A takeover, as deposit by the Kiplinger's Personal Funding (1982), can't be only a peaceful merger. The best option is, perhaps, an agreeable takeover procedure, that can be regarded as a smart manoeuvre as well.
During the middle twentieth century, we've witnessed a classic corporate and business warfare that was nicknamed as the "Cola Wars". The socio-scientific implications of the corporate and business warfare have been, perhaps, elucidated to some extent by J. C. Louis and Harvey Yazijian in their work on the Cola Wars. And we know that manipulation, coping, campaign, enlargement, etc. are the strategies in a corporate warfare. Therefore, the case writer thinks a takeover can thus be considered a very sensitive concern, which has the to trigger off continuous hostilites.
Arcelor was molded by merging Arbed (Luxembourg), Usinor (France) and Aceralia (Spain). The merger was officially effective in the year 2002. Eventually by the entire year 2006, the conglomerate became the world's second most significant steel producer firm.
Mittal Steel Co. first executed a substantial acquisition in the entire year 1989, when it took over the Iron & Steel Company of Trinidad & Tobago. Since then, it embarked on a policy of continuous enlargement and continued acquiring different metallic companies all around the globe. By the year 2006, it acquired signed up its strong existence in america, Canada, Mexico, Romania, France, etc. and become the largest metallic producer of the world.
In this way, Arcelor SA and Mittal Material finally found themselves locked in a struggle for supremacy on the global steel creation and industry. However in January 2006, Mittal Metallic shook the organization world by offering an hostile bid to dominate the European material large Arcelor SA. The annals of Mittal Metallic Co. clearly demonstrated that it got a decided trend and knack in performing international acquisitions in its favour. Furthermore, L. N. Mittal, who owns Mittal Steel, experienced already entered controversies when he apparently financed the Labour Party of UK (Hyland, 2002). Alternatively, Arcelor was also accused of showing a racist attitude and adopting unfair means to escape the suggested take over bet (Rediff Information, 2006).
In such circumstances, the case writer intends to adopt lessons from this controversial business deal. When the theoretical finance concepts are utilized fundamentally and purely to judge a proposed takeover bid, needless bitterness and controversies are fairly avoidable.
In the modern business world, where the competitions are receiving tougher than ever before, we should develop a extensive knowledge of business takeover. If we look at the situation of Arcelor Mittal intricately, we may have the ability to categorize it as a classic circumstance of modern business interacting, focussing mainly on acquisition.
The interpretation of the word "Takeover" can vary greatly in different civilizations and situations, but it is normally the process where an acquirer (or bidder) corporation formally procures a concentrate on company. Now, the approach behind this process is the critical factor that establishes the outcome.
If you are the owner of the corporation and you also target to get a company, you can generally choose two major approaches. First, you can straight talk to the management of the mark company concerned, which is a pretty amiable methodology. In case you are successful by means of a constructive dialogue, you would culminate at a friendly takeover. However, if you aren't sure about the outcome of an attempt to make a deal or hold discussions, you can seek to take up a bypass route. This bypass would enable you to circumvent the management employees of the target company. That is indubitably a tactical manoeuvre, although this sort of takeover is generally defined as a hostile one. The truth being scrutinized (i. e. , the case of Arcelor Mittal) is mostly entangled between both of these methodologies.
The harmless results of a takeover might include a standard magnification of the sales/income volume. Also, it could culminate at venturing into new sections of the markets and industrial procedures. The mark company is normally relieved of fiscal adversities and the new creation registers an increased market show. The resultant brand might have a wider collection and competitions are lessened. In case there is international takeovers, the augmented conglomerate created out of the takeover may sign-up a protracted global reach, which is very vital these days. And since regarding Arcelor Mittal, a takeover can put an end to the continuous and bitter rivalries. A synchronized and powerful management can allocate resources more efficiently and avoid stressful specific multitasking.
However, there are specific points of grave concern as well. Strategic takeovers may give rise to oligopoly and continuous takeovers by a specific company lead to dangerous monopoly. And in such types of circumstances, the choices before the consumers become fewer and the marketplace does no more behave within an even handed manner. There is a very high opportunity of job slashes in the post takeover situation. Moreover, the target company will come with certain hidden knowledge liabilities, and present resistance to cultural assimilation even inside the integrated environment.
