Case Study: Mittal Acquires Arcelor in a Battle of Global Titans
1. Identify the takeover tactics employed by Mittal. Explain why each was used.
Answer: Mittal attempted a friendly takeover by initiating behind the scenes negotiations with Guy Dolle, CEO of Arcelor. However, after being rebuffed publicly, Mittal employed a two-tiered cash and stock tender offer to circumvent the Arcelor board. To counter virulent opposition from both Arcelor management and local politicians, Mittal announced that it would condition the second tier of its tender offer on receiving more than one-half of the Arcelor voting stock. However, the second tier offer would be at a slightly lower ...view middle of the document...
Arcelor also provided its shareholders with an attractive alternative to tendering their shares to Mittal by announcing an $8.75 billion share buy-back at a price well above their then current share price. Arcelor also tried to increase the cost of the transaction to Mittal by seeking a change in the local law that would have required that Mittal pay shareholders only in cash. By putting Dofasco in a trust, Arcelor sought to deprive Mittal of a way of defraying the cost of the takeover by preventing Mittal from selling the asset without the permission of the trustees who were all Arecelor appointees. Arcelor also sought to put a large portion of its stock into “friendly hands” by seeking a white knight. To stretch out the process and raise the cost of a takeover to Mittal, Arcelor refused to engage in direct negotiations with Mittal until they delivered a detailed business plan as to what they proposed to do with the combined firms. Arcelor proceeded to ignore the plan when it was submitted.
3. Using the information in this case study, discuss the arguments for and against encouraging hostile corporate takeovers
Answer: 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 inevitably raises the cost of integration and the ultimate cost of the takeover due to the probable boost in the offer price required to close the deal. While this is good for the target shareholders, it works to the detriment of the acquirer’s shareholders.
4. Was Arcelor’s board and management acting to protect their own positions (i.e.,...