The total amount ArcelorMittal will fork out depends on how much it finally pays China Oriental’s controlling shareholder, Han Jingyuan, for his controlling 45% stake. This price will be based on pre-determined calls and puts using a formula which takes into account Ebitda and net cash or debt position in addition to volume weighted average traded price. The complexity of the formula makes the final price difficult to predict. On a simplistic assumption that ArcelorMittal will pay Han HK$6.12 per share then Han will receive HK$8.08 billion ($1.04 billion). On this basis, including the payment to the 27% minority shareholders, ArcelorMittal will pay HK$12.9 billion for the 72% outstanding shares.

The HK$6.12 price per share which ArcelorMittal will pay minority shareholders is based on the price ArcelorMittal, the world’s largest steel company, paid Diana Chen Ningning (Chen) for 28.02% of China Oriental amounting to HK$5.02 billion ($643 million). The price represents a 13% premium to China Oriental’s closing share price of HK$5.4 each before it was suspended from trading on November 7.

The mandatory general offer (MGO) has been forced on ArcelorMittal as the Hong Kong Takeovers and Mergers Panel has ruled that the company acted in concert with Han when it bought Chen’s 28% share.

The background to the current ruling lies in one of the first hostile takeovers attempted in Hong Kong, in June this year. Chen, who owned 28% of China Oriental, launched a hostile offer for the company, saying Han, who owns 45% and is chairman and CEO, had not been able to create shareholder value. At this stage, ArcelorMittal approached Han with an offer to act as a “white knight”, i.e. help to defeat the hostile.

ArcelorMittal is represented by ING and Baker & McKenzie.

Chen went on to launch a tender offer which needed to corner 22% of the outstanding shares to take her holding above 50% and be successful. Chen could only get support from 17% of China Oriental’s shareholders so had to abandon the hostile bid on October 2.

Meanwhile, ArcelorMittal’s discussions with Han continued, encompassing a variety of options including launching “a competing offer, the pricing mechanism for call and put options, cost sharing and financing”. Han is represented by UBS and Freshfields.

The day after Chen’s offer was declared unsuccessful, ArcelorMittal and Han inked a co-operation agreement whereby ArcelorMittal would commence negotiations with Chen to buy all her shares. Han stipulated to ArcelorMittal that buying Chen’s shares was a pre-cursor to any agreement between Han and ArcelorMittal.

ArcelorMittal acquired Chen’s shares on November 7 leading to a trading suspension on November 8.

On November 9, ArcelorMittal and Han signed a shareholders agreement, subject to ArcelorMittal receiving all necessary PRC approvals including anti-trust. The approvals are thus critical to the agreement taking effect.

Once all approvals are in place, Han and ArcelorMittal have agreed a series of options over a four-year period which allow ArcelorMittal to call Han’s shares in tranches and allow Han to put his shares, subject to conditions and a pre-agreed pricing formula incorporating, among other things, the Ebitda achieved by China Oriental in the relevant prior period. Han has also negotiated the right to remain chairman for a three-year period, after ArcelorMittal gains control of 50% of China Oriental.

The regulator’s stand is that ArcelorMittal and Han were persons acting in concert. So even though ArcelorMittal’s current stake is below the 30% threshold for launching an MGO, the company’s deal with Han means that minority shareholders will now be given an option to exit.

The Hong Kong stock market regulator also clarified in its statement that it was “not a disciplinary matter”, but in a rap on the knuckles for the involved parties, said that the Takeovers Panel was “concerned with the almost total absence of consultation by the parties (Han and China Oriental) and their advisers prior to entering into both the acquisition and the put option”.

ArcelorMittal issued a statement on Friday saying that via the agreement with China Oriental it will “strengthen its position in China’s fast growing steel market”. The steel giant intends to “share technology, technical expertise and know-how” with the Chinese company as well as assist in sourcing inputs.

“We have made no secret of our wish to participate more actively in China’s fast growing steel market, and the agreements we have signed are a major step forward in delivering that strategy,” says Lakshmi Mittal, president and CEO of ArcelorMittal in a written statement.

In his own comments with respect to the deal, Han took pains to clarify that ArcelorMittal is becoming China Oriental’s second-largest shareholder.

