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Arcelor v. Mittal Steel: Major League The companies located in areas with good perspectives of growth of steel consumption and relatively cheap energy vectors enjoy great popularity. However, the owners pay a high price for keeping the companies in the market. By the example of Erdemir we can see that the presence of company in a certain region is more important than incredibly high price for it.
At the same time, Lakshmi Mittal's purchase of American ISG displaced European group Arcelor from the leading position in the world rating of steel industry. Struggle for the palm of supremacy became more and more acute and each victory / failure of Arcelor or Mittal Steel started to be evaluated not only as a personal success / failure of a group, but as a competition between two different philosophies of business. Arcelor is often referred to as a symbol of successful, pan-European cooperation and economic revival, with operations that span Luxembourg, Belgium, France and Spain (Kanter n. p. ). Mittal Steel is the fast- growing conglomerate founded by the India-born Lakshmi Mittal (Kanter n. p. ).
Both mega-groups that were created in result of mergers of several successful companies never kept back intentions to become more influential. The head of Mittal Steel, Lakshmi Mittal together with Guy Dolle, the head of Arcelor, often had similar positions concerning steel issues. The leaders always strived to create a giant steel company able to produce more than 100 million tons of steel per year. The companies often met each other during various auctions concerning sales of strategically important actives and conquered geographically different markets.
Arcelor dominated in Western Europe and Brazil, whereas Mittal Steel prevailed in Central and Eastern Europe, America and Third World countries. Both companies started to take roots in China. Over the period of 2005 the leaders of steel industry were able to prove their supremacy, when they made balanced cutting down of manufacture of many kinds of their production in order to keep the price leading and prevent overstocking of the market. Mittal Steel and Arcelor often used their ability to foresee the perspectives and to turn ineffective industrial capacities into highly remunerative manufactures. At the same time, there are significant differences between two market leaders. During the entire period of the companys existence, European Arcelor appeared in no public scandal concerning illicit services, affairs, subornation's, accusations in non-compliance with the declared investment obligations, to mention a few.
When Arcelor's management participated in an auction, they always determined the marginal limit of price and the company always refused from the lot, explaining its policy. When Arcelor worked at the South American market, it managed to produce and strengthen an image of company that helps to solve social problems of the South American cities, propagates rise of cultural and educational level of its workers. The company exposed itself as a company that undertakes effective measures to solve these problems. Another Arcelor's advantage is that the company implements the newest technologies that are often developed by employees, working for special scientific departments of the group and take into account ecological aspects aimed to decrease the self-cost of production. Yet, after long debates Arcelor agreed to Mittal Steels proposal concerning merger.
The company took decision on June 25, 2006 during the meeting of committee of directors. According to the agreement, Mittal Steel will reduce its share in merged company that will be called Arcelor Mittal to 45 %. Lakshmi Mittal will be one of the presiding commissioners. The committee of directors, in its turn, will be represented mainly by the management of Arcelor.
Arcelor will have to pay to Severstal forfeit at the rate of EUR 130 million. The merger of two giants of steel industry caused a deep resonance and resulted in instable situation at the steel market. Lets try to examine the effects and possible outcomes of the merger both to the companies and to the situation at the market. First of all, the merger Arcelor and Mittal Steel will significantly improve the perspectives of German daughter enterprises in Bremen, Duisburg, Hamburg, Untervellenborn and Saarland. For example, European concern Arcelor has several daughter enterprises located in Bremen (Stahlwerke Bremen with approximately 3, 700 employees), in Aisenhuttenschtadt (Eko Stahl with approx. 2750 employees), and in Start (Dillinger Huette with 5, 300 employees). In result of merger Mittal Steel will add to those departments its own daughter enterprises Hamburger Stahlwerke, steel-smelting plant in Duisburg-report and coil-steel enterprise Duisburg-Hokhfeld (with approx. 1, 800 employees).
In such a way, one fifth of all employees working in steel industry will work for merged concern Arcelor Mittal. What concerns production of the companies, it will not be duplicated. On contrary, it will be mutually complementary. In such a way, the merger will help to raise competitive capacity of Arcelor Mittal's goods on world markets. At the same time, French Arcelor plants are afraid of reduction of workplaces because some of Arcelor and Mittal's plants produce the same production.
It seems that all companies will have positive outcomes in result of this merger. From the very beginning proposal made by Mittal Steel was based mainly on financial ground and had no industrial component in it. However, during long negotiations it suffered considerable changes and became friendlier for Arcelor. According to Kanter (n.
p. ), with 320, 000 employees and an estimated $ 70 billion in revenue, the combined company will be the first steel maker with more than 100 million tons of annual capacity - enough for twice as many automobiles as the world makes every year. The merger put an end to struggle between two leading companies and put an end to the period of uncertainty and instability for employees and nervousness of financial markets. Besides, Mittal Steel gave written assurance related to Belgian enterprises belonging to Arcelor. At the same time, some trade union express concern regarding the merger. There are opinions that the merger will not have influence on growth of industry, but, on the contrary, will lead to restructure, workplace cut and numerous dismissals. Only Arcelor's stockholders have positive feelings concerning the merger as in the result of backstreet intrigues the cost of share doubled and huge shareholders received profit for more than millions Euro.