The problem behind this case is the overall interpretation of Mittal's bet to procure Arcelor as a hostile one. The bet, being successfully executed, thus culminates into a hostile takeover explicitly. The encounter commenced in January 2006, which lasted for the next six turbulent calendar months. The steel giants, Arcelor SA and Mittal Metal Company, had been bitter rivals for years and Arcelor could never find the money for to succumb prior to the tactical onslaught. The management of Arcelor SA used every achievable defence including bankers, politicians, media, etc. and also projected their merger with the Russian metallic company Severstal to avoid Mittal's competitive bid. Even, on certain occasions, the Arcelor SA was accused of preserving a racial attitude that was actually behind its perish hard level of resistance to Indian created Mittal's bid.
Although Mittal's offer to acquire Arcelor was accepted in the end, the spectre of similar stand off in case there is future mergers and acquisitions cannot be ruled out.
Now whenever we further proceed into this case study, we have to scrutiny the related facts. First, let's take a look into the comparative analysis of Arcelor SA and Mittal Steel Company before the merger. Pursuing are some relevant figures:
Figure - 1
Figure - 2
The sheer bulk of cash flow in the Mittal Metal Company in pre-merger situation, 2005, (please see Figure - 1) obviously reflects the active international business development of the corporation. The monetary allocations in the purchases and gross gains quantitatively explain the effectiveness of the metal tycoon as an extended lasting and long lasting investment option, and the stakeholders have no reason to be concerned of the general market volatilities.
It is rewarding to mention here that the business has issued its financial records both in US Dollars and Euros. This clarifies the multicultural global outreach of the company in regards of material trade.
Now let's take a peek into the records of Arcelor SA, which are likely to explain its monetary situation in the pre-merger situation of 2005.
Figure - 3
If we compare the money moves of Mittal and Arcelor respectively with reference to the Shape - 1 and Shape - 3, we find that the money circulation is proportionally higher in Arcelor SA.
Figure - 4
Comparing the balance sheets, we find that the Arcelor had fewer liabilities than its rival.
Another striking feature of the info available is that the Arcelor SA issued its data only in conditions of Euros, while Mittal Steel Company used accounts assertions both in conditions of Euros and Dollars. This compels the truth writer to reflect on the exclusive "European Ideals" of Arcelor SA.
The developments that occurred in the year 2006 can be designated as a turning point in the financial world. The proposed bet of Severstal from Russia and then the last merger with Mittal Metal Company were certain remarkable twists that the management of Arcelor SA fabricated in course of the dilemma. The coping can broadly be categorised under the category of "Amalgamation through Purchase" (Subramanyam, 2008). I n both proposals of Mittal and Severstal, the merger were to be performed strategically.
Mittal's success can't be directly discussed by utilizing a comparative research of the Balance Mattress sheets and Income Claims. Mittal's strengths were mainly in its global range of motion & network, formidable production volume, and last but not least, proper diplomacy.
The Collection of Strategic Diplomacy
The nerve challenge started in January 2006; let's take a look at the subsequent developments chronologically:
27 January - The Mittal Metallic unleashes a takeover bid geared to Arcelor. The offer price per show was 28. 21.
29 January - The Panel of Directors of Arcelor unanimously tips out Mittal's hostile bid for the takeover.
26 May - Arcelor groups up with Severstal via a merger accord, as the past attempts to daunt Mittal Metal.
21 June - In the mean time, Mittal increases its offers. Because of this, Severstal too considerably boosts its offer prices for the merger.
25 June - Arcelor finally agrees to the merger proposal from Mittal Metallic in order to create the Arcelor-Mittal. The final offer price per share was 40. 40.
30 June - By an Extraordinary General Appointment, shareholders of Arcelor reject the unification with Severstal.
Till September the same year, 93. 7% of the Arcelor shareholders now tender their equity shares to the Mittal Steel. Arcelor Mittal emerges as the world's mightiest steel producing conglomerate.
