Merger Of Mittal And Arcelor l4se

Contents EXECUTIVE SUMMARY .......................................................................................................................... 2 INTRODUCTION TO THE MERGER AND ACQUISITION ................................................................... 4 Trends in global steel industry .................................................................................................................... 10 BACKGROUND OF MITTAL STEEL ..................................................................................................... 11 ABOUT ARCELOR-MITTAL ................................................................................................................... 13 Introduction ................................................................................................................................................. 15 The Rational Behind the Merger ................................................................................................................. 16 SYNERGIES CLAIMED ........................................................................................................................... 18 The Bid ....................................................................................................................................................... 24 Reactions to The Bid................................................................................................................................... 26 Arcelor’s defense ........................................................................................................................................ 29 How Mittal Swung the Arcelor Deal: The Arrangement for Aces ............................................................ 31 IMPACT OF THE TAKEOVER ................................................................................................................ 32 SUBSEQUENT PERFORMANCE ............................................................................................................ 33 Did The Deal Create Value? ....................................................................................................................... 36 Conclusion .................................................................................................................................................. 37 Bibliography ............................................................................................................................................... 40

EXECUTIVE SUMMARY

Arcelor-Mittal steel merger has been one of the most fascinating story of corporate merger that redefined the nature of global steel business. The newspapers were replete with the development of events that led to the merger and its implications for people across continents. Even today in India a book or a simple talk on corporate merger and acquisition would not be complete without the mention of this intriguing corporate takeover. It has been considered as the most talked about corporate merger in India that attracted popular interest. On August 1, 2006, Mittal Steel gained 91.9% of the offer capital of Arcelor (on a completely weakened premise). Through resulting exchanges Mittal Steel expanded its possession to 94.2%, which incorporated the issued and extraordinary shares of Arcelor and the greater part of Arcelor's convertible securities, which were procured in return for roughly 680 million Mittal Steel class A typical shares and around €8.0 billion ($10.4 billion) in real money. On August 1, 2006, Arcelor turned into an auxiliary of Mittal Steel and its consequences of operations were incorporated into Mittal Steel's united aftereffects of operations from that date. The obtaining was represented utilizing the buy technique for bookkeeping, which requires that the benefits gained and liabilities expected be recorded at their assessed reasonable qualities at the date of securing In a Memorandum of Understanding entered into among Mittal Steel, Arcelor and the Significant shareholder on June 25, 2006, (the “Memorandum of Understanding” or “MoU”), Mittal Steel agreed that it would merge into Arcelor as soon as practicable following completion of its revised offer for Arcelor, and that the combined entity would be incorporated, domiciled and headquartered in Luxembourg. Following discussions at a meeting held on April 27, 2007,

the Mittal Steel Board of Directors decided to organize a two-step process pursuant to which Mittal Steel would first be merged into ArcelorMittal, which would subsequently be merged into Arcelor as the ultimate surviving entity. ArcelorMittal was incorporated on August 13, 2004 under the name Verger Investments S.A. It was a wholly-owned subsidiary of Mittal Steel from April 24, 2007 and was renamed “ArcelorMittal” on April 26, 2007. It did not conduct any operations prior to the merger summarized below. Effective September 3, 2007, Mittal Steel merged into ArcelorMittal, by way of absorption by ArcelorMittal of Mittal Steel and without liquidation of Mittal Steel, and the combined company was renamed “ArcelorMittal”.

INTRODUCTION TO THE MERGER AND ACQUISITION Mergers, acquisitions and takeovers have been a business' piece world for a considerable length of time. In today's dynamic financial environment, organizations are regularly confronted with choices concerning these activities - all things considered, the employment of istration is to amplify shareholder esteem. Through mergers and acquisitions, an organization can (from a certain perspective) build up an upper hand and eventually expand shareholder esteem.

There are a few ways that two or more organizations can consolidate their endeavors. They can accomplice on an undertaking, commonly consent to unite and union, or one organization can inside and out get another organization, assuming control over every one of its operations, including its property and obligation, and here and there supplanting istration with their own particular agents. It's this last instance of emotional threatening takeovers that is the wellspring of a lot of M&A's brilliant vocabulary.

DEFINITION of 'Takeover'

When an acquiring company makes a bid for a target company. If the takeover goes through, the acquiring company becomes responsible for all of the target company’s operations, holdings and debt. When the target is a publicly traded company, the acquiring company will make an offer for all of the target’s outstanding shares.

A welcome takeover generally goes smoothly because both companies consider it a positive situation. In contrast, an unwelcome or hostile takeover can be quite unpleasant. The acquiring firm can use unfavorable tactics such as a dawn raid (where it buys a substantial stake in the

target company as soon as the markets open, causing the target to lose control of the company before it realizes what is happening). The target firm’s management and board of directors may strongly resist takeover attempts through tactics such as a poison pill, which lets the target’s shareholders purchase more shares at a discount in order to dilute the acquirer’s holdings and make a takeover more expensive.

A takeover is essentially the same as an obtaining, with the exception of that "takeover" has a negative intention, showing the objective does not wish to be acquired. Why might one organization need to purchase another organization against that organization's will? The bidder may be trying to build its piece of the overall industry or to accomplish economies of scale that will assist it with lessening its expenses and in this manner expand its benefits. Organizations that make alluring takeover targets incorporate those that have an exceptional specialty in a specific item or istration, little organizations with feasible items or istrations however deficient financing, a comparative organization in close geographic nearness where consolidating strengths could enhance proficiency and generally reasonable organizations that are paying a lot for obligation that could be renegotiated at a lower expense if a bigger organization with better credit assumed control.

