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.
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:
- 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. Continue Reading Arcelor Mittal Controversy…