MERGER OF ARCELOR STEEL

AND MITTAL STEEL

Type Subsidiary
Arbed in 1911
Aceralia in 1902
Founded Usinor in 1948
Arcelor on 18 February
2002
Luxembourg City,
Headquarters
Luxembourg
Key people Guy Dolle
Industry Steel
Products Steel
Revenue € 32.611 billion (2005)
Employees 94,000
•Arcelor S.A. was the world's largest steel producer
in terms of turnover and the second largest in
terms of steel output, with a turnover of €30.2
billion and shipments of 45 million metric tons of
steel in 2004.

• Employing 310,000 employees in over 60

countries, it is a major player in all its main
markets: automotive, construction, metal
processing, primary transformation, household
appliances, and packaging, as well as general
industry.

• With total sales of over €30 billion, Arcelor was

the world's largest steel manufacturer in terms of
turnover.

•
Type subsidiary of ArcelorMittal
1976 in Calcutta, India, 1989
Founded as Ispat International in
Sumatra, Indonesia
Headquarters Rotterdam, Netherlands
Lakshmi Mittal, Founder,
Key people
Chairman and CEO
Industry Steel

Steel, Flat Steel products,

Products
Coated Steel, Tubes and Pipes

▲ $28.132 billion USD Year

Revenue
to 31 Dec 2005
Operating income ▲ $4.746 billion (2005)
Net income ▲ $3.365 billion (2005)
Employees 320,000 (2006)
Mittal Steel Company 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
Type Public

Founded 2006
Avenue de la Liberté, Luxembourg,
Headquarters
Luxembourg
Area served Worldwide
Lakshmi Mittal (Chairman of the
Key people board and CEO)
Aditya Mittal (CFO)
Industry Steel
Steel, flat steel products, long steel
Products products, stainless steel, wire
solutions, plates
Revenue US $124.9 billion (2008)
Operating income ▲ US $12.24 billion (2008)
Profit ▲ US $9.399 billion (2008)
Total assets US $133.1 billion (2008)
Total equity US $59.23 billion (2008)
Employees 315,900 (2008)
 ARCELOR MITTAL

 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
Headquarters at
Luxembourg city
 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
 It employs 310,000 employees in more
than 60 countries

 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

 As of May 17 2008, the market

capitalization of ArcelorMittal was
$144.37 billion
 BRAND AND PHILOSOPHY

ArcelorMittal's brand promise is 'transforming tomorrow',

underpinned by a consistent set of values:

•Sustainability

•Quality

•Leadership

 Company’s goal is to provide the leadership that will transform

tomorrow's steel industry
 THE BIG DEAL

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
 THE CONTROVERSY
 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
 MOVES BY ARCELOR TO COUNTER
THE BID
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 prevent the offer from Mittal Steel, Arcelor released a

13 billion Euro merger plan with Severstal, a Russian company
 FINANCIAL ASPECTS
 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

The current swap ratio is 1:1

 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.

High monetary cost of the target company (Arcelor) which is $32.9 billion
 PORTER’S FIVE FORCE MODEL

Entry by potential competitors is enormous:- Entry barrier

plays an important role. In case of steel industry these are the factors
creating very high entry barrier for new
entrants.
1) Huge capital investment:- Huge capital investment is required for
establishing steel manufacturing facility.
2) Economies of scale:- In case of steel industry economies of scale is
achieved at very large scale. Due to its large size ArcelorMittal Steel
enjoys high magnitude of economies of scale. It has ownership on
factories in many countries(by acquisition ) so uses the technology and
knowledge knowhow across the borders. So it becomes very difficult for
new entrants to enter into the market and compete with an already
established large company.
3) Absolute cost advantage:- Established companies such as
ArcelorMittal Steel has absolute cost advantage over new entrants
because of its :

1)Superior production

2)It gave lower cost for input materials as it acquired the iron and
coal mines

3) Going for low labor cost

4) Government Regulation:-Mittal Steel enjoyed very low tax

rate tax for few initial years in few countries
Rivalry among established competitors:-
1)By acquiring large number of Steel Companies Mittal Steel became
large and powerful and gained more control on price.
2) Large number of steel industries are in government hands.
Management of these companies find it difficult to compete with private
players such as Mittal Steel.
3)Since Mittal Steel was ready to acquire the sick government units it
gave an easy exit barrier to these industries and weakened the
competition.
4)Other big players were present in the market. But Mittal Steel
concentrated on its low price strategy(mostly in Asia and Africa) while
many of its competitors competed for higher quality(mostly in Europe)
and better distribution channel.
Buyer Power:
It buyers are appliance (white goods), automotive (passenger
vehicles,trucks, auto components ), building and construction
(including housing and infrastructure),fabrication (sheet steel and
metal fabricating industry), oil and gas(including pipeline), packaging
(tin plate, tin-free and aluminum ), rail transport and marine
shipbuilding industries.
1) Building and construction, fabrication, oil and gas and packaging
industries are fragmented so they have less bargaining power.
2)Although, some of the buyers are large players but in comparison to
large steel industries they are dwarfed in size. Comparatively they
have less bargaining power.
Supplier Power
Since coal and iron mines are large in size and few in number and
controlled by large player, their bargaining power can significantly effect
the steel industry business.
1) Mittal Steel adopted the strategy ,before acquiring any industries, they
first ensured the iron ore and coal supply from mines.
2) Mittal Steel buys a large chunk of supply from its suppliers and retains
the bargaining power to itself.

