Arcelormittal: The Takeover

Introduction

ArcelloMittal is ranked number one in the world when it comes to steel companies. The merger of Arcello and Mittal in 2006 results in ArcelloMittal. The company’s headquarter is the former location of Arcelor which is in southern Luxemberg city.

They produce about 10% of world’s output of steel per year.

What was in this deal for Mittal?

Arcelor was an attractive target for Mittal, having 71% from European market in which Mittal enjoyed only 34%. However, in North America, Mittal dominates with 42% while Arcelor enjoyed 9%. This makes them complementary companies.

The takeover was initiated to present Mittal with large control of steel market, to see its size triples its nearest competitor, and to increase its customer relation bargaining power. The takeover presented Mittal Western Europe, improve the range of product especially in the market of long steel, and also access to R&D and technical know-hows of Arcelor.

The gains for Mittal are as follows:

• Strong capabilities of R&D with leadership in Western Europe’s high end segment.
• Lab manufacturing at low cost in Brazil which can be exported to North America and Europe.
• Increase in liquidity and free float.
• They can successfully distribute to Europe.

What was at stake for Arcelor?

The gains for Arcelor are highlighted as follows:

• Low cost operation in high-growth economies, presence of local expertise in various emerging markets and lucrative assets.
• Strong capabilities of R&D with leadership in North America’s high end segment.
• Access to upstream integration and row materials.
• Potential of low cost slab access in Ukraine that will serve West Europe.

Evaluate the take-over: who won?

In other to evaluate the takeover between the two companies, politically and financially, six-force/four-context framework can be used to analyse the case as shown below:

1. . RESULT
   The merger resulted in the creation of the world’s largest steel company.
   2007 revenue - $105 billion
   Steel production - 10 percent of global output 320,000 employees
   Presence in 60 countries
   A global leader in all of its target markets.
   
2. 8. RESULT
   Though competitors they exhibited little overlap in terms of their operations.
   Arcelor’s attributes proved to be highly complementary with Mittal owning much of its raw materials such as iron ore and coal and Arcelor having extensive distribution and service center operations.
   Unlike many mergers involving direct competitors, a relatively small portion of cost savings would come from eliminating duplicate functions and operations.
   
3. 9. REACTIONS TO THE TAKEOVER
   Directors strongly opposed the takeover, with Arcelor's chief executive at that time, Guy Dollé, even dismissing Mittal as a "company of Indians".
   The French, Luxembourg and Spanish governments strongly opposed the takeover.
   The French opposition was initially very fierce and has been criticized in the British, American and Indian media as double standards and economic nationalism in Europe.
   

Politics

Belgium, France and Luxembourg have intense interest in Arcelor where they are regarded with much importance. Although, there was less vocal response with no obvious reasons. India was

For Arcelor there was intense interest from the countries where the steel industry was important, had been painfully adjusted in the past, and arguably had more adjustment in front of it: France, Belgium and Luxembourg. (Note that Spain was less vocal, for reasons about which one can only speculate.) Despite not being involved, there was an interest from India to see ‘one of theirs’ succeed. No interest at all at government level was expressed by the two other countries closest to Mittal, the UK and the US.

Markets

There was no pressure for this merger from the steel markets. However, both companies had proposed strategies of consolidation as the means to raise returns. There was resistance from the markets for some specific products where the combination would have created a dominant supplier — of structural beams in Europe, and of tin plate in the US. In the latter case this was one reason to dispose of Dofasco, but other Mittal North American facilities could also have been sold. Note that in automotive sheet, the product most discussed in the merger, there was no antitrust action.