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.
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.
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)
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.