Indubitably, by increasing his bid in a step by step fashion, L. N. Mittal secured the offer in a well planned and economical way. The discussions never lapsed even during the bitterest phases of the innovations.
Clearly, Mittal Steel's capacity to focus on the needs for a sustained and high creation of metallic from diverse locations across the world helped it a whole lot. The Euro-centric approach of Arcelor brought up serious ethnical issues. But the same approach gave way to competitive globalisation, and Mittal Metal surfaced triumphant. Preceding the amalgamation there have been 704 million shares of Mittal Steel remarkable and 640 million stocks of Arcelor SA. As far as the offer prices are worried, the deal appears to be a fair one because the management of Arcelor possessed an opportunity to constantly keep looking at between the offers from Mittal and Severstal.
Reaction in the Stock Markets
A closer look of the stocks behaviour and research of Material Index before and following the merger can expose that the amalgamation benefited the shareholders both of the pre-existing Mittal Metal and Arcelor SA (Please make reference to the Body - 5 and Shape - 6). When L. N. Mittal first launched his bid to obtain Arcelor, two types of reactions were induced off among the market experts. The first group of the analysts held that the offer was only an excitement or a proper stunt. The next category thought that there could have been some inside trading and Arcelor actually possessed some hidden liabilities that got leaked prior to the mighty Mittal Steel. Hence, the show prices went along every once in awhile.
Although initially, distress and doubts loomed in the marketplaces and the stakeholders of Mittal Steel were getting exposed to collateral fluctuations, the shockwave was ingested by Mittal Metal. The new conglomerate, Arcelor Mittal has today substantially progressed in economic terms and the merger appears to be rather successful.
Method of Payment and Fairness of the Deal
The merger offer from the Mittal Metallic had not been accepted in a complete absence of existing and imminent competition. The Arcelor management had an enough range to compare and analyse the costs. However, this illustrious exemplory case of a bitter but successful bidding has been considered rather an example of business imperialism. Thus, Arcelor has been designated as a subdued rival that finally becomes a part of the "Mittal Empire" (Cooney, 2008). Even in that case, the Arcelor shareholders actually accepted Mittal's offer for a takeover through a general arrangement. So, the management of the mark company wasn't in the end bypassed by the acquirer, which is not typical to the hostile takeovers. Therefore, by proper allocation of the dividends and even-handed reconstitution of the management of the new company developed, Mittal seems to have implemented proper methods, which were strategic alternatively than accommodating.
The upshot of an business takeover might trigger a largely magnified production, sales, and profits amount. The consequential brand, Arcelor Mittal, has now got a wider variety of choices and services in both the equity and item markets. Today, the bitter have difficulties between two mighty metal giants has become a area of the past background. Today, there's a competent, varied, internationalized, and skilled team of technocrats in the management of Arcelor Mittal that caters with the pre-existing ideals of both Mittal Material and Arcelor SA.
In the global marketplaces, even during the recessions of the entire year 2008, Arcelor Mittal didn't face any serious setback. However the conglomerate today handles almost 10% of the total steel production volume level, it is not easy to support this market lead. The World Metallic Capacity is speedily on the rise (please refer to Figure - 7). If Arcelor Mittal desires to maintain its current position in the industry, it would not only have to maintain but also increase its production progressively. The original low assurance in the currency markets was mainly due to the actual fact that the Arcelor got slightly better financial details than that of the Mittal Material. But Mittal Material regained momentum, principally due to its global way and voluminous production.
In the historical days, we recognized about the emperors who wished to expand their empires to the perfect extents. They might seek to regulate more and more land, natural resources, etc. Conceivably, a modern businessman would also think in a similar way while proceeding for increasingly more business acquisitions.
So, the ambitious entrepreneur may have to face challenges when it comes to a cross cultural amalgamation. Nowadays, it is not plausible to be completely localised or absolutely global. In that status of affair, cross-cultural takeovers become more very sensitive and complicated. And business must not be devoid of honest principles and Emotional Quotient.
Initial low confidence in the share markets neither suggest a premature lapse nor suggest a made the decision failure in the long run. A determined supervisor and negotiator can make substantive changes to occur in the market.
In circumstance of Arcelor Mittal, the case writer does indeed still not claim that the