Arcelor Mittal Deal! An interesting analysis!
The long drama which had continued for the last five months came to halt after Mittal Steel was successfully able to take over Arcelor and thereby creating the biggest merger of all time in Steel Industry. The creation of a 100 Mmt (million metric tons) company was indeed a gigantic step. Mind you this figure is three times the toal production of steel by India and even greater than the steel productions of USA as well as Russia.It's also three times more than what their nearest competetor will be producing. Considering the mega scale of this merger, this deal has crucial implications in the global steel market and in general corporate world as well.
The acquisition process was not only long but a drama which was intensified futher by the tussel between European nationalist interests over free market philosophy and intervention by Russian oligarchs. Mittal's raised bid of 26.8 billion euro (US$33.6 billion) was accepted by Arcelor. This was a U-turn from their previous refusal to yield to 23.3 billion euro offer by Arcelor's chief executive Guy Dollé. Arcelor's chairman Joespeh Kinsch announced the new merger and the new name "Arcelor-Mittal" for the Goliath resulting from the merger. The newly formed board will have six members from each entity and will be jointly headed by Kinsch and Mittal.
The bitter battle before the merger wasn't only due to competetive bids and buisness rivalry but there was an additional dimension to it which added more to the entire confusion. This was economic protectionism active at many European capitals in the face of liberal market competition. In fact overcoming this economic nationalism hurdle was a major challenge for Mittal Steel. Many European countries with Arcelor operations were opposed to the deal considering the monopoly that would result in the steel market. Arcelor has itself resulted from a merger of Spain's Arceralia, France's Usinor and Luxembourg-based Arbed in 2001 and all these firms had strong political liaisons. Hence Arcelor's Dollé recieved strong political backings from politicians in his campaign against Mittal. And in May Arcelor announced plans to merge with Russia's second largest steelmaker, Severstal. The rationale of Mittal's questionable corporate governance given by Arcelor to shareholders however failed to gather the confidence of investors. Furthermore Severstal's proximity to Russian President Vladimir Putin and unlisted assets raised doubts about it's corporate transparency. By the end of June Dollé was on record for refusing merger with Mittal and Arcelor went on to accept Mittal's increased bid, thereby leading to a successful merger after a long frustrating period of confusion.
This merger proved to be crucial in more than single manner. Firstly it was nothing less than a Renaissance for a fragmented steel industry. Steel industry has been notoriously fragmented and mergers like this will spur further integration of this unconsolidated sector. Secondly it demonstrated that the economic nationalism and barricades are no longer major operating forces. Free enterprising sprit has scored over it and this will lead to easing of barricades existing in EU and governments will probably refrain from preventing overseas acquisitions. For Indians as well, this is a good reason for celebrating. Not due to the Indian origin of Mittal, but because of his expansion plans in India. The Indian Steel industry has been in poor state (espacially the govt owned ones) for long and profit margins are terribly narrow. So the Mittal's investment in India is surely a good sign. And the FDI that will accompany will also boost the economy.
Though one can be still apprehensive that whether handful of such deals can bring about a overhauling of steel industry or not, but anyway this surely is a terrific start!
The acquisition process was not only long but a drama which was intensified futher by the tussel between European nationalist interests over free market philosophy and intervention by Russian oligarchs. Mittal's raised bid of 26.8 billion euro (US$33.6 billion) was accepted by Arcelor. This was a U-turn from their previous refusal to yield to 23.3 billion euro offer by Arcelor's chief executive Guy Dollé. Arcelor's chairman Joespeh Kinsch announced the new merger and the new name "Arcelor-Mittal" for the Goliath resulting from the merger. The newly formed board will have six members from each entity and will be jointly headed by Kinsch and Mittal.
The bitter battle before the merger wasn't only due to competetive bids and buisness rivalry but there was an additional dimension to it which added more to the entire confusion. This was economic protectionism active at many European capitals in the face of liberal market competition. In fact overcoming this economic nationalism hurdle was a major challenge for Mittal Steel. Many European countries with Arcelor operations were opposed to the deal considering the monopoly that would result in the steel market. Arcelor has itself resulted from a merger of Spain's Arceralia, France's Usinor and Luxembourg-based Arbed in 2001 and all these firms had strong political liaisons. Hence Arcelor's Dollé recieved strong political backings from politicians in his campaign against Mittal. And in May Arcelor announced plans to merge with Russia's second largest steelmaker, Severstal. The rationale of Mittal's questionable corporate governance given by Arcelor to shareholders however failed to gather the confidence of investors. Furthermore Severstal's proximity to Russian President Vladimir Putin and unlisted assets raised doubts about it's corporate transparency. By the end of June Dollé was on record for refusing merger with Mittal and Arcelor went on to accept Mittal's increased bid, thereby leading to a successful merger after a long frustrating period of confusion.
This merger proved to be crucial in more than single manner. Firstly it was nothing less than a Renaissance for a fragmented steel industry. Steel industry has been notoriously fragmented and mergers like this will spur further integration of this unconsolidated sector. Secondly it demonstrated that the economic nationalism and barricades are no longer major operating forces. Free enterprising sprit has scored over it and this will lead to easing of barricades existing in EU and governments will probably refrain from preventing overseas acquisitions. For Indians as well, this is a good reason for celebrating. Not due to the Indian origin of Mittal, but because of his expansion plans in India. The Indian Steel industry has been in poor state (espacially the govt owned ones) for long and profit margins are terribly narrow. So the Mittal's investment in India is surely a good sign. And the FDI that will accompany will also boost the economy.
Though one can be still apprehensive that whether handful of such deals can bring about a overhauling of steel industry or not, but anyway this surely is a terrific start!
posted by Gaurav (Calvin) at 6:56 PM
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