Business Concept of M&A

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Wubben in his book gives explained the concept of M&A as given by COPELAND and WESTON as “traditional subject of M&A has been expanded to include takeovers and related terms of corporate restructuring, corporate control, and changes in ownership structure of times” (Wubben, 2007, p. 5). Halibozek and Kovacich in their book give the definition of merger as given in the Black’s law dictionary as “the union of two or more corporations by the transfer of property at all, to one of them, which continues in existence, at others being swallowed up or , merged therein” (2005, p.

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3).

That is to say a merger is a generic term employed for a full and final coming together of two previously separate corporations or commercial interests. Mergers are generally conducted between equal partners and are something akin to a business combination. Sherman and Hart define acquisition in their book as “the purchase of an asset such as a plant, a division, or even an entire company” (2006, p.

11). Halibozek and Kovacich in their book give the definition of acquisition as given in the Black’s law dictionary as “the act of becoming an owner or a certain property” (2005, p. 3).

That is to say an acquisition is an addition to an established entity or group. Acquisitions are generally conducted between unequal partners, as here one of the party buys subsumes another party and the target company is integrated into the corporate group of the acquirer. Mittal, during an informal discussion with arcelor CEO Guy Dolle had enquired about the possibility of a merger between two companies, but two days later offered to acquire the company through a hostile bid.

Mergers and acquisitions have various expressions that are interchangeably used in different countries.

Some common terms used for expressing the M&A activities are “takeover, transaction, consolidation, concentration, fusion, amalgamation, business combination, tender and sell-off” (Wubben, 2007, p. 5). Needless to say the different terms are used in different contexts, and are based on the reasons why a particular merger or acquisition takes place. Hence, the M&As can be divided used various criteria which are shown in detail in the Figure – 1 below. As can be seen from the figure above, M&A activities are divided into horizontal, vertical and conglomerate types.

The deal between Arcelor and Mittal is a horizontal type of merger. This is because both the companies are operating and competing in the same kind of business activity i. e. both are steel trading companies. The deal was considered to be a merger of equals, however, the attitude of the merger had been extremely hostile. The deal was through a combination of cash and security and the financing too was based on loans as well as bringing in the Mittal’s equity. The merger was public in nature which resulted in various poison pill and white knight strategies.

Finally, the merger had been a cross-border acquisition which was one of the biggest deterring factors towards the success of the merger. Mergers and Acquisitions make the acquiring company bigger than it used to be, but not necessarily richer or better managed. Yet, M&As have merits, provided the proper homework preceded them. KPMG’s report of 1999 titled Unlocking Shareholder Value: The Keys to success in M&A, identified selecting the management team, resolving cultural issues and integration project planning as three of the six critical keys to successful mergers and acquisitions.

The results of the study also pointed out that the management of the integrations stage of the M&A is the key to achieving post-acquisition success. KPMG’s study also pointed out that 26% of the mergers and acquisitions are more likely to be successful if the acquiring company and its management teams focus on identifying the cultural issues. The details of the study are shown in detail in the Figure- 2 below. Frits Grotenhuis in the year 2001, stated that the impact of the cultural differences in mergers and acquisitions are significant but they are not insurmountable and can be managed (Rodenberg, 2008, p. 53).

The rigid attitude of Guy Dolle was hence uncalled for and also extremely short sighted since he failed to viewed the changing dynamics of the steel industry. In fact he was also late in even taking the cue from the market response towards the Mittals’s bid, which led to a a lot of consusions as well as bad blood between the Arcelor management and its shareholders. The Mittal’s bid for Arcelor, though audacious was extremely well planned which is one of the major reasons for its success, which can be seen from its side clause of reversing the takeover of Dofasco in order to avoid American antitrust issues.