Hostile Takeover

This is an unfriendly takeover attempt by a company or raider that is strongly resisted by the management and the board of directors of the target firm. These types of takeovers are usually bad news, affecting employee morale at the targeted firm, which can quickly turn to animosity against the acquiring firm. Grumblings like, "Did you hear they are axing a few dozen people in

our finance department…" can be heard by the water cooler. While there are examples of hostile takeovers working, they are generally tougher to pull off than a friendly merger.

Dawn Raid

This is a corporate action more common in the United Kingdom; however it has also occurred in the Unites States. During a dawn raid, a firm or investor aims to buy a substantial holding in the takeover-target company's equity by instructing brokers to buy the shares as soon as the stock markets open. By getting the brokers to conduct the buying of shares in the target company (the "victim"), the acquirer (the "predator") masks its identity and thus its intent.

The acquirer then builds up a substantial stake in its target at the current stock market price. Because this is done early in the morning, the target firm usually doesn't get informed about the purchases until it is too late, and the acquirer now has controlling interest. In the U.K., there are now restrictions on this practice.

Saturday Night Special

A Saturday night special is a sudden attempt by one company to take over another by making a public tender offer. The name comes from the fact that these maneuvers used to be done over the weekends. This too has been restricted by the Williams Act in the U.S., whereby acquisitions of 5% or more of equity must be disclosed to the Securities Exchange Commission.

Takeovers are announced practically everyday, but announcing them doesn't necessarily mean everything will go ahead as planned. In many cases the target company does not want to be taken over. What does this mean for investors? Everything! There are many strategies that management can use during M&A activity, and almost all of these strategies are aimed at affecting the value of the target's stock in some way. Let's take a look at some more popular ways that companies can protect themselves from a predator. These are all types of what is referred to as "shark repellent".

Golden Parachute

A golden parachute measure discourages an unwanted takeover by offering lucrative benefits to the current top executives, who may lose their job if their company is taken over by another firm. Benefits written into the executives' contracts include items such as stock options, bonuses, liberal severance pay and so on. Golden parachutes can be worth millions of dollars and can cost the acquiring firm a lot of money and therefore act as a strong deterrent to proceeding with their takeover bid.

Greenmail A spin-off of the term "blackmail", greenmail occurs when a large block of stock is held by an unfriendly company or raider, who then forces the target company to repurchase the stock at a substantial to destroy any takeover attempt. This is also known as a "bon voyage bonus" or a "goodbye kiss".

Macaroni Defense

This is a tactic by which the target company issues a large number of bonds that come with the guarantee that they will be redeemed at a higher price if the company is taken over. Why is it called macaroni defense? Because if a company is in danger, the redemption price of the bonds expands, kind of like macaroni in a pot! This is a highly useful tactic, but the target company must be careful it doesn't issue so much debt that it cannot make the interest payments.

Takeover-target companies can also use leveraged recapitalization to make themselves less attractive to the bidding firm.

People Pill

Here, management threatens that in the event of a takeover, the management team will resign at the same time en masse. This is especially useful if they are a good management team; losing them could seriously harm the company and make the bidder think twice. On the other hand, hostile takeovers often result in the management being fired anyway, so the effectiveness of a people pill defense really depends on the situation.

Poison Pill

With this strategy, the target company aims at making its own stock less attractive to the acquirer. There are two types of poison pills. The 'flip-in' poison pill allows existing shareholders (except the bidding company) to buy more shares at a discount. This type of poison pill is usually

written into the company's shareholder-rights plan. The goal of the flip-in poison pill is to dilute the shares held by the bidder and make the takeover bid more difficult and expensive.

The 'flip-over' poison pill allows stockholders to buy the acquirer's shares at a discounted price in the event of a merger. If investors fail to take part in the poison pill by purchasing stock at the discounted price, the outstanding shares will not be diluted enough to ward off a takeover.

An extreme version of the poison pill is the "suicide pill" whereby the takeover-target company may take action that may lead to its ultimate destruction.

Sandbag With the sandbag tactic the target company stalls with the hope that another, more favorable company (like "a white knight") will make a takeover attempt. If management sandbags too long, however, they may be getting distracted from their responsibilities of running the company.

White Knight

A white knight is a company (the "good guy") that gallops in to make a friendly takeover offer to a target company that is facing a hostile takeover from another party (a "black knight"). The white knight offers the target firm a way out with a friendly takeover.

BENEFITS OF THE MERGER AND AQUSATION 

Gain market share

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Economies of scale

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Enter new markets

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Acquire technology

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Utilization of surplus fund

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Managerial Effectiveness

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Strategic Objective

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Vertical integration

Trends in global steel industry o Consumption of steel increased after 1950 and trend was continued till 1970 o Consumption of steel started decline from 70s to 80s o After 80s, demand for steel increased continually o International Iron and Steel Institute (IISI) forecasted increment in demand for steel from 1.32 billion tones (in 2010)to 1.62 billion tones(in 2015) o This demand will increase due to countries like India and china o To capture this demand, biggest steel producer of India (TATA Steel ltd.) has been increased its production base by acquiring 4th largest steel producer of world(Corus steel)

