Arcelor Mittal Controversy

November 23, 2006 at 9:24 am | Posted in Business, Indian Business | 41 Comments

ARCELOR- MITTAL CONTROVERSY               120px-arcelor_logo.gif100px-mittalsteel.gif

One of the most controversial business deals ever- the acquisition of Arcelor Steel by Mittal Steel led to the creation of Arcelor-Mittal, the largest steel maker in the world.

1. Background (before the deal)

Mittal Steel– the largest producer of steel in terms of volume. Despite the fact that Mittal steel is based in Netherlands, it is perceived that the company is non-European because its CEO Lakshmi Mittal is Indian.
Arcelor– Headquartered in Luxembourg, the merger of three steel companies- Aceralia, Arbed and Usinor led to the creation of Arcelor. In 2005, Arcelor had revenues of 32 billion Euros.

steel.JPG

2. The original bid

In January 2006, Mittal Steel launched a $22.7 billion offer to Arcelor’s shareholders. The deal was split between Mittal Shares (75 percent) and cash (25 percent). Under the offer, Arcelor shareholders would have received 4 Mittal Steel shares and 35 euros for every 5 Arcelor shares they held. (Ultimately the power to buy or sell the shares rests with the shareholder and the company management can at best advice its shareholders whether to accept or reject the bid)

3. Consolidation in the steel industry- inevitable:

steel-chart.gif

  • The steel industry is highly fragmented, the top 5 manufacturers in the steel industry account for less than 25 percent of the market (to put that in perspective, the corresponding figure for the automotive industry is 73 percent). LN Mittal believes that the consolidation will end with three of four major companies dominating the industry around 2010.
  • Bigger steel manufacturers have better bargaining powers against customers (such as as auto manufacturers) and against suppliers (iron ore).
  • Consolidation helps in comapnies improving their sourcing of raw materials; access to more markets, better utilization, more flexibility in production scheduling and better efficiency.

4. The Controversy

Arcelor Management: The management believed that Arcelor itself would have been doing the acquisitions and not the other way around. The management was extremely hostile to Mittal Steel’s bid from the beginning. Arcelor repeatedly played the patriotic card in order for shareholders to reject the bid. The CEO of Arcelor dismissed Mittal Steel as a “company of Indians” and unworthy of taking over a European company. (all this despite the fact that most industry analysts and investment banks pointing out that the deal was in Arcelor‘s best interests)

European Governments:

The French government (despite not being a shareholder) was against the deal because of worries over its 28000 Arcelor employees. Despite repeated assurances from Mittal that the deal would not lead to layoffs the government of France was never convinced. The government of Luxembourg (a stakeholder) was against the deal as well for a variety of reasons. The European Union approved of the Mittal-Arcelor deal.

5. Moves by Arcelor to counter the bid by Mittal:

Declaration of Dividend: On February 16, Arcelor declared a dividend of 1.2 Euros, which was 85 percent higher than the previous dividend in 2004. This was seen as an attempt by the company to convince shareholders that the situation under the current management was extremely positive. Many analysts accused the company of “creative” accounting.

The Russian Angle: In an attempt to thwart the offer from Mittal Steel, Arcelor released a 13 billion Euro merger plan with Severstal, a Russian company. This merger would have made the new Severstal-Arcelor entity too big for Mittal Steel to buy. Despite the merger plan being fraught with loopholes, the Arcelor management tried to convince shareholders that this was the best deal for them. The shareholders however rejected the merger with not one shareholder voting in favour of the merger.

6. Role of Guy Dolle (then CEO of Arcelor)

Mr. Dolle’s reaction to the Mittal bid led to widespread criticism of his actions. Analysts believe that Guy Dolle had issues with the personality of LN Mittal.

As the controversy panned out, Dolle raised several issues including the management of Mittal (Aditya Mittal, son of LN Mittal is on the board). Dolle also raised a number of issues about the safety record of Mittal and also repeatedly pointed out that Arcelor was absolute key to Europe’s economic health.

Guy Dolle is not a part of the new Arcelor-Mittal organization.

7)The stance of the Indian Government

  • Most Indians were of the opinion that the deal was not getting pushed through because of Lakshmi Mittal’s nationality.
  • The Indian government raised the issue at several forums especially through commerce minister Kamal Nath. It was also alleged that India had threatened not to ratify a taxation accord with Luxembourg due to the latter’s opposition to the deal.
  • The irony is that LN Mittal himself felt that there was no case of “racism” here as Mittal Steel was a European company and NOT an Indian one.

8. End Result

The deal was finally clinched when the shareholders of Arcelor agreed to Mittal Steel’s offer ending the transaction that had dragged on for months.

Mittal had to however considerably sweeten the initial offer. Under severe pressure to counteract the Arcelor- Severstal merger, Mittal had to raise 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. The consolidation phase is well and truly underway .

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41 Comments »

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  1. The shareholders however rejected the merger with not one shareholder voting in favour of the merger.

    the shareholders rejected the severstal deal on recomendation of arcelor management after the arcelor management finally agreed on the merger with mittal.

  2. I was wondering were you got the production figure for Baosteel that is used in the above bar graph.

    It would be much appreciated if you could email me the source of that info.

    Thank You.

  3. Its a move towards east as india china will consume more steel than whole EU. Tatas have also made inroads to europe oligarchy. Time for reverse colonisation.Arcelor chairman is racist for indaians

  4. Hello. I was wondering whether anyone could comment on the value of the investment banks brought to the two companies and their advisory effectiveness?

