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Acquisition of ARCELOR Steel by MITTAL Steel
NMIMS, PTMBA 3rd year Marketing DIV -A
Contents
NMIMS, PTMBA 3rd year Marketing DIV -A
Corporate Strategy, Corporate Finance & Management
Buying, Selling & Combining of different Companies
Aid, Finance or Help a growing Company in a given Industry
An Acquisition is buying of one company (target) by another
An Acquisition may be friendly or hostile
An Acquisition can be a ‘Reverse Takeover’
Acquisitions can be done in two ways –
• the buyer buys the shares of the target company
• the buyer buys the assets of the target company
There are pros and cons involved in every take over
Mittal Steel Company N.V. was formed by the merger of
• LNM holdings & ISPAT International
• International Steel Group Inc.
CEO Lakshmi Mittal’s family owned 88% of the company and its headquarter was in Rotterdam, Netherlands
The company was the world’s largest steel producer by volume and also the largest in turnover and is now a part of ArcelorMittal
It was the major player in Steel, Flat Steel products, Coated Steel, Tubes and Pipes
Arcelor was created in Feb 2002 through the merger of Arbed (Luxembourg), Aceralia (Spain) , Usinor (France)
The merger was officially launched on 19 February 2001
The choice of the Arcelor name was announced on 12 December 2001
Guy Dolle was the CEO of Arcelor and its headquarter was in Luxembourg city.
World’s Second largest steel maker and first in terms of revenues.
Arcelor generated revenues of 40.6 billion euros and produced 53.5 million tonnes of crude steel
Products: Flat Carbon Steel; Long Carbon Steel; Stainless Steel; and Steel Solutions and Services
It was a major player in all its main markets: automotive, construction, metal processing, etc
Guy Dolle
In January 2006, Mittal steel launched a 22.7 billion offer to Arcelor share holders
The deal was spilt between Mittal 75 % share and cash 25 %
Under the deal : 4 Mittal steel shares and cash €35.25 for every 5
shares of Arcelor. The offer values shares of Arcelor at €28.21 each,
which means that it involves a premium of 27% over the closing price on the stock market the day before
TOP PRODUCERS OF STEEL (VOLUME) AROUND THE GLOBE in 2005
Mittal wants to grow, to strengthen itself and to eliminate competitors in a mature sector where costs are a fundamental factor.
Mittal’s interest in Arcelor is based on the type of production each company is involved in
Mittal type production & target : Produces low-cost steel It has factories in countries where labor costs are low, and its
mills are located near mines and close to markets where there is a lot of demand.
In contrast, Arcelor produces steel for industries that demand higher quality products, such as the auto sector.”
Thus Mittal’s offer was an attempt to enter the higher range of the steel industry as well as new markets where the company does not have any production facilities
Arcelor Management –
• The management was extremely hostile to Mittal Steel’s bid
• It believed to have been doing the acquisitions and not the other way around
• The CEO of Arcelor dismissed Mittal Steel as a “company of Indians”
European governments –
• The French Government and the government of Luxembourg was against the deal
• The European Union approved of the deal
Arcelor Management:Arcelor’s senior executives saw the offer as hostile board of directors called an urgent meeting where it unanimously rejected the Mittal offer
Arcelor’s board arguments to justify a rejection is that Arcelor and Mittal do not share the same strategic vision, the same model for development or the same values.
Guy Dollé President of Arcelor, told a press conference “Arcelor is not going to share its future with Mittal,”.
Declaration of dividend –
On February 16, Arcelor declared a dividend of 1.2 euros to convince the shareholders of a positive situation under current management
The Russian Angle –
To thwart the offer from Mittal Steel, Arcelor released a 13 billion Euro merger plan with Severstal, a Russian company
Analysts believe that Guy Dolle had issues with the personality and management of LN Mittal
Guy Dolle raised several issues about the safety record of Mittal
Guy Dolle is not a part of the new Arcelor-Mittal organization
Most Indians believed that the deal was not getting pushed because of Lakshmi Mittal’s nationality
The Indian government raised the issue through commerce minister Kamal Nath
LN Mittal himself felt that there was no case of “racism” here as Mittal Steel was a European company and NOT an Indian one
Increased valuation to 40.40 euros
Gathered the support of shareholders
Wooed the European governments namely Luxembourg, France and Spain
Obtained the support of trade union
Contrasting culture of two companies
The Steel Price may slow down
Extent of synergies realized through the Merger
On 25th June, 2006 the deal finally clinched when the shareholders of Arcelor agreed to Mittal Steel’s offer
Mittal had to considerably sweeten the initial offer-by raising its valuation of Arcelor to $32.9 billion
The Mittal family holds 43 percent of the combined group
The combined company holds 10 percent of the global market for steel
New company to be called Arcelor-Mittal, and not Mittal-Arcelor
Majority of board members will be from Arcelor despite Mittal·s high stake
The company will be headquartered in Luxembourg
LN Mittal will be co-chairman along with Arcelor chairman Joseph Kinsch
Arcelor Mittal is now the largest steel company in the world
ArcelorMittal is the leader in major global markets, including automotive, construction, household appliances & packaging
The company is headquartered in southern Luxembourg City, the former seat of Arcelor
Lakshmi Mittal (owner of Mittal Steel), a non-resident Indian is the Chairman and CEO
Headquarters at Luxembourg city
It employs 310,000 employees in more than 60 countries
Organic growth of 20 million tonnes
ArcelorMittal key financials for 2007 show revenues of US$ 105.2 billion
A crude steel production of 116 million tones, representing around 10% of world steel output
Unique R&D capability in the steel industry
As of May 17 2008, the market capitalization of ArcelorMittal was $144.37 billion
The deal has been in favor of both the companies. This can be suggested by the following
PROS of the deal –
Increase in revenue of the company from $28.123 billion to $105.2 billion and operating income from $4.746 billion to $14.83 billion
Venture into new businesses and market like Luxembourg, Senegal, Liberia and looking to develop positions in the high-growth Chinese and Indian markets
Profit of the company has risen from $3.36 billion to $10.36 billion
Decreased competition and increased market share
Enlarged brand portfolio
Increase in economies of scale and share value.
The CONS of the deal include –
High monetary cost of the target company (Arcelor) which is $32.9 billion
As the pros of the deal completely outweigh the cons involved, it can be said that the deal has been a successful one for both the companies, its people and the world.
Synergy
Brought iron ore ,technology and marketing expertise together
Adept at combining businesses
Smoothen out the price fluctuations
Created a much stronger and more sustainablebusiness
Clear strategy to deliver further growth and value
creation
Now the Mittal family owns 88% of the world’s largest steel company.
Its most recent purchase, last year, was International Steel, the U.S. company, at a cost of $4.5 billion.
Mittal Steel is now using the same strategy to challenge the sector by presenting an offer for its closest rival.
Mittal may already be the leader in the United States and Asia, but it could soon reach the top spot in the European rankings.
MALAY MUKHERJEEMember of the
Group Management Board
ADITYA MITTALCFO
Member of the Group
Management Board
MICHEL WURTHMember of the
Group Management
Board
GONZALO URQUIJOMember of the
Group Management Board
JOSEPH KINSCHMember of the
Group Management
Board
Mergers and Acquisitions continue to be amongst the preferred competitive options available to the companies
seeking to grow and prosper in the rapidly changing global business scenario.