BACKGROUND OF MITTAL STEEL Mr. Lakshmi Mittal founded Mittal Steel in 1976 in India. After a few years, Mr. Mittal found that it would take him long to grow to a significant size and wanted a way to grow fast. He found that there were various steel companies around the world, which had been performing badly, due to cyclical nature of the industry and poor management of the companies. He started acquiring these companies and turning them around through better management and economies of scale. In 2005, when Mittal Steel acquired the American steel company, ISG, it overtook Arcelor as the world’s largest steel maker, in of output. Towards the end of 2005, it made up its mind to acquire Arcelor, the second largest steel producer by output and the largest by turnover. Mittal Steel was headquartered in Netherlands. Arcelor was created in 2002 through merger of three major European steel companies, Arbed (Luxembourg), Aceralia (Spain) and Usinor (). The idea was to leverage their technical, industrial, and commercial resources in order to create a global leader in the steel industry. It was headquartered in Luxembourg and Mr. Guy Dollé was the CEO. Arcelor employed thousands of people across 60 countries. Most of the employees were from Western Europe and in countries with a traditionally strong labor union. Arcelor were still in the process of integrating the business and were neither expecting nor ready for any deal, let alone a takeover offer. It is important to understand where the main people stood when the deal was proposed. This is because, finally it is after all these individuals who would consider and negotiate the deal. The personal interests would play a critical role in the entire process. Mr. Mittal, aged 55 and Mr. Dollé, aged 63 shared the same vision. They believed that the steel industry was too fragmented (top 5 companies controlled just 20% business) and was being

exploited by the raw material / commodity producers (top 3 iron ore companies controlled 70% business) as well as consumer companies (top 5 automobile companies control 70% business). Consolidation was required and both wanted to emerge as the leader once it gets achieved. Both had contributed their fair share to this process of consolidation in the industry. Their aim was to do things in a way that, before they retire, the companies reach a dominating position in the industry. And that they are considered responsible for that leading position of their companies.

ABOUT ARCELOR-MITTAL

ArcelorMittal is the world's largest steel company, with operations in more than 60 countries. The company was formed in 2006 by the merger from Arcelor and Mittal Steel and is headquartered in Luxembourg City. Additionally, the company ranks 28th on the Fortune Global 500 list. They produce a range of finished and semi-finished carbon steel products and stainless steel products.

They provide their products to the automotive, appliance, engineering,

construction, and machinery industry in approximately 170 countries.

ArcelorMittal predominates in major global steel markets, including automotive, construction, household appliances and packaging, with leading R&D and technology, as well as sizeable captive supplies of raw materials and outstanding distribution networks. With an industrial presence in over 20 countries spanning four continents, the Company covers all of the key steel markets, from emerging to mature. In 2008, ArcelorMittal had revenues of $124.9 billion and crude steel production of 103.3 million tons, representing approximately 10 per cent of world steel output. Through midyear 2009

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ArcelorMittal is listed on the stock exchanges of New York (MT), Amsterdam (MT), Paris (MT), Brussels (MT), Luxembourg (MT) and on the Spanish stock exchanges of Barcelona, Bilbao, Madrid and Valencia (MTS).

WHY ARCELOR? An Attractive Target: Arcelor had 71% pre merger revenue share from Europe while Mittal had only 34%. While in North America The revenue share for Arcelor was only 9% but Mittal had 42% . So they had complementary industrial and market footprint.

Fig: ArcelorMittal in the steel industry Products & Services ArcelorMittal is the only producer offering a full range of steel products and services. From commodity steel to value-added products, from long products to flat, from standard to specialty products, from carbon steel to stainless and alloys, ArcelorMittal offers a complete spectrum of steel products - and s it with continuous investment in process and product research.

THE ARCELORMITTAL STEEL MERGER

Introduction For the nearby spectators of business world the ascent of Mittal Steel has not been astonishing. Despite the fact that no one can disregard the remarkable ascent of Mittal Steel in the course of recent years to end up the world's biggest stee l maker however the story is not the same as the late media and masses caught it: 'the conception of a behemoth' ,'the conception of a monster', and so forth. The ascent of Mittal Steel is not to be clarified by the Big Bang hypothesis, its fundamental engineer Lakshmi Mittal has voyage a long trip from the waterless deserts of Rajasthan to his gem encrusted swimming pool in his 70 million pounds in addition to London house, a standout amongst the most costly house on the planet! In the way he purchased the battling steel plants far and wide and deliberately sewed them in a chain to make world's greatest steel organization - the Mittal Steel. The development of this organization speaks to the beneficial interaction of scholarly and money related quality, which in a systemic and arranged way, were used to turn 'straws into gold'.The takeover of Arcelor by Mittal Steel can be termed as one of the most strenuously contested takeover attempts in the recent business history (The Hindu, June 27, 2006). It was a five month long business battle for taking control of the world’s second largest steel company (i.e. Arcelor) by the world’s largest steel making company (i.e. Mittal Steel). The various events that led to the merger of Mittal Steel and Arcelor can be summarized as follows- (Source: The Times of India, June 26, 2006).

The Rational Behind the Merger It is of the view that “Mr. Mittal’s daringly ‘hostile’ bid for the Arcelor was based on a vision of reaping at least two vital synergies, viz1. The combined entity would have a product range across the entire spectrum of steel products, in of value as well, as quality as Arcelor’s product mix is tilted towards high-end products while Mittal Steel has focused on large volume, but relatively low-value products; and 2. The second synergy would be between Arcelor’s strength in Europe and Mittal Steel’s strong focus on Americas. Also with Mittal Steel having announced plans to set up a new venture in Jharkhand (India), the combined entity would have a footprint in all the major steel producing and consuming regions of the world”.