ArcelorMittal also confirmed its intention to maintain a listing of China Oriental after the MGO. Prima facie this seems like a circuitous route as ArcelorMittal is likely to have to sell-down shares it acquires in the MGO to achieve the 25% minimum float requirements of the Hong Kong Stock Exchange. But it is also likely that ArcelorMittal and Han realise that maintaining a listing may be one way of ensuring that the regulators are pre-disposed to approving the deal.

Analysts have commented that regulatory approvals are the wild card for this deal. The Chinese government is sensitive to foreign ownership in sectors deemed as strategic and steel is one such industry. But China Oriental is incorporated in Bermuda and its “principal activity is holding investments in iron and steel manufacturing companies in the PRC”. Thus, there seems to be a basis for regulators to allow the current deal to go through.

For ArcelorMittal, the deal is critical as it provides a route for the steel company to gain a foothold in China, which is a key future market.

This case could well be the next test of how open China is to free market practices.

As FinanceAsia reported, SK Telecom issued a statement on Monday saying it had signed a share purchase agreement (SPA) to buy 38.89% of Hanaro for a total of W1.09 trillion ($1.2 billion).

But Hanaro Telecom, South Korea’s biggest broadband provider, surprised the market when it subsequently issued a statement to the Korea Stock Exchange denying that any such SPA had been signed with SK Telecom.

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The shares, which represent a controlling interest in Hanaro, are currently owned by a consortium of private equity investors comprising American International Group (AIG), Newbridge Capital and TVG.

“We have been informed by the AIG-Newbridge-TVG consortium that at this moment, there is no share purchase agreement with SK Telecom,” stated the Hanaro filing to the stock exchange made late on Monday. The filing was Hanaro’s response to a query from the exchange following the SK Telecom announcement.

SK Telecom, the South Korean mobile telecommunications operator controlled by the SK Group, consistently maintained that an agreement had definitely been signed with Hanaro, and that it was following up on government approval procedures.

“We made the public announcement of our acquisition on Monday and now have five working days to file to the Financial Supervisory Service,” said Lauren Kim, manager at SK Telecom’s public relations office on Tuesday. “We are also currently sending co-operation requests to Hanaro regarding documents for the approval processes, which we plan to send to the government by mid-December.”

The twist in the tale came yesterday when Hanaro declared that the SPA was now signed, in line with the terms originally released by SK Telecom, and that the deal would go ahead.

So what happened?

There is media speculation that LG Group filed a late offer for Hanaro after SK Telecom had been declared the preferred bidder. The LG Group offer was reportedly 40% higher than that of SK Telecom. If this is indeed true, the Monday announcement by SK Telecom could well have been an attempt to strong-arm the sell-side into a deal by releasing information on the transaction prematurely.

The sellers, who are financial investors and hence generally indifferent about the identity of the buyer, may have been hopeful that they could abort the deal if SK Telecom failed to meet agreed deal deadlines and could then legitimately pursue LG Group’s more lucrative offer. There is no clarity on why LG Group did not bid when Hanaro adviser, Goldman Sachs, ran the auction for the asset.

But SK Telecom was not willing to give up so easily on a deal which most analysts agree is a good step for the Korean firm. The acquisition will provide SK Telecom with fixed-mobile bundling services, helping the company to acquire new subscribers and retain existing subscribers in its own mobile telecommunications arena, according to Fitch. The deal will also allow it to gain exposure to the IPTV (internet protocol television) industry without bearing the start-up costs of such an investment.

Hanaro announced in early November that the company had reached the breakeven point in the third quarter and posted record-high quarterly revenues of W466.7 billion and net income of W7.4 billion, eliminating most of its accumulated deficit.

“We accomplished a turnaround one quarter earlier than planned, laying the groundwork for solid profit generation,” said chief financial officer, Janice Lee, in a press release at the time. “Next year, we aim to achieve net income large enough to pay dividends, maximising shareholder valuation.”

SK Telecom enjoys a 50.5% market share in the telecom sector, with 22 million subscribers.

And SK Telecom’s persistence paid off as it managed to complete the Hanaro deal. SK Telecom already owns a stake in Hanaro and will now become its largest shareholder with a total stake of 43.59%. The deal is subject to government approval.

The current private equity investors, who may not be able to pursue LG’s higher offer, are still on track to make a healthy return on an asset they are said to have paid around $500 million for in 2003.