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The take over of Arcelor, a European steel company, by Mittal Steel, an Indian MNC, is considered to be one of the most heated take over battles in recent history. The new company Arcelor-Mittal would combine the Number 1 and Number 2 steel producers in the world and would control over 10 percent of global steel output. Lakshmi Mittal in January 2006 launched an unsolicited bid to acquire Arcelor, the Luxembourg high-end steel manufacturer. Arcelor has a French heritage, and its executives were sharply dismissive of the initial offer made by Mittal and even made a vow that the deal would not go through (Moral, Abbott, 2009, p. 2).
The five-month battle turned out to be an extremely bitter one, with even the French media and the French government being dead against the deal.
In addition, there was a huge outcry from the French unions and the left-wing politicians who were stunned to discover the powerlessness of the government over such a major business decision (van de Kuil, 2008, p. 24).
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The hostile takeover also involved poison pill and white knight takeover defense strategies – extreme forms of self defense employed by the company that is in danger of being taken over.
There were bitter recriminations too from Arcelor, undermining Mittal steel. However, in the end pragmatic shareholder interests won out and the merger proceeded when the boards of both the companies agreed to a merger of equals (Bouchentouf, 2006, p. 282-283). This M&A deal is the focus of the present case study, the mechanics of hostile M & A transactions in Europe in the present times, and the reaction of investment bankers to such transactions.
In addition, the change in corporate control in Continental Europe in response to globalize industry economics and associated competitive pressures as well as performance pressure from institutional investors controlling global equity holdings will also be discussed.
The business environment in present times has become extremely competitive as well as complex in the last 20 years. The reasons for this are both due to rapid development in technology as well as the increase focus on globalization. Businesses have to find ways to survive in the business and also grow in terms of size as well as profit.
Businesses, in their need to survive in competitive times, explore various options. There are two major ways to expand a business – by setting up new production facilities or through mergers and acquisitions. One of the main methods that many of the companies worldwide have employed to increase their global reach as well as to increase their market share is through mergers and acquisitions M&As, both in the domestic as well as the international market. Because of the increasing globalization of all the business, mergers and acquisitions have become a fact of life.
Employing mergers and acquisitions as a business strategy is clearly the emerging trend. Cross border mergers and acquisitions too are on a rise and have become a common and important occurrence in the international business scenario. Arcelor was created in 2001 by melding steel companies in Spain, France, and Luxembourg. Most of its 90 plants are based in Europe. In contrast, most of Mittal’s plants are outside of Europe in areas with lower labor costs. The primary reason of Mittal for acquiring Arcelor was to accelerate industry consolidation to reduce industry overcapacity.
The combined firms’ could have more leverage in setting prices and negotiating contracts with major customers such as auto and appliance manufacturers, suppliers such as iron ore and coal vendors, and eventually realize $ 1 billion annually in pretax cost saving (DePamphilis, 2007, p. 126). As soon as Arcelor received the bid, it was immediately rejected. The governments of Luxembourg and Belgium, which both own a slice or Arcelor, expressed doubts about the approach. Although it did not have a stake in Arcelor, the French government joined the country’s media and trade unions in knocking Mittal’s plans.
The range of concerns expressed varied from the number of job losses to the lack of European values by Mittal steel. The acquisition was fiercely contested by Arcelor’s management who favored a tie-up with Severstal, a Russian competitor, to create a firm larger than Mittal. However, Arcelor’s shareholders favored the Mittal offer which, after several weeks of legal maneuvering, was accepted (Haberberg, Rieple, 2008, p. 586). The bid for Arcelor, the second largest competitor, in 2005, was considered to be one of the most audacious bids.
The five-month long takeover of Arcelor by Mittal Steel was one of the most acrimonious in the recent European Union history. After decades in which hostile transactions were rare, the battle between the two steel titans illustrates Europe’s move towards less regulated markets. Hostile takeovers are now increasingly common in Europe. In fact the battle between Arcelor and Mittal is seen by many analysts as a test case as to how far a firm can go in attempting to prevent an unwanted takeover (Barnes, 2008, p. 49). The present study will analyze the various aspects of the Arcelor acquisition by Mittal steel.
The Steel War: Mittal vs Arcelor. (2020, Jun 02). Retrieved from https://studymoose.com/steel-war-mittal-vs-arcelor-1418-new-essay
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