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Takeover of Arcelor by Mittal Steel: Analytical Essay

Arcelor Mittal is by far the largest steel company in the world and was created in 2006 after six months of debates and battles, Arcelor defending their side by using its financial advisors, bankers, shareholders even politicians against Mittal Steels’ offer for amalgamation.

Mr. Lakshmi Niwas Mittal was born in 1950 in India, where he studied and started working after he graduated, at a steel mill owned by his father, therefore a few years later he moved to Indonesia to start his own steel business. Through the years he made an empire of acquisitions all around the world, by purchasing small steel companies who were not operating well, which he then financed and managed to the fullest in order to become profitable. In 2005 he created his main company which is called Mittal Steel after combining his large group of companies.

Arcelor S.A. was created in 2002 by the corporate connection between Aceralia, Usinor, and Arbed operating in European countries such as Spain, France, and Luxembourg respectively. Arcelor distributed products in Belgium, Luxembourg, Germany, and Brazil, which made them the largest steel company in the world at that time. In early 2006 they bought a Canadian steel company named Dofasco, which means that they wanted to broaden their operations in the Americas.

ArcelorMittal was finally created in June 2006 after Arcelor S.A. announced that they accepted merging with Mittal Steel, hence both parties won but in different ways. Mittal Steel launched their extremely high bid for Arcelor in January 2006 because they wanted to eliminate their main rival in the steel sector. Arcelor S.A. was producing high quality products to the automotive market, because they used high quality raw materials and services which were costly to the company. On the other hand, Mittal Steel was producing low cost steel because they were using low cost products and services due to the location of their mills. The main reason for Mittal Steel wanting to acquire Arcelor S.A. was that they wanted to enter a higher-level steel market and maybe gain the opportunity to enter other markets that were in European countries, resulting higher market share. By merging, the two companies would become complementary to one another, by different locations, production – distribution costs, various raw materials they would make higher profits and of course, their shareholders would be extremely happy.

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Another reason for Mittal Steel, wanting to merge with Arcelor S.A. was that they wanted to differentiate. By acquiring one of their main rivals probably the biggest, means that they would innovate and improve their products and services, thus gaining more faithful clients and creating long life relationships- agreements with them. Imagine two colossal companies becoming one, what their competitors would believe. They should seem the experts on their field without any doubt, by having a good reputation all over the world and of course increasing their revenues and production. Mittal Steel clearly wanted to distinguish their business from competition by differentiating their strategy, their products, services, relationships, distribution, image, reputation, and prices. In order to achieve this goal, they had to gain access to a higher level in the market by acquiring one of their main competitors. Lakshmi Niwas Mittal invited for dinner Mr. Guy Dolle, Arcelors’ leader, at the beginning of January, even before launching his bid, when he firstly introduced his thoughts about merging, but it seems they had different opinions about this matter. Mr. Dolle said that ‘75% to 80% of mergers fail because of cultural differences’. He also said that ‘Arcelor is not going to share its future with Mittal’, as they do not have the same values, strategic vision or model for development. The difference between the business cultures of both companies would make it very hard to succeed, as Mr. Mittal is Indian and the company is based in Europe where there are different values and norms. Another concern is that their shareholders might lose the right of voting because of the large number of shares released through the merging process. Although Mittal was a colossal steel company, Arcelor’s reputation might change after the merge because of the quality difference of the products produced. Both companies have achieved size in the steel industry but in a different way and growth strategies. Being part of three governments, Arcelor S.A. was protected by all France, Luxembourg, and Spain. However, they would have to think what is best for their people, in respect of employment and opportunities. Last but not least, the culture of the business would change after merging, affecting how people work together, leadership, decision making process, beliefs regarding personal ‘success’, and of course the ability to change. New interfaces will be created in order to connect peoples’ work from both companies, using of course old ways of working from both main businesses. Frustration may be one issue if employees fail to understand how things work in the merged company. Leaders and managers might want to change their way to lead and manage just because they do not like changes, thus this may result in losing many excellent leaders. Regarding decision making processes might change, managers might have to decide more effectively and faster, but merging could reroute this in the opposite direction, or even failing to make or implement decisions. There might be a difference between one organisation believing in individualisation and the other on team working. This could lead to a downturn of things not done,because other might have learned that targets are achieved by working alone and this would help them reach the top through showing their value and their connections with seniors. On the other hand, there are people who have learned to work in teams which mean making it easier on achieving goals and sharing success. Afterall, people in the organisation might lose their belief to accept changes, taking risks, and achieving new goals. They might find it difficult to implement new strategies and work through a new structured company. Both companies won with the agreement of merging, but of course in different ways. It was a win–win situation, as explained both parties were guaranteed to have a favourable outcome regarding size, since the new company was at least three times larger than any other possible rival in the steel market, gaining access to new markets, financial profits and of course, they would become ‘Global Leaders in steel market, not just by ton but by value’.