Apart from this other important benefits accruing through this merger is as follows(i)

Unprecedented Scale and Diversification

The unification of world’s two largest steel company’s will create the world’s first 100mt+ steel company. The united company’s annual production will be more than three times larger than its next competitor i.e. Nippon Steel. The accrued scale and diversification by the new entity will provide for reduced volatility in earnings and access to unique growth opportunities. It will be able to attract best customers and suppliers due to its enhanced product development, R & D, and operational flexibility. (ii)

Significant Cost Synergies - Mittal Steel’s Investor Presentation on Sept 7, 2005 gives following sources of expected cost synergies amounting around US$ 1bn annual synergies with minimum implementation costs, given below in a tabulated form Source Total Synergies Drivers Examples Purchasing $ 600m 1.25% of COGS of combined entity Improved purchasing power Optimized material flows to reduce landed cost

Access to non-traditional suppliers ISG (Achieved $67m annual

synergies-1.2% of COGS) Inland (achieved $225m of synergies-7.5% of COGS in 3 years) Marketing and Trading Opportunities $ 200m Savings in distribution costs by integrating distribution channels Additional quantities to be available for Arcelor distribution network Cross product flows Estimated cost savings of approx $10-15/t on 18mt of production in Europe Estimated crossproduct flows of 2-4mt Manufacturing Process $ 200m Optimize capacity utilization-right product at Inland/ISG capacity utilization savings of 5123 Optimization right mill Specialization of facilities-larger order size per facility $2.5/t on 20mt forecasted 6 month realized

synergies of $13m 1% yield improvement in Europe will translate into $150m on 60mt of shipments (iii)

Growth and value creation opportunities will be maximized through the availability of unique global platform; and

(iv)

Financial strength and strategic flexibility will get reinforced; and

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Leadership in R&D/ product development; and

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Increase in stock market capitalization, liquidity and sustainability; and

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This consolidation will create value in steel industry by offering product solutions for global customer base, etc. However, in spite of these concrete statistics to the rationale

SYNERGIES CLAIMED 1. Step change in steel sector consolidation The blend of Mittal Steel and Arcelor speaks to a stage change in the steel's combination part. The consolidated gathering was relied upon to have around 320,000 workers around the world, yearly offers of more than US$69 billion and yearly unrefined steel generation of roughly 115 million metric tons, which speaks to a worldwide piece of the pie of around 10 for every penny by volume. This exchange was required to make a steel organization with uncommon scale, an in number worldwide vicinity and an expansive based item advertising. This novel stage was required to furnish the ed organization with unrivaled budgetary quality and vital adaptability to seek after development and worth creation opportunities. In spite of a pattern towards expanding solidification in the course of recent years, the worldwide steel industry remained

moderately divided contrasted with end-market clients and crude materials suppliers. Late combination has prompted expanded center amongst makers on changing generation to economic situations. The top's blend two steel organizations on the planet was required to speak to a further step towards accomplishing an economical working environment for the steel business. 1.2 Expanding geographic footprint with leading positions in a number of regions The geographic overlap between Mittal Steel and Arcelor was limited. This combination was expected to create a truly global steel company with leading positions in the five main regions (South America, NAFTA, European Union, Central Europe and Africa). Geographic diversification was expected to reduce volatility for the enlarged group while presenting numerous strategic opportunities. Through its diverse asset base in both emerging and developed markets, the company was expected to be ideally placed to take advantage of multiple market opportunities. Mittal Steel’s North American activities were to be complemented by Arcelor’s strong position in Western Europe. These developed markets had expertise in producing highly value-added products and provided opportunities for new product development. Mittal Steel had leading positions in emerging markets in Eastern andCentral Europe, Asia and Africa. These regions offered low cost production, high growth prospects and in many cases, access to significant raw material reserves.

1.3 Strengthening the range of products and solutions for global customers The developed gathering was relied upon to have driving positions in various item portions and can supply clients over a scope of geographic districts and in end-markets, for example, car, residential apparatuses, bundling, development and oil and gas. The organization was likewise anticipated that would have an in number worth included contract business which will take into consideration decreased evaluating unpredictability.

In the car part, the new gathering was relied upon to be the pioneer in both the European Union and NAFTA locales and will likewise have driving positions in South America, Eastern Europe, Africa and Asia. In machine and bundling, the gathering was relied upon to be the pioneer in the NAFTA locale and one of the pioneers in the European Union. In development, the gathering will have a main position in the greater part of the business sectors it serves and a developing vicinity in the oil and gas division. The skill of both gatherings in the different applications and end markets could be consolidated to grow new market opportunities. 1.4 Maximizing opportunities with a global distribution and trading network Mittal Steel and Arcelor together was expected to have the ability to optimize production and distribution on a global basis. The international production base of the group was expected to facilitate global sourcing of materials and products that can be directed to the markets where they are ultimately required. The combined company’s access to a broad range of customers enabled the group to capitalise on market opportunities and expand into new areas. The combined company was expected to eliminate cross-border trade flows and thus generate substantial savings.

1.5 Increasing efficiency of the combined asset base through investment and operational excellence Mittal Steel aimed to maximise the value and opportunities within the combined portfolio of assets. Major initiatives included: (i) Leveraging Mittal Steel’s R&D capabilities for processing and product innovation (ii) Improving productivity through global benchmarking and continuous improvement programmes across the network of operating units (iii) Maximising industrial potential between units, for example through product specialization by unit By organising and optimising product flow and investments throughout the production system, the company was expected to have the ability to realize more potential and value from its asset base.

