ASSIGNMENT ON ACQUISITION OF ARCELOR BY MITTAL CORPORATE RESTRUCTURING

SUBMITTED TO: PROF. ANURAG SINGH

SUBMITTED BY: MOHIT GUPTA PGSF1242 PGDM(SM): 2012-2014

INTRODUCTION TO THE COMPANIES MITTALSTEEL: Was the largest producer of steel in terms of volume Based in Netherlands. Founded in 1989 as Ispat International in Sumatra, Indonesia. ARCELOR: Was the second largest producer of steel in terms of turnover and output Created by the merger of three companies: Aceralia (Spain), Arbed (Luxembourg), Usinor (France)

WHAT IS AN ACQUISITION? An acquisition is the purchase of one company (the target) by another (the acquirer, or bidder) which leads to transfer of control over a firm from one group of shareholders to another. Can be done in two ways: 1) By Purchasing Voting Rights Stock 2) By Purchasing the assets Types of Acquisitions: 1) Friendly 2) Hostile The acquisition of Arcelor by Mittal Steel led to the creation of ArcelorMittal, the largest steelmaker in the world. THE INITIAL ATTEMPTS 1. The first bid made by Mittal was at a premium of 27%. 2. In late May, Mittal increased this bid by 34%. 3. Finally, the last bid was increased by 14% implicating the purchase of Arcelors share at a premium of 93%. 4. The agreement was finalized at the total buy out price of $33.8 billion in cash and stock. 5. The new bid was valued at $50.54 per Arcelor share.
3

WHY THIS TAKEOVER WAS PLANNED? Laxmi Mittal believed that the acquisition would terminate its biggest competitor dominating the steel industry. Acquisition helps in companies improving their sourcing of raw materials; access to more markets, better utilization, and better efficiency.

Competition at a Glance

WHY THE RESISTANCE FOR THIS TAKEOVER BY ARCELOR? The CEO of Arcelor rejected Mittal Steels bid as it was considered an Indian company and unworthy of overtaking a European company. The French Government was against this deal as it was concerned about the dismissal of about 28000 Arcelor employees. The managers and employees of Arcelor were trying to protect their personal interests and control over the company.

TAKEOVER TACTICS EMPLOYED BY MITTAL STEEL

At first, Mittal attempted a friendly takeover but got rebuffed. Then another attempt was made by offering Arcelor a two-tiered cash and stock tender. But the main strategy used was increased price for the shares for Arcelor at an attractive and appealing premium of 93% with the approval of EU.

TAKEOVER DEFENSES EMPLOYED BY ARCELOR Initially, Guy Dolle attempted to gain support among local politicians and the press to come out against the proposed takeover by emphasizing potential job losses and disruption to local communities. Arcelor also provided its shareholders with an attractive alternative to tendering their shares to Mittal by announcing an $8.75 billion share buyback at a price well above their then current share price. In an attempt to criticize the offer from Mittal Steel, Arcelor released a 13 Billion Euros merger plan with Severstal, a Russian company. This merger would have made the new Severstal-Arcelor entity too big for Mittal Steel to buy. On February 16, Arcelor declared a dividend of 1.2 Euros, which was 85% percent higher than the previous dividend in 2004.

FINANCIAL ASPECTS AFTER THE ACQUISITION The revenue increased from $28 billion to $105 billion. Net Operating Income increased from $4.7 billion to $14.8 billion. Net Profit increased from $3.36 billion to $10.36 billion. Swap ratio was 1 : 1.0833 Enlarged market share. Increase in the share value by 9.9% to $52.99.

ARCELORMITTAL TODAY Headquarters: Luxembourg Worlds leading steel and mining company CEO: Laxmi Mittal & CFO: Aditya Mittal 2,45,000 Employees Market Cap of $26.64 Billion In 2012 alone, produced 88.2 million tonnes of steel and shipped 83.8 millions. Own steel making facilities in 16 countries. STOCK PRICES MOVEMENT

QUESTIONS: Arguments for and against encouraging hostile corporate takeovers Hostile takeovers may be appropriate whenever target management is not working in the best interests of its shareholders (i.e., so-called agency problems). However, while such transactions often are concluded in a negotiated settlement, the subsequent enmity raises the cost of integration of culture and the ultimate cost of the takeover. Was Arcelors management acting to protect their own positions or in the best interests of the shareholders? Arcelors management was acting to protect itself, the end result was a dazzling 93 percent premium paid by Mittal over Arcelors share price when the takeover began. It is difficult to argue that the end result was not in the best interests of Arcelors shareholders.

CONCLUSION Mittal Steel took a high degree of risk. But succeeded in acquiring of its biggest competitor. Despite many obstacles, Laxmi Mittal achieved his vision of becoming the sole giant of the steel industry.