Threat of Substitute
1) Steel has currently no substitute at its price level.
2) At some places(utensils, white goods) steel can be substituted by natural
fibers and other metals but that is at very small scale.
3) Due to new emerging markets such as China, India, South East Asia
consumption of steel have risen sharply in recent decades.
Legal Complexities
1. Multinational Jurisdiction

2. European Council Directive

3. Anti competition Laws

4. Shareholder resolutions
Multi-jurisdictional offer
• The offer was governed by takeover regulations all the jurisdictions
in which Arcelor’s securities were listed (Belgium, France,
Luxembourg and Spain).

• The offer terms and documents required the approval of the

relevant securities regulators in each jurisdiction.

• Thus, the offer also had to comply with US Securities and Exchange
Commission (SEC) rules and regulations, and the offer document
(share listing prospectus) required the approval of the SEC and the
Dutch securities regulator.
 European Council Directive

Mittal’s offer was made before Directive 2004/25/EC* on takeover

bids (the Takeovers Directive) had been fully implemented in all the
relevant jurisdictions .

* 2004/25/EC

In accordance with Article 44(2)(g) of the Treaty, it is necessary

to coordinate certain safeguards which, for the protection of the
interests of members and others, Member States require of
companies governed by the law of a Member State the securities of
which are admitted to trading on a regulated market in a Member
State, with a view to making such safeguards equivalent throughout
the Community.
•Arcelor was the first Luxembourg-resident target of a hostile
takeover offer and this meant that politicians considering draft
legislation implementing the Takeovers Directive watched the deal
closely.

•As part of its bid defence, Arcelor lobbied for amendments that
would have assisted hostile targets, including provisions that would
have required shares offered in an exchange or partial exchange
offer to satisfy minimum liquidity requirements
Anti-Competition issues
•Competition/anti-trust filings were required in the EU, the US,
Canada and elsewhere

•Mittal’s operations in North America were already extensive and

this led to strategic and competition issues.
White knight defense and
shareholder revolt
 Instead of being structured as a competing bid, the deal was
structured as a contribution of assets by Mr Mordashov in return
for shares in Arcelor. This meant that the consideration shares could
be issued under existing delegations to the Arcelor board of
directors, and without the need to seek approval from Arcelor
shareholders.

 Arcelor shareholders were, however, able to veto the Severstal deal,

provided that holders of more than 50% of Arcelor’s share capital
voted against it at a shareholders’ meeting.
This was a much higher threshold than is usual for shareholder approval
(typically, two-thirds of shareholders present and voting) and, in practice, a
veto seemed unlikely, as attendance at past meetings had never been above
35%.
The arrangements triggered a shareholder revolt, with between 20 to 30% of
Arcelor’s shareholders signing a letter to Arcelor demanding the right to
choose between the Severstal and Mittal proposals.
An intense period of negotiations with Mittal followed, culminating in the
announcement of the agreed memorandum of understanding between
Arcelor and Mittal and the Arcelor board’s recommendation of Mittal’s offer
on 25 June 2006.
On 26 July 2006, Mittal was able to announce that 92% of Arcelor’s shares
had been tendered in response to its offer. It is intended that Mittal will
formally merge into Arcelor later in 2007. On 30 June 2006, Arcelor
shareholders holding about 58% of the outstanding share capital voted
against the proposed Severstal merger at a rescheduled meeting. It is perhaps
in this regard that the practical legacy of the deal in Europe will be most
notable
 LAKSHMI MITTAL
CEO & Chairman
ADITYA MITTAL JOSEPH
CFO KINSCH
Member of the Group Member of the
Management Board Group
Management
Board

GONZALO
MICHEL WURTH URQUIJO
Member of the Group Member of the
Group Management
Management Board
Board
MALAY MUKHERJEE
Member of the Group
Management Board
 CONCLUSION

The business strategy that has made ArcelorMittal Steel the

world's largest steel maker is a commitment to consolidation and
globalization and a willingness to take risks that scare off
competitors. As the steel industry overall struggled in the present
decade, Mittal Steel, grappling with financial problems of its own,
continued to expand. And as competitors insisted that steel should
remain a regional business, Mittal Steel pursued its vision of
becoming a global giant