This merger and acquisition transaction is about two large steel companies- one’s headquarter in Luxembourg and the other in the Netherlands. The target is Arcelor S.A, a big European company. And the acquirer is Mittal Steel Company, which was founded by Lakshmi Niwas Mittal. The negotiations began in January 27th 2006 when Mittal officially announced an offer to Arcelor’s shareholders. This was a hostile acquisition which faced many difficulties in respect to politics, and other economic aspects. The deal was reached on June 26th 2006 when Arcelor accepted the offer. Meanwhile the value of the acquisition was €26.5 billion; and the joining of the two big ...view middle of the document...
Its strategy depicts a horizontal method, and is used to achieve economies of scale through purchasing other steel producers. Secondly, it aims at eliminating the main competitors. As explained in exhibit 1-2, its main competitor is Mittal steel in terms of both production scale and revenues. Mittal remains the main player in their field and also, produces high quality steel. The acquisition serves as both a threat and opportunity for Mittal Steel. Lastly, it strives to meet the rising demand of steel throughout various industries due to the economy boom in 2005 and early 2006. In other words, the company which can produce better quality steel can generate more earnings. This unique expansion characteristic of Mittal Steel requires acquiring a big steel producer to meet the high steel demands.
The Arcelor-Mittal Deal Opposition
The magnitude of the acquisition of Arcelor by Mittal is such that numerous parties were concerned. The stakeholders in this deal were not only the management and the shareholders of both companies but also the individual governments of the countries involved, the European Union, labour unions and other companies in the steel industry. In addition, rumours and blames about the Europeans being discriminative against Indians, implied by their strong opposition to an otherwise financially attractive deal, lead to a diplomatic complaint to the European Union filed by the Indian Government. Even though the Mittal headquarters were located in Rotterdam, the company was still considered as an Indian corporation that was about to take over a European company.Despite all the opposition the deal was legally approved by the EU.
As explained earlier in this report, the reasons why the management and shareholders of Mittal steel company were willing to engage in this hostile takeover were straight forward; increasing the company’s influence in the European market and overall world steel market was central to Mittal’s strategy. In parallel, the management of Arcelor was far from reluctant when expressing its opposition to the deal. More specifically, the director, Mr. Guy Dolle, even referred to Mittal’s product as “Eau de cologne” in comparison to the European company’s “Perfume”. In response to the aggressive bid from the steel giant, Arcelor prepared an entire arsenal of defensive mechanisms designed to protect the company from the hostile takeover.
Defense Mechanisms used by Arcelor against the Hostile Takeover
At this point it is important to mention that the structure of Arcelor’s equity made the company extremely vulnerable. Only 4% of the shares at the time of the bid were owned by the management (self-controlled), 5.52% were in the hands of the State of Luxembourg, 3.55% owned by the Spanish government and 3.21% by the Walloon Region. As a result, all 81% were floating freely on the market.
The first escape route in view for Arcelor was the potential implication of the governments of France,...