Profit, received by the shareholders, has the reverse of the medal in the form of roll-out of the industry and reduction of working places, despite of public guarantees concerning this issue. The practice of public offers seems to be ineffective when it comes to employees rights. At the same time the structure of the company should be renamed because, as it is claimed by Patrick du Bois, a former executive vice president of Arcelor, the differences of mentality, plus all the energy which has been put into the fight over the last several months, would make it very difficult for the current people to work together (Kanter n. p. ). Probably, the only person in the Arcelor's management, who can be completely unsatisfied by the merger, was the general manager of the company Guy Dolle. He was the most ardent opponent of the merger and actively protected the project of merger Arcelor Sever Stal.
Gi Dolle plans to resign, because, he, probably, doesnt agree with the idea of this marriage of convenience. However, according to information provided by Financial News, Arcelor's chairman, Joseph Kinsch, who is keeping his position with the new company, said that Dolle would stay on until Arcelor selected a chief executive for the new Arcelor-Mittal (n. p. ). Lets remember that Arcelor's committee of directors preferred to conclude a merger with Mittal Steel and refused from the merger with Severstal. However, the major part of experts considered the merger with Severstal to be more profitable for Arcelor (primarily from the industrial point of view). In result of the merger, Arcelor agreed to be acquired by larger rival Mittal Steel for 27. 05 bn ($ 33. 84 bn) in cash and stock (Financial News n.
p. ). In its proposal, Mittal Steel raised the price per Arcelor's share from 37. 74 to 40. 4 EUR. The payment should be executed according to scheme 13 Mittal Steels shares plus 150. 6 EUR by cash per every 12 Arcelor's shares. Severstal, in its turn, proposed to create a joint company with 25 % of shares belonging to Russians v. 49. 4 % of shares belonging to Mittal Steel. The payment to Russian company was planned to make up approx. 13 billion EUR. Now lets examine the financial statements of Arcelor-Mittal for the last months of 2006.
The net profit of Arcelor-Mittal during the 9 months of 2006 decreased to 22. 8 % (2 billions EUR) as compared with 2. 6 billion EUR received in total by Arcelor and Mittal Steel for the same period during the year 2005. These are the facts from financial statement published by Arcelor-Mittal in 2006 First Half Proforma Results. The Battles of New Time So, lets resume the consequences of merger Mittal Steel and Arcelor. The merger resulted in creation of the worlds biggest transnational steel corporation Arcelor-Mittal.
This merger will strengthen positions of British trade and financial capital in the continental Europe. Arcelor, with its 96, 000 employees in more than 60 world countries is, mainly, the European concern. 77 % of all employees of the steel industry work for West European Arcelor's enterprises. All of those workers, engineers, technicians, and managers are highly qualified professionals. Their mass dismissals (concern of trade unions) can result in so-called social explosion. Battle for Arcelor exposed the teeth of young Russian business that starts to reveal itself in the world market. It also demonstrated the old Western phobia concerning Russia.
Merger Arcelor-Severstal would inevitably meant the intrusion of Russian manufacturers to the market of European Union. It could strengthen positions of Russian financial capital at the economic space of EU and inevitably resulted in increase of political influence of Russians. Russian-Luxemburg alliance could spoil the game led by American and British manufacturers against Chinese competitors, who produce approximately 50 % of the world steel. Activity of Mittal Steel is stipulated not only by the interests of the managers of the company, but also by the interests of their partners from Wall Street, tied with steel industry of the US that experiences tight times due to competition with Chinese steel magnates. Alliance Arcelor-Mittal, aimed to withstand Chinese competitors, determines American and English credits in the world market.
Yet, the positions of the company can weaken, as the center of strategically important manufacture fatally moves from Western Europe, America and Japan to developing Asian countries with unlimited feedstock and cheap man power. The fact that headquarters of Arcelor-Mittal will be located in Luxemburg (but not in Bombay or Shanghai) from the very beginning weakens Arcelor-Mittal s competitive capacity. The battle for Arcelor is the episode of the struggle for economic re-plotting of the world between USA, European Alliance and Japan and quartette consisting of Brazil, Russia, India, and China. It sounds quite logically to expect consolidation of Russian steel business by way of merger of two-three huge steel companies and holdings, alliances China-Russia, and other business solutions on the way to steel monopoly. In such a way, all these circumstances will not be favorable for Arcelor-Mittal and its employees. References Arcelor-Mittal in 2006 First Half Proforma Results.
Retrieved November 17, 2006. web Financial News. (June 26, 2006). Arcelor Merger. Retrieved November 17, 2006. web Financial News. (June 27, 2006).
Arcelor, Mittal merger. Retrieved November 17, 2006. web Kanter, James. (June 25, 2006). Arcelor agrees to Mittal takeover. Herald Tribune. Retrieved November 17, 2006.
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Research essay sample on Arcelor V Mittal Steel Major League