1.6 Controlling input costs by maximising the synergies from integration of mining and steel making Integration of mining activities with steel production was a key element of the group’s strategy. The combined company was expected to be one of the five largest producers of iron ore worldwide and also have direct ownership of DRI plants, coal mines, coke production and certain infrastructure assets. The group was expected to have the opportunity to expand its mining operations in order to reduce the dependency on third-party supplies of iron ore and coal. By 2010, the combined group aimed to be about 50 per cent self -sufficient in iron ore.

1.7 Targeting operational synergies of US$1 billion Target annual cost synergies were expected to reach US$1 billion before tax by the end of 2009. The integration and restructuring costs to realize this level of synergies were expected to be minimal. The industrial plan for the combined entity identified several synergies, primarily from purchasing, marketing opportunities and manufacturing process optimization.

1.8 Maximising financial opportunities Based on the closing Mittal Steel share price on the New York Stock Exchange of US$32.30 (equivalent to €26.45 per share at an exchange rate of US$1.2214 per €1) on 26 January 2006, the pro forma equity market capitalisation of the enlarged group was expected to be approximately US$40 billion and the free float was to be significantly increased to approximately 43% (assuming 100% acceptance of the Offer). The Group was expected to benefit from a lower cost of capital, improved access to the capital markets, enhanced profile with investors and a high level of liquidity for trading of the company’s shares. Finally, the financial resources of the enlarged company were expected to provide the flexibility for the Group to pursue both internal and external growth opportunities. Mittal Steel was committed to maintaining an investment grade rating. GAINS FOR ARCELOR 

Operations in high-growth economies with low-cost, profitable assets and local operating expertise in numerous emerging markets

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Leadership position in high-end segments in North America, with strong R&D capabilities

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Access to raw materials and upstream integration

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Access to very low cost slab potential in Ukraine to serve West Europe

GAINS FOR MITTAL STEE 

Leadership position in high-end segments in Western Europe, with strong R&D capabilities

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Low-cost slab manufacturing in Brazil thatcan be expanded for export to Europe and North America Increased free float and liquidity

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Successful distribution business in Europe

(viii) behind Mittal-Arcelor merger some industry expertsare of the view that “Mr. Mittal’s victory is only partial as he was forced to raise his offer price to Arcelor to more than 40 euros/share, a figure that went just a little beyond the Luxembourg companies own evaluation of itself.” Also “Mr.Mittal have to make considerable concessions on the new board, and he would hold only a 43% stake in the new company and hewould not have the right to exceed a holding of 45%.” (TOI, op.cit.)

The Bid On January 27, 2006, Mittal Steel disclosed a spontaneous $22.7 billion offer for Luxembourgbased Arcelor, the world's biggest steel maker as far as turnover around then. Arcelor was at the time the world's second biggest steel maker and the offer from Mittal Steel brought about a great deal of restriction and numerous parts got included, including the previous French President Jacques Chirac who openly contradicted the threatening offer. In the event that effective, the offer would have made the world's initial 100 million ton in addition to steel maker, making a substance four times bigger than Mittal Steel's, at the time, nearest match. Mittal Steel offered a €28.21 per Arcelor offer, which implied that Arcelor would be getting a of 27 for each percent for every offer following the offer was 27 for every penny over the business sector cost for one Arcelor offer and the aggregate offer on Arcelor from Mittal was esteemed €18.6 billion. The merger would besides make an organization whose business sector position in steel generation and also in the car segment, would be world driving in NAFTA, the EU, focal Europe, Africa and South Africa. In addition, Mittal Steel's stand-alone crude material (iron mineral) had an independence rate at 60 for each penny and this limit consolidated with Arcelor, would make the world's fourth biggest iron metal maker. The offer was liable to three conditions:

(1) a base acknowledgment of more than 50 for each penny; (2) Mittal Steel shareholder regard and the Mittal family undertaking to vote for the exchange; and (3) no adjustment in Arcelor's substance, at the end of the day no transfer or securing from Arcelor was permitted amid the offer. The offer from Mittal comprised of a blend of money and stocks as the primary offer from Mittal comprised of four Mittal Steel offers 26 in addition to an extra of €35.25 trade out trade for five Arcelor offers (or 0.8 Mittal offers in addition to an extra €7.05 money for each Arcelor offer). Option offers comprised of 16 Mittal offers for 15 Arcelor offers or as beforehand specified €28.21 for each Arcelor share. As we have already seen, that both companies had been acquiring others in the industry. Both thought that it was a competition against each other. They had been part of various bidding fights for acquisitions of steel companies. But at least one side was not thinking of both going hand in hand against all others. In one such typical bidding, the steel company, Kryvorizhstal of Ukraine was on the block. Many companies entered the fray and the price kept on increasing. Mittal Steel and Arcelor were the last two remaining in the tussle, and the price increased from $3.5bn (when the last company left leaving these two) to $4.8bn where Mittal Steel won the bid. There was clear scope for “saving” money in such context. Mr. Aditya Mittal, son of Lakshmi Mittal, was of the view that there were a large number of synergies between the two companies – not to mention getting better valuations while buying different companies. There were complementary strengths that could be leveraged. After intense internal discussions, they decided to take the leap, and find ways to make this acquisition possible.

