Corporate Restructuring

Your LogoProf. Pushkal PandeyApril 10, 2023

Headquarters of ArcelorMittal in Luxembourg

Introduction to the Companies

MITTAL STEEL:Was the largest producer of steel in terms of volume. Based in Netherlands. Founded in 1989 as Ispat International in Sumatra, Indonesia.

ARCELOR:Was the second largest producer of steel in terms of turnover and output.Created by the merger of three companies: Aceralia (Spain), Arbed (Luxembourg), Usinor (France)

What is an Acquisition?

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An acquisition is the purchase of one company (the target) by another (the acquirer, or bidder) which leads to transfer of control over a firm from one group of shareholders to another.

Can be done in two ways:1) By Purchasing Voting Rights Stock2) By Purchasing the assets

Types of Acquisitions:1) Friendly2) Hostile

The acquisition of Arcelor by Mittal Steel led to the creation of ArcelorMittal , the largest steelmaker in the world.

The Initial Attempts….

1. The first bid made by Mittal was at a premium of 27%.

2. In late May, Mittal increased this bid by 34%.

3. Finally, the last bid was increased by 14% implicating the purchase of Arcelor’s share at a premium of 93%.

4. The agreement was finalized at the total buy out price of $33.8 billion in cash and stock.

5. The new bid was valued at $50.54 per Arcelor share.

• Laxmi Mittal believed that the acquisition would terminate its biggest competitor dominating the steel industry.

• Acquisition helps in companies improving their sourcing of raw materials; access to more markets, better utilization, and better efficiency.

Why this takeover was planned?

Competition at a Glance….

• The CEO of Arcelor rejected Mittal Steel’s bid as it was considered an Indian company and unworthy of overtaking an European company.

• The French Government was against this deal as it was concerned about the dismissal of about 28000 Arcelor employees.

• The managers and employees of Arcelor were trying to protect their personal interests and control over the company.

Why the resistance for this takeover by Arcelor?

2

Takeover Tactics employed by Mittal Steel

• At first, Mittal attempted a friendly takeover but got rebuffed.

• Then another attempt was made by offering Arcelor a two-tiered cash and stock tender.

• But the main strategy used was increased price for the shares for Arcelor at an attractive and appealing premium of 93% with the approval of EU.

• Initially, Guy Dolle attempted to gain support among local politicians and the press to come out against the proposed takeover by emphasizing potential job losses and disruption to local communities.

• Arcelor also provided its shareholders with an attractive alternative to tendering their shares to Mittal by announcing an $8.75 billion share buy-back at a price well above their then current share price.

• In an attempt to criticize the offer from Mittal Steel, Arcelor released a 13 Billion Euros merger plan with Severstal, a Russian company. This merger would have made the new Severstal-Arcelor entity too big for Mittal Steel to buy.

• On February 16, Arcelor declared a dividend of 1.2 Euros, which was 85% percent higher than the previous dividend in 2004.

Takeover Defenses employed by Arcelor

• The revenue increased from $28 billion to $105 billion.

• Net Operating Income increased from $4.7 billion to $14.8 billion.

• Net Profit increased from $3.36 billion to $10.36 billion.

• Swap ratio was 1 : 1.0833

• Enlarged market share.

• Increase in the share value by 9.9% to $52.99.

Financial Aspects After The Acquisition….

2

ArcelorMittal Today….

• Headquarters: Luxembourg

• World’s leading steel and mining company• CEO: Laxmi Mittal & CFO: Aditya Mittal

• 2,45,000 Employees• Market Cap of $26.64 Billion

• In 2012 alone, produced 88.2 million tonnes of steel and shipped 83.8 millions.• Own steel making facilities in 16 countries.

Comparative Financials….Year SALES GROSS PROFIT NET PROFIT

2007 105,216 20,263 10,3682008 124,936 18,826 9,3992009 65,110 2,197 1182010 78,025 6,941 2,9162011 93,973 8,454 2,2632012 84,213 6,930 -3,367

2007 2008 2009 2010 2011 2012

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SALESLinear (SALES)GROSS PROFITLinear (GROSS PROFIT)NET PROFITLinear (NET PROFIT)

Stock Prices Movement…

A Glimpse of Company’s Operations…

2

QUESTIONS:

Arguments for and against encouraging hostile corporate takeovers

Hostile takeovers may be appropriate whenever target management is not working in the best interests of its shareholders (i.e., so-called agency problems).

However, while such transactions often are concluded in a negotiated settlement, the subsequent enmity raises the cost of integration of culture and the ultimate cost of the takeover.

• Arcelor’s management was acting to protect themselves, the end result was a dazzling 93 percent premium paid by Mittal over Arcelor’s share price when the takeover began.

• It is difficult to argue that the end result was not in the best interests of Arcelor’s shareholders.

Was Arcelor’s management acting to protect their own positions or in the best interests of the shareholders?

• Mittal Steel took a high degree of risk.

• But succeeded in laying off its biggest competitor.

• Despite many obstacles, Laxmi Mittal achieved his vision of becoming the sole giant of the steel industry.

Conclusion…

THANK YOU!