facility that produces the steel slabs used in the manufacture of tin mill products and, unlike the Weirton mill, will not have to develop new sources of supply for this critical input upon its separation from Mittal Steel. With the divestiture of Sparrows Point, competition in the market for tin mill products in the eastern United States will be preserved.

Andre Barlow
(202) 589-1834
abarlow@dbmlawgroup.com