Merger Of Mittal And Arcelor Steel - Essay Example

Having reached the number one position in steel manufacturing and assessing the need to consolidate and to take advantage of the economies of scale, in January 2006, Lakshmi Nivas Mittal of Mittal Steel Netherlands took a historical decision to make an attempt to acquire the next biggest steel company Arcelor S.A. Having gone through the basics idea about the world steel industry and the rationale behind the Mittal Steel's decision to acquire the next ranking Arcelor S.A, this paper attempts to bring out an analytical review of the whole scheme of merger with respect to the effect of the merger from the point of view of the investors, the appreciation in their holdings, reasoning behind the merger from the point of view of Mittal Steel as well as Arcelor S.A. The paper also studies the role played by Severstal, the Russian Steel major in the merger deal.

With the advent of globalization the large companies have broken their geographical barriers and this has resulted in the cross border mergers and acquisitions of bigger companies. Especially in Europe the purchases by way of takeovers of companies had been at $ 418 billion whereas it was only $ 211 billion for the American companies in the first quarter of the year 2006. This includes the fierce battle of the hostile takeover by Netherlands based Mittal Steel of Luxembourg based Arcelor. This hostile bidThis hostile bid for takeover was put forth by Mittal Steel to Arcelor for taking over the latter at a consideration of US $ 22.

4 billion and this bid was made on the 27th January 2006. This takeover once completed would result in an aggregate sale of seventy billion US dollars and ten percent of the world steel production. This also means that the combined production of the new company would be three times more than that of the closest competitor Nippon Steel Corporation of Japan. After the merger the new entity would provide employment for 320,000 people. The operations of the new company would spread over four continents of the world.

The company would also expand its market to the United States where there is a high potential for growth. This would also entail the new company commendable bargaining power and economies of scale. From the following table, one can observe the size and magnitude of the takeover bid made by Mittal Steel Source: The Hindu. Business Line Newspaper Dated 1st February 20073.0 A BACKGROUND:A brief background of the Buyer (Mittal Steel) and the Target (Arcelor S.A.) is presented below:Mittal Steel N.

V: Head Quartered in Rotterdam/London225,000 employeesSteelmaking facilities in 16 countriesCustomers in 120 countriesShipped 49.2m tons in 2005Revenues of $28.1bn in 2005 (Breaking News Article 2006)While production of steel of various kinds is the main activity, the Mittal Steel is presently operating in countries like United States, Mexico, Trinidad, Canada, Germany and France. Specialisation of Mittal