More

    STEEL A DEAL

    What’s the big deal about the steel industry if you ask, then a country’s technological advancement can be predicted from the pattern of its usage of steel within that country because it’s used for the construction of roads, railways, buildings, bridges, and any other major infrastructure you can possibly think about. 

    The story today concerns a six-month battle tracing back to 2006, when the creation of the steel group, Arcelor Mittal took place, by far the largest steel company in the world, combining as it did the two largest companies – Arcelor Steel and Mittal Steel. 

    But will the strategy of being big work, in this case, was the bigger question in hand. Running a low–value-added–product steel mill and hence emphasizing productivity (Arcelor Steel) is not the same job as running a high–value-added–product steel mill and hence emphasizing quality (Mittal Steel). And some opine that this is what made all the difference. Both the steel companies had put forward strategies of consolidation as the means to raise financial returns. And though there was no pressure for this merger from the steel markets, however, there was resistance from the markets for some specific products where the combination would have created a dominant supplier. 

    MERGER PROCESS

    In January 2006, the offer by Mittal Steel valued each Arcelor share at €28.21 and Arcelor Steel at an equity value of €18.6 billion on a fully diluted basis. However, the directors of Arcelor rejected Mittal’s offer regarding it as “150% hostile”, complementing the decision by saying that the companies “do not share the same vision, business model and values”. This insight, in all probabilities, was because of the Arcelor management’s rigid belief that Arcelor itself would have been doing the acquisitions and not the other way around.

    But it wasn’t a deal to let go of. Mittal perhaps wanted to merge because he, as had others in the steel business, had sensed the underlying consolidation phase of the industry and did not want to let go of the position of power he enjoyed as the largest steel manufacturer. After deliberations and negotiations, the deal was finalized when Arcelor accepted a €33.5 bn offer from Mittal. ALMOST 44% MORE than the initial deal!

    WHAT WAS UP FOR BOTH THE COMPANIES?

    The reasoning with size is that size itself is necessary for confronting oligopolistic suppliers of raw materials (i.e., controlling costs) and for addressing concentrated customer bases (i.e., controlling prices), as well as for managing international economic imbalances. Thus, the bigger, the better. (At least, in this case)

    With a unique profile with unprecedented scale, scope, and synergies, the newly formed ARCELOR MITTAL would have a  number 1 position in the global steel industry with a steel-making capacity of 120 million tonnes with leading positions in NAFTA, EU, Central Europe, Africa, and South America. Exceptional raw material resources with a high degree of iron-ore self-sufficiency and reduced volatility through geographic and product diversification would gain them a leading position across a range of key product segments, or speaking of today, has already gained them. 

    AT WHAT TIME DOES BIG EQUAL INEFFICIENT?

    Both companies nominally had the same strategy of size and globalization, so there should be no disagreement, just to see there is! 

    One could characterize the growth of Mittal as the fruit of a long period of privatizations, now largely complete. And the growth of Arcelor was a response to a need to consolidate (largely in Europe) and to find new growth (largely in Latin America) built around a tight product focus. For both strategies, size is a driver, but this does not make them the same strategy. At the same time, the merger was the clash of the religion of things European versus the religion of international capital markets. But as long as the synergies overpower the differences, it’s a win-win situation. 

    ALL’S WELL THAT ENDS WELL

    And rightly said by Lakshmi N. Mittal – the merger was a seminal event in the steel industry that has shaped its future. The combination proved to be a winning combination that represented a transformational change towards realizing a more sustainable and stable industry benefiting all stakeholders.

    Latest articles

    What Joe Biden’s Victory Means for The Economy

    America’s financial future definitely hung in the balance this year. Joe Biden is set to inherit an economy that has seen the absolute worst. We’ve seen record unemployment, businesses declaring bankruptcy, an eviction crisis, not to mention the fact that we’re heading into winter, a time when COVID-19 is expected to increase the death toll manifold, devastate hospital systems nationwide, and potentially lead to more lockdowns.

    The Potential Key to Boost Economy

    The unforeseen and startling emergence of the SARS-CoV-2, also known as the 2019 novel coronavirus, has given birth to COVID-19, one of the most contagious diseases in the history of time. As the virus took a toll on human lives, the economy isn't left undisturbed either.

    Episode 2: Personalized Marketing

    Major companies are incorporating personalization into their marketing campaigns, with Internet-based companies leading the way. When we access any website, we are asked for permission to allow ‘cookies’. Have you ever wondered what they are?

    Compaq : The Bestseller’s Extinction

    Taking birth in the minds of Rod Canion, Jim Harris and Bill Murto, Compaq possessed the crown of the largest purveyors of personal computers before the 1990s with every household’s dream to own one. With the succulent taste of success over their tongues, not a single individual could predict the cataclysmic storm that awaited for the company in the impending years which eventually killed this once glorious company in 2013.
    Previous articleFlipkart and Walmart
    Next articleHMD GLOBAL & NOKIA

    Related articles

    Leave a reply

    Please enter your comment!
    Please enter your name here