Group 5 - Merger & Acquistion_final

8/8/2019 Group 5 - Merger & Acquistion_final

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Group 05 :Group 05 :

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raviravi -- 5454

Mergers & Acquisition

NMIMS, PTMBA 3rd year Marketing DIV -A


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Merger & AcquisitionMerger & Acquisition -- IntroductionIntroductionCase of AcquisitionCase of Acquisition ArcelorMittaLArcelorMittaL

Case of MergerCase of Merger HP & CompaqHP & Compaq

The BIG DealsThe BIG DealsThe ValuationsThe Valuations

Post Merger and Acquisition ScenarioPost Merger and Acquisition Scenario

ConclusionConclusion

Contents

NMIMS, PTMBA 3rd year Marketing DIV -A


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What are Mergers and Acquisitions?What are Mergers and Acquisitions?

Corporate Strategy, Corporate Finance &

Management

Buying, Selling & Combining of different

Companies

Aid, Finance or Help a growing Company in a

given Industry


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What are Mergers?What are Mergers?


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AnAcquisition is buying of one company (target) by

another

An Acquisition may be friendly or hostile

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 Acquisition

What are Acquisitions?What are Acquisitions?


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MittalMittal SteelSteel -- an Overviewan Overview

Mittal Steel Company N.V.was formedby the merger of

LNM holdings & ISPAT International

International Steel Group Inc.

CEO Lakshmi Mittals family owned 88% of the

company and its headquarter was in Rotterdam,

Netherlands

The company was the worlds largest steelproducer 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


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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

Guy Dolle was the CEO of Arcelor and its headquarter

was in Luxembourg city.

Worlds 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

ARCELOR - AN OVERVIEW


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FINANCIAL STATEMENTS -


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y In January 2006, Mittal steel launched a 22.7 billion offerto Arcelor share holders

y The deal was spilt between Mittal 75 % share and cash 25%

Under the deal :

y 4 Mittal steel shares and cash 35.25 for every 5 shares ofArcelor.

y The offer values shares of Arcelor at 28.21 each, which

means that it involves a premium of 27% over the closingprice on the stock market the day before

THE OFFER BY MITTAL THE BIG DEAL


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TOP PRODUCERS OF STEEL (VOLUME) AROUND

THE GLOBE in 2005


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MittalsMittals InterestInterest

y Mittal wants to grow, to strengthen itself and to eliminatecompetitors in a mature sector where costs are a fundamentalfactor.

y Mittals interest in Arcelor is based on the type of productioneach company is involved in

Mittal type production & target :

y Produces low-cost steel

y It has factories in countries where labor costs are low, and itsmills are located near mines and close to markets where there

is a lot of demand.y In contrast, Arcelor produces steel for industries that demand

higher quality products, such as the auto sector.

y Thus Mittals offer was an attempt to enter the higher rangeof the steel industry as well as new markets where thecompany does not have any production facilities


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Arcelor Management

The management was extremely hostile to

Mittal Steels 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

T

he European Union approved of the deal

THE CONTROVERSY


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THE CONTROVERSYTHE CONTROVERSY

y Arcelor Management:Arcelors senior executives saw the offer as hostileboard of directors called an urgent meeting where itunanimously rejected the Mittal offer

y Arcelors board arguments to justify a rejection is thatArcelor and Mittal do not share the same strategicvision, the same model for development or the samevalues.

y Guy Doll President of Arcelor, told a pressconference Arcelor is not going to share its future

with Mittal,.


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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

STRATEGY ADOPTED BY ARCELOR TO THWARMITTAL BID


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Analysts believe that Guy Dolle had issues

with the personality and management of LN Mittal

Guy Dolle raised several issues about thesafety record of Mittal

Guy Dolle is not a part of the new

Arcelor-Mittal organization

ROLE OF GUY DOLLE


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Most Indians believed that the deal was not

getting pushed because of Lakshmi Mittals

nationality

The Indian government raised the issue through

commerce minister Kamal Nath

LN Mittal himself felt that there was no case ofracism here as Mittal Steel was a European

company and NOT an Indian one

THE STANCE OF INDIAN GOVERNMENT


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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

STRATEGY ADOPTED BY LNM


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Contrasting culture of two companies

The Steel Price may slow down

Extent of synergies realized through the Merger

KEY RISK INVOLVED


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On 25thJune, 2006 the deal finally

clinched when the shareholders of

Arcelor agreed to Mittal Steels offer

Mittal had to considerably sweetenthe 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

END RESULT- THE FINAL DEAL


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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

TERMS LAID DOWN BY ARCELOR


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POST ACQUISITION


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TOP STEEL PRODUCER 2007 IN MILLIONSOF METRIC TONNES


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Arcelor Mittal is now the largest steelcompany 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 atLuxembourg city

ARCELORMITTAL THE UNION OFTITANS


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It employs 310,000 employees in

more than 60 countries

Organic growth of 20 million

tonnes

ArcelorMittal key financials for2007 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

ARCELORMITTAL THE UNION OF TITANS


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The deal has been in favor of both the companies.