On one hand, Arcelor S.A. gained access to new raw material markets with lower production costs due to Mittal’s’ previous acquisitions. They were the leaders in America, and had their headquarters based in Luxembourg, so all the decisions were made there. Mittal was paying nearly double for a share than their first bid made in January, thus, their shareholders gained more in the first five months of the bid than in the past two years. They had the control of the board of directors and some family voting rights. Moreover, after all the debates about merging or not, the members of Arcelor S.A. gained research and development skills. Such skills will help the company to introduce and innovate new services and products, which will allow the company to stay ahead of the industry competition.

On the other hand, Mittal Steel gained access to Brazils low cost production, they were the leaders in Western Europe and in high quality steel products. Furthermore, their shareholders were extremely happy as the liquidity of cash and free float were increased. Mr. Lakshmi Mittal became chairman after the retirement of Mr. Joseph Kinsch, his family had the control of 43% of the company. His main achievement with this deal was that he gained access to the control over raw material costs and its pricing and that he gave himself a wider range of steels to sell in a more emerging and developed market.

Arcelor Mittal became the world’s number one steel company, leading positions in five major markets which are North America, South America, Western Europe, Eastern Europe, and Africa. With 61 plants in twenty-seven countries, having numerous international partnerships they now have the opportunity to grow their business in China and India. Of course the new group of Arcelor Mittal will face many challenges that are critical to the success of the merger. The creation of a new culture, empowering their employees, and communicating well with them is very important for the further integration.

However, communication can be very challenging, especially when employees from both parties involved might feel left outside, when their management is left in the dark without being able to give them essential information, in order to understand what is new to them and work efficiently. Thus, lack of communication leads to uncertainty and distrust and employees might not feel engaged to their work, which may result in not working efficiently. Management should have pro-active control and be prepared to face any kind of challenge that may occur, to build transparency and trust which will further lead to a successful merger.

Another major challenge that the new group might face is about cultural change. Different assumptions and beliefs that influence the meaning and attitudes in an organisation are mixed because employees find it hard to replace their old habits and values. Again, management having to communicate well with their employees and get feedback regularly, they will find it easier to discover and analyse the issues and concerns that their employees have, before ending to be a threat to the new organisation. Thus, cultural differences can be detected and eliminated, after the engagement between the employees and the new management. Arcelor Mittal consists of two colossal companies in the steel industries, which were both very large organisations with various acquisitions all over the world. Yes, I would invest in the new group as after merging it became one of the most powerful organisations in the steel industry, eliminating their rivals and enlarging their business in other markets. As a stakeholder, I would invest my money on Arcelor Mittal, as it would help me with the diversification and expansion of my portfolio due to the broader selection of products and services in a merged company. Related diversification is where all the parties of the organisation have something in common, as this helps on sharing activities and transferring skills internally. Thus, the market share and overall revenues would increase.

Moreover, investing in the steel industry where there is a high demand all over the world, and being part of such a successful company as Arcelor Mittal is, would definitely play a major role on gaining a greater financial power due to higher profits, and more influence over customers as a result of decreasing competition.

As Mr. Tony Daltorio said ‘Investors should keep their eyes on Arcelor Mittal, the proverbial canary in the coal mine’, as an investor I would not miss the chance to be part of such a powerful organisation in the steel industry. It looks that Mr. Mittal’s past actions critically affected the steel industry as a whole, and it looks like any future investment movement depends on his intended or upcoming actions.

The clearest example of ArcelorMittal’s culture is the force for positive change, as the bold merger of two of the most powerful players in the steel industry created the worlds’ leading company. It is ranked as number one from its customers for their products and services offered, which makes them the leader in the steel industry. The main values of the company are health and safety, sustainability, quality, and leadership. It is believed that none of the above values can be credibly claimed if the company is not regularly improving and if it is not leading an industry. For a leading company to continue rising, its managers and leaders must always be focussed and open to change, and not letting others to show the way to success but they always have to drive innovation and illustrate to future stakeholders the real value of the company!

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