Reactions to The Bid

This threatening offer did not come without repercussions or . The leading body of Arcelor expressed that the organization did not have the same vital vision, plan of action or values as Mittal Steel, gambling extreme outcomes on the gathering, shareholders, representatives and its clients. (Som, 2009) Furthermore the istration of Arcelor, in endeavor to unnerve its shareholders about the takeover, clarified that the merger did not make any 'modern sense' and utilized what as a part of the hypothetical structure is alluded as an 'assault on the offer's rationale' by Weston et al (2004) in 2.5.1 which gave the same results as the guard technique in principle ought to do, which was to purchase Arcelor time and in addition build the offer got.. Arcelor contended that the Mittal Steel Company had feeble corporate istration, actualized a monoculture istration and a powerless technique. The istration of Arcelor kept expressing that the organization's shareholders would be in an ideal situation without Mittal Steel, in this manner framing a resistance procedure against the unfriendly takeover, 'Venture Tiger' (Som, 2009). Arcelor initially rose up out of national steel intrigues from , Luxembourg and Spain while additionally working in Belgium. Despite the fact that just Luxembourg has offers in the organization (5, 6 for each penny), , Spain and Luxembourg had freely restricted the takeover while Belgium stayed impartial. In result, the leader of Luxembourg, Jean-Claude Juncker showed up in the press, saying that the offer was "endless" and urged activities to stop the takeover by "every single fundamental mean". Before long the French Prime clergyman Dominique de Villepin and Finance Minister Thierry Breton ed in, scrutinizing the offer's 'modern rationale' and in addition pushing for an assembly of 'financial patriotism'. The takeover issue even moved to the highest point of the plan list when the French President Jacques Chirac met with Mr. Juncker in Luxembourg days after the fact. Besides, Spain's Finance Minister declared its resistance against the offer and the Belgium

government, which claimed 2.6 percent offer in Arcelor, even named Lazard keeping in mind the end goal to direct a more exhaustive break down 27 of the offer. Indeed, even the Department of Justice of the US government got included in the issue, declaring they would direct an antitrust audit of the arrangement (ArcelorMittal, 2011). Besides, trying to shield French organizations from antagonistic takeovers, Thierry Breton, the French priest of Economy, Finance and Industry at the time, proposed another law, permitting organizations recorded in the realm to issue new imparts without requiring a meeting to the shareholders when a threatening takeover is within reach. This new law implied practically speaking that the offering organization needs a 95 for each penny offer in the objective organization, keeping in mind the end goal to drive minority shareholders to offer. As the talks went on, nationality, society and patriotism had been connected with the offer's refusal. Since the executive and CEO of Mittal Steel, Lakshmi Mittal initially is an Indian-conceived native, the Indian government felt need to secure and bolster him, along these lines bringing about that the Indian Trade Minister, Kamal Nathn, openly blamed the European governments for being supremacist and segregating (Som, 2009).

Arcelor’s defense Project tiger While facing the hostile bid from Mittal Steel, Arcelor developed a communication plan, ‘Project Tiger’, in hope to prove to and to persuade its shareholders that the company was better off without Mittal Steel’s involvement and to not sell their shares to Mittal Steel. They introduced a ‘2006-2008 plan’ with the aim to ‘maximize value creation for shareholders’ and the board of Arcelor even promised an increase in results by 24 per cent and generous bonuses. In the last week of May 2006, the management of Arcelor announced a €13.6 billion merger proposal with Severstal, the largest Russian steelmaker, as an attempt from being hostelry overtaken by Mittal Steel. If this merger would have succeeded, a combination of the second largest steel company and the largest Russian steel company would have created globally the largest and most profitable steel company in the world, removing Mittal from its number one position. The offer from Severstal was described as friendly as they valued each share of Arcelor to a price at €44, which represented a 100 per cent compared to Arcelor’s closing share price on 26 January 2006. 28 The possible merger did not get positive reactions from analysts, who described a merger with Mittal Steel as a more attractive and reasonable option than merging with Severstal. Seversta lArcelor would geographical have been mainly restricted to the EU, Russia and Latin America, whereas a merger with Mittal would contribute to a greater global presence, a larger production capacity and a greater self-sufficiency for iron ore (ArcelorMittal, 2011). Even though rumors were cited in the press about a defense strategy against the Hostile bid from Mittal, Arcelor did not adopt the in our theoretical framework mentioned ‘White Knight’ defense strategy by Weston (2001) in 2.5.2, which in theory would have made the offer by Mittal even more expensive and time consuming. Eventually Mittal agreed to pay €40.27 for

each Arcelor share, almost double the amount they first offered, and a merger between the two giants occurred. Furthermore, Arcelor had to pay Severstal a fine of €140 million, as a result in failing to close a deal after negotiations with the Russian giant. TAKEOVER DEFIANCE: Arcelor later implemented a white knight defence through a transaction structure contemplating the issuance of shares to a friendly strategic partner (SeverStal of Russia), which was also a technique allowed in certain jurisdictions in Europe (but not in the U.K.) and used in the U.S. Just as Arcelor took actions to protect Dofasco with the S3, Arcelor believed that an opportunity to acquire SeverStal was consistent with Arcelor’s corporate interest and should, if possible, be presented as a viable alternative to Mittal Steel’s original offer, which Arcelor believed was an inadequate offer. While Arcelor had a previous mandate from its shareholders to issue the Arcelor shares proposed to be issued to Mr. Mordashov (SeverStal’s controlling shareholder), the Arcelor Board felt it was important to give the shareholders an opportunity to express their opinion on the transaction, in particular given the outstanding takeover offer from Mittal Steel. The Arcelor Board called an extraordinary meeting of shareholders on June 30, 2006, to vote on the SeverStal transaction. Unless more than 50% of the then outstanding Arcelor shares opposed the transaction, the merger with SeverStal would proceed. While the 50% unwind mechanism was criticised by the market, including institutional investors, the SeverStal transaction caused Mittal Steel to increase the price of its offer and to deliver better overall corporate governance and other . And in the end, the proposed SeverStal merger was unwound as over 50% of Arcelor’s shareholders voted to unwind it.