This can be suggested by thefollowing

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 PROS AND CONS OF THE DEAL


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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.

THE PROS AND CONS OF THE DEAL


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WHY THE AQUISITION WAS SUCCESSFU

Brought iron ore ,technology and marketing expertise

together

Adept at combining businesses

Smoothen out the price fluctuations

Created a much stronger and more sustainable

business

Clear strategy to deliver further growth and value

creation


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Now the Mittal family owns 88% of the worlds 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.

CONCLUSION


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CASE STUDY OF HP-COMPAQ

MERGER - 2001


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The company is better known as Compaq Computer Corporation.

This was company that started itself as a personal computer

company in the year 1982.

The company introduced its first computer in the year 1983 after at

a price of 2995 dollars.

In spite of being portable, the problem with the computer was that it

seemed to be a suitcase.

Nevertheless, there were huge commercial benefits from thecomputer as it sold more than 53,000 units in the first year with a

revenue generation of 111 million dollars.

COMPAQ INTRODUCTION


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Carly Fiorina, who became the CEO of HP in the year 1999, had a key role toplay in the merger that took place in 2001.

Her basic aim was to modernize the culture of operation of HP.

In spite of the growth in the market value of HP's share from 54.43 to 74.48

dollars, the company was still inefficient. This was because it could not meetthe targets due to a failure of both company and industry.

HP was forced to cut down on jobs and also be eluded from the privilege

of having Price Water House Cooper's to take care of its audit.

So, it was decided that the company would be merging with Compaq in a stocktransaction whose net worth was 25 billion dollars.

The idea behind the conversation was to discuss on a licensing

agreement but it continued as a discussion on competitive strategy and finally

a merger.

REASONS FOR THE MERGER


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The new portfolio would be less preferable: HP's prime interest in Imagingand Printing would not exist anymore as a result diluting the interest of the

stockholders. In fact the company owners also feel that there would be a

lower margin and ROI (return on investment).

Strategic Problems would remain Unsolved : The quality is not guaranteed

to improve. Finally, the merger would not equal IBM under any condition asthought by Fiorina.

Huge Integrated Risks: When HP could not manage its organization

properly, integration would only add on to the difficulties.

Financial Impact: This is mostly because the market reactions are negative.the position of Compaq was totally different from HP

THE CONTROVERSY


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In spite of the decision coming from the CEO of HP, the merger was strongly

opposed in the company.

The two CEOs believed that the only way to fight the growing competition

in terms of prices was to have a merger.

But the investors and the other stakeholders thought that the company would

never be able to have the loyalty of the Compaq customers, if products are

sold with an HP logo on it.

Other than this, there were questions on the synchronization of the

organization's members with each other,the change in the organizationculture as well.

THE CONTROVERSY


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Fiorina had put it this way that after the company's merger, not only

would it have a larger share in the market but also the units of

production would

double.

She was of the view that much of the redundancy in the two companies

would decrease as the internal costs on promotion, marketing and

shipping would come down with the merger

She said that the merger is based on the ideologies ofconsolidation

and not on diversification.

She said that the company requires being consistent with creativity,

improvement and modification. This merger had the capability of

providing exactly the same.

ADVANTAGES OF THE MERGER


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The following are the ways in which the company can be

advantageous to its shareholders:

Unique Opportunity

Stronger Company

Compelling EconomicsAbility to Execute

ADVANTAGES TO THE SHAREHOLDERS


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Positive Aspects

Having an eye over shareholders' value

Development of Markets

Propagated Efficiencies

Allowances to use more resources

Management of risks

Listing potential

Necessary political regulations

Better Opportunities

Extra products, services, and facilities:

STRATEGIC ANALYSIS OF THE CASE


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Negative Aspects

Conversations are not implemented

Legal Contemplations

Compatibility problemsFiscal catastrophes

Human Resource Differences

Lack of Determination

Risk management failure

STRATEGIC ANALYSIS OF THE CASE


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Marketing : in the case of shared branding, sales and service. Even the distribution

procedure is likely to be enhanced with Compaq playing its part.

Operations :The foremost advantage in this area is that in the location of raw material.

Even the processing style would be same making the products and services

synchronized with the ideas and also in making a decent operational strategy.

Technology :The technical strategy of the company can also be designed in common

now. With a common product and process technology, the technological strategy of the

merged company would promote highly economical functioning.

Buying : The buying strategy of the company would also follow a common

mechanism.

Infrastructure: The companies would have common shareholders for providing the

requisite infrastructure. The capital source, management style, and legislation would

also be in common. So, the infrastructure strategies would have to take these things into

account.

HP would now have to ensure another fact that with this merger they would be able to

prove competitors to the present target and those of competitors like IBM as well.

STRATEGIC SHARING - CONCLUSION


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ThankThank youyou

Mergers and Acquisitions continue to be amongst the

preferred competitive options available to the companies

seeking to grow and prosper in the rapidlychanging global business scenario.

Documents

Group 5 - Merger & Acquistion_final