arcelor mittal merger

Slide 1: 

MERGER OF ARCELOR STEEL AND MITTAL STEEL 12/11/2010 NAGABHUSHAN

Slide 2: 

12/11/2010 NAGABHUSHAN

Slide 3: 

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. It produces long steel products, flat steel products and inox-steel. 12/11/2010 NAGABHUSHAN

Slide 4: 

12/11/2010 NAGABHUSHAN

Slide 5: 

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 12/11/2010 NAGABHUSHAN

Slide 6: 

12/11/2010 NAGABHUSHAN

Slide 7: 

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 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 Headquarters at Luxembourg city 12/11/2010 NAGABHUSHAN

Slide 8: 

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 12/11/2010 NAGABHUSHAN

Slide 9: 

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 12/11/2010 NAGABHUSHAN

Slide 10: 

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 12/11/2010 NAGABHUSHAN

Slide 11: 

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 12/11/2010 NAGABHUSHAN

Slide 12: 

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 12/11/2010 NAGABHUSHAN

Slide 13: 

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 12/11/2010 NAGABHUSHAN

Slide 14: 

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. PORTER’S FIVE FORCE MODEL 12/11/2010 NAGABHUSHAN

Slide 15: 

3) Absolute cost advantage:- Established companies such as ArcelorMittal Steel has absolute cost advantage over new entrants because of its : Superior production 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 12/11/2010 NAGABHUSHAN

Slide 16: 

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. 12/11/2010 NAGABHUSHAN

Slide 17: 

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. 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. 12/11/2010 NAGABHUSHAN

Slide 18: 

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. 12/11/2010 NAGABHUSHAN

Slide 19: 

Legal Complexities Multinational Jurisdiction 2. European Council Directive 3. Anti competition Laws 4. Shareholder resolutions 12/11/2010 NAGABHUSHAN

Slide 20: 

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. Multi-jurisdictional offer 12/11/2010 NAGABHUSHAN

Slide 21: 

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. 12/11/2010 NAGABHUSHAN

Slide 22: 

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 12/11/2010 NAGABHUSHAN

Slide 23: 

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. Anti-Competition issues 12/11/2010 NAGABHUSHAN

Slide 24: 

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. 12/11/2010 NAGABHUSHAN

Slide 25: 

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 12/11/2010 NAGABHUSHAN

Slide 26: 

MALAY MUKHERJEE Member of the Group Management Board ADITYA MITTAL CFO Member of the Group Management Board MICHEL WURTH Member of the Group Management Board GONZALO URQUIJO Member of the Group Management Board JOSEPH KINSCH Member of the Group Management Board LAKSHMI MITTAL CEO & Chairman 12/11/2010 NAGABHUSHAN

Slide 27: 

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 CONCLUSION 12/11/2010 NAGABHUSHAN