  5. can any one make me understand, what are the cercumstances which lead to the merger, by describing the balance sheet status of both the companies, and various aspects of benifits which both the company will harvest? i am a science graduate but have deep interest in management so please help me understanding the subject.

  6. Can any one make me understand, what are the cercumstances which lead to the merger, by describing the balance sheet status of both the companies, and various aspects of benifits which both the company will harvest? i am a science graduate but have deep interest in management so please help me understanding the subject.please mail me all the information if possible…..

  7. fuck off arcelor

  8. This deal is One of the most controversial business deals ever. The acquisition between Arcelor Steel and in Mittal Steel led to the creation of Arcelor-Mittal, the largest steel maker in the world, but in the other hand we indians are very happy that a indian takeover the worlds largest steel making company. My question is what Mr Mittal is going to give this country. Then why we are happy this is so funny.

  9. can any one help me by giving links of concerned topic as i m intrested in taking this one for my dessertation.
    it would be much appreciated and i will be very obliged

  10. I am writing a thesis about arcelor mittal. But I couldnt find any charts of the organisation structure of the combined companies…does any one have have clue where I could get it?
    There is not even a homepage of “arcelor-mittal”, but either “arcelor” or “Mittal”…
    Thank you in advance
    (please mail to edoman2006@web.de)

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  12. Nice blog!

  13. can i get a detailed account of the clearance of the merger from the European Union. i would like to see the problem from the competition poicy point of view. so i am specifically interested to know if there were any cross-border antitrust issues involved/

  14. go 2 hell arcelor

    fuck off

  15. my question is:- what are the political aspects of mittal steel OR arcelor mittal?

  16. I appreciate the amount of information that is published here. I would also like to know about the complete political angle of this deal, what I mean to say is how & why did Mr.Tony Blair get into the picture, were there any other political leaders of other countries brokering this deal?

  17. Hail!

    What do you think about love? >:)

  18. SIR THE INFORMATION WHICH WAS SET UP ON YOUR WEBSITE IS SUFFICIENT FOR MY PROJECT WORK BUT STILL I REQUEST PLEASE UPDATE ALL THOSE INFORMATIONS VERY QUICKLY.
    THANKS

  19. Hi i just wondering about your company, Can you please tell me what is intend strategy for you acquisition. In what based you followed it….

  20. mittal shall soon be charged and jailed for defrauding the trinidad and tobago government, for violating the sale agreement of that country’s steel complex.(to be cont’d)

  21. Yes Mr.Rao are you not suppose to be a right hand man for Mr MITTAL and his so called company????But never tne less can you pls shed some more light on the part where you mentioned,”mittal shall soon be charged and jailed for defrauding the trinidad and tobago government”
    Thanking you in advance Mr Rau…

  22. The sale agreement between the gov’t of trinidad and tobago and mittal’s then company CIL included that 40% of the company’s shares be placed on the local stock exchange.From 1994 to now, this is yet to be done.Futhermore,one of the requirements of the deal was to pay annual production bonuses to the employees with which they could purchase 10%(of the 40%)of the shares at a preferential rate.These bonuses and associated preferential shares alone are worth millions of USD dollars,not to mention the other 30% of the shares.Many deadlines for the amicable settlement of this matter has come and gone.Civil litigation is now the only option.

  23. OH BY THE WAY ,I EXPECT TO BE FIRED BY MR. MITTAL AS SOON AS SOMEONE INFORMS HIM OF MY COMMENTS.BUT DON’T WORRY ABOUT ME, I HAVE MY GOOD FRIEND PATRICK MANNING THE PRIME MINISTER OF TRINIDAD AND TOBAGO TO TAKE CARE OF ME.

  24. Hey do u think that arcelor mittal deal was a friendly onE Despite of so many controversies…??

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  28. Somehow i missed the point. Probably lost in translation 🙂 Anyway … nice blog to visit.

    cheers, Moderately.

  29. To..Mr Aditya Mittal
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  30. Respected Sir, I am Ashok Mondal, i living at india ( Kolkata ) I want to give me chance for your organisation.

    Thanks & Regard.
    Ashok Mondal.

  31. sir,

    i am student form India (Bihar) . i am in London now to complite my HND MECHANICAL ENGINEERING .
    sir, i request you to give chance to work in your organisation . i am working very hard here to achieve excellent position in Mechanical engineering .
    i am poor student and my father devoted every part of his life to make me engineer . sir will you give me chance to work .
    i will be thankful to you if you appreciate me in this matter

    Regard ,
    Mukesh kumar

  32. to whom this concerns if around the wrld all of this is taking place and in trinidad and tobago the government and mr mittal and his executive shave signe da contact 4 d workers2 b able 2 have 40 % of the shares an the honourable mr patrick manning doe snt see it fit 2 ensure dat this is done and the minister of finance has already met wit the ceo of the steel workers unioin and promised after how many years. I also understand dat they were offerd 12% that is a slap in the face compared to how much these workers are owed , i wonder is ist not possible dat mr manning an his government have been bribe djust as prime mininster Tony Blair was when mer mittal was confronted on paying their workers there full salary who ever this gets to u know i am tellin the god honest truth and there is alot more facts where this came from!

  33. Dear Sir,
    I’m a business man invloved in many sectors.I have good connexion in Africa.I really want to do business with the boss of Arcelor Mittal.
    Please can you give this opportunity?
    Awaiting your valuable reply.
    Best regards.
    Ousmane Sow Cotonou R.of Benin

  34. good site!

  35. I’m interested in a follow up in how the new company is now doing after the merger. I believe it is inevitable that there will be many clashes between the executives of each firm. The differences in culture combined with the difference between the interests of stakeholders in both regions is a huge obstacle to overcome.

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