How Mittal Swung the Arcelor Deal: The Arrangement for Aces Indeed it appears from the beginning that Mr. Guy Dolle’s choice, decisions and reactions were driven more by his desire to keep an “Indian” out than by overall interest of the company and its shareholders. The attempt to procure a white knight in the form of Severstal was a bad idea from the start as the deal was a win-win situation for both Arcelor and Mital shareholders, see the table below-

However, overlooking these benefits, Arcelor under the compulsion of its racial prejudice hurriedly penciled the deal with Severstal and announced it as a fait accompli to its shareholders, allowing the agreement to be automatically approved unless an unprecedented number of its shareholders voted it down. The Ensuing shareholder revolt-hedge funds, small shareholders, and institutional investors all planning to oust the Arcelor management and sue its board obliged the Arcelor management to enter into top level secret negotiations with Mr. Mittal. Taking stock of this situation De Tijd, Belgium (2006) writes Arcelor shareholders have the feeling that the steel group’s management is doing too little to defend their interests. They feel,

by contrast, that Lakshmi Mittal, the Indian founder of Mittal Steel, is scoring points. The general vi ew is that ‘at least he knows what to do with his assets and is putting together a fortune. However, all did not go as planned for Mr. Mittal either. The possibility of a merger between Arcelor and Severstal obliged Mr. Mittal to consistently and substantially to raise his offer from initial 18.6 billion Euros to a hefty 26.9 Billion Euros. Arcelor’s share price as a consequence went up from 23 euros/share to the 40.40 euros/share. Also as a result of merger there was another 6.7% spurt in the Arcelor share valve. Such moves by Mr. Mittal clearly made the shareholders the main victor, who in turn by an overwhelming majority, obliged Mr. Mital by voting down his’ Russian rival’s bid.

IMPACT OF THE TAKEOVER The most definitive benefit that has been derived from this merger is the increment in the value of the steel assets worldwide and AreclorMittal has emerged as one supergiant with almost no competition from others for many years to come (Steel Consult International, 2007). As per Steel Consult International, (2007) the merging of the top 2 players in the steel market implies a 14% global market share in the next 10 years, which when compared to the top players of other industries is much less. It is believed that this deal would create global leadership in steel not just by tone but also by value (Arabinda Kar, 2009). Also, the merger is believed to help contain the volatility of prices in the steel industry (The Economic Times, 2006). Another aspect of the merger is that it will foster the consolidation in the global steel industry and hence, steel producers will be able to maintain consistent performance through higher efficiencies and economies of scale (Anon., 2008). Aditya Mittal maintains that this merger is expected to

reshape the global steel industry and the financial strength of the entity will continued investment and growth initiatives. He also believes that ArcelorMittal will be able to meet customer requirements in a better fashion through broad product offering and will lead in technological advancements (Javed Sayed, 2006). But this merger has awakened in the other players a need to pursue inorganic growth more aggressively and strategically. Such players are now faced with powerful competitor (ArcelorMittal) whose activities show an inclination towards not only horizontal expansion but also to expand vertically over the entire supply chain. Thus, it can be believed that the global steel market can now be faced with a stream of hostile takeovers. At present, one can expect the consolidation to benefit the steel industry worldwide but in future whether this will lead to imperfect economic market conditions such as being oligopolistic in nature or highly skewed month.

SUBSEQUENT PERFORMANCE

Pro forma results twelve months ended December 31, 2006 versus twelve months ended December 31, 2005 Arcelor Mittal pro forma net income for the twelve months ended December 31, 2006, was $8.0 billion, or $5.76 per share, as compared with pro forma net income of $8.3 billion, or $5.97 per share for the twelve months ended December 31, 2005. Pro forma sales and operating income for the twelve months ended December 31, 2006, were $88.6 billion and $11.8 billion, respectively, as compared with $80.2 billion and $11.6 billion, respectively, for the twelve months ended December 31, 2005.

As the table shows the book value of share has increase almost 116%. Total steel shipments for the twelve months ended December 31, 2006, were 110.5 million metric tonnes as compared with 102.9 million metric tonnes for the twelve months ended December 31, 2005. Pro forma depreciation for the twelve months ended December 31, 2006, increased to $3.4 billion as compared with $3.3 billion for the twelve months ended December 31, 2005.Pro forma net financing costs for the twelve months ended December 31, 2006, remained flat as compared with $1.3 billion for the twelve months ended December 31, 2005. Pro forma net financing costs for the twelve months ended December 31, 2006, include a charge of $367 million OCEANES1 and a gain of $450 million resulting from a Canadian dollar swap. Pro forma income tax expense for the twelve months ended December 31, 2006, increased to $1.7 billion as compared with $1.4 billion for the twelve months ended December 31, 2005. The effective tax rate for the twelve months ended December 31, 2006, was 14.9% as compared with

12.6% for the twelve months ended December 31, 2005. Pro forma minority interest for the twelve months ended December 31, 2006, remained flat at $1.5 billion as compared with the twelve months ended December 31, 2005.

Pro forma results three months ended December 31, 2006 versus three months ended September 30, 2006 1 Arcelor Mittal pro forma net income for the three months ended December 31, 2006, was $2.4 billion, or $1.72 per share, as compared with pro forma net income of $2.2 billion, or $1.58 per share for the three months ended September 30, 2006. Pro forma sales and operating income for the three months ended December 31, 2006, were $23.2 billion and $3.2 billion, respectively, as compared with $22.1 billion and $3.4 billion, respectively, for the three months ended September 30, 2006. Total steel shipments for the three months ended December 31, 2006, were 26.7 million metric tonnes as compared with 26.9 million metric tonnes for the three months ended

September 30, 2006. Pro forma depreciation for the three months ended December 31, 2006, decreased to $875 million as compared with $910 million for the three months ended September 30, 2006. Pro forma net financing costs for the three months ended December 31, 2006, was $4million income as compared with $352 million expense for the three months ended September 30, 2006, primarily due to a gain resulting from a Canadian dollar swap in the three months ended December 31, 2006. Pro forma income tax expense for the three months ended December 31, 2006, decreased to $642 million as compared with $669 million for the three months ended September 30, 2006. The effective tax rate for the three months ended December 31, 2006, was 18.6% as compared with 20.5% for three months ended September 30, 2006. Pro forma minority interest for the three months ended December 31, 2006, increased marginally to $443 million as compared with $420 million for the three months ended September 30, 2006.

Did The Deal Create Value? 

Strong financial performance in the second half of 2006

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Full-year (EBITDA) rose 2.1% to $15.27 billion from $14.96 billion in 2005

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Combined sales slightly decreased in 2006 but had a quantum jump in 2007

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Sales figure for Mittal Steel more than doubled after the merger.

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Net Income of the company has risen from $3.36 billion to $6.10 billion in 2006 and to $11.8 billion in 2007

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Venture into new businesses and market like Luxembourg, Senegal, Liberia

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Enlarged brand portfolio

Conclusion Mittal & Arcelor According to what we have managed to learn from the Arcelor-Mittal case, a hostile takeover goes rarely flawless or without opposition. Since dealing with such a big player like Arcelor, one might think that the opposition faced by Mittal Steel was inevitable, and surely enough several governmental organs and actors opposed the bid issued by Mittal. What Arcelor did to prevent the hostile takeover to a start, was to develop a communications plan, ‘Project Tiger’, in hope to convince its shareholders not to sell their stocks. Furthermore, they looked for alternatives, thus engaging negotiations with Russian Severstal in hope to create a mergence through what in media and press had been referred as a ‘friendly’ merger. The deal never closed and Arcelor failed to adopt what potentially could have been a “White Knight” defense strategy. What we would have liked to see from Arcelor’s side in its line of fending off the hostile bid from Mittal Steel, is perhaps that they would have considered implementing other strategic defense strategies, such as either Staggered Board or even the Poison Pill defense. These options are available of course only to Arcelor before receiving a hostile bid. Arcelor could have had issued a proposal with the consent from their shareholders, to implement certain defense actions that would have had a pro-active effects when facing a hostile takeover. Furthermore, we believe it is rather ignorant of Arcelor not to have prepared certain defense measurements against future potential hostile takeovers, based on the share size and attractive market position of the company. One would think that such a well-established and big company such as Arcelor, competing globally, would have had developed defense measurements to fend off any hostile attempt on the company. With the implementation of the poison pill defense measurement, Arcelor could have potentially diluted their stocks, thus forcing the bidder to have consensus from the board of directors, in order to be able to gain ownership over enough amount of stocks

to control the company. Furthermore, the poison pill defense strategy also works as a tool for creating more time. More time for the target company to evaluate and analyze the bid and logic behind it while potentially engaging negotiations with the bidder in hope to increase its bid offer, thus receiving a higher bid which in the end increases the wealth of the shareholders. 36 A flip-in poison pill enables the target company to issue new shares when facing a hostile bid. The new shares issued, are available to the target company’s shareholders only and are usually sold at a price far beneath the market price of the share. This makes it more difficult for the bidder to gain a majority stake of the shares in the company, thus buying the target firm some time to reflect over the actual bid as well as potentially increasing the bid received from the bidder. Furthermore, the poison pill defense strategy could be implemented in combination with for instance, the staggered board defense strategy. A combination of these two defense measurements would potentially have made the bid issued by Mittal, far more time consuming and probably a lot more expensive. In practice, the Staggered Board defense strategy, prohibit a replacement of the entire board of directors of the targeted firm in one single year. By implementing the Staggered Board strategy, the acquiring firm is only allowed to replace parts of the management and board of directors each year, even if they have control and the majority in shares. In conclusion of this case study, based on the case study on Mittal-Arcelor and the different strategies used in defense, we believe that the actions taken by Arcelor was relatively rationale and reasonable. They did not implement any official conventional defense strategy, but instead developed a communications plan, in hope to persuade its shareholders not to sell to Mittal Steel. They engaged negotiations with Russian Severstal, the possible White Knight for Arcelor, but the deal never went through. According to our research, there were possible alternatives for Arcelor in defending against the hostile bid. For instance, they could have

implemented either a poison pill defense strategy, a staggered board defense strategy or even the two of them combined for the best potential result. Instead, Mittal Steel increased its offer for Arcelor and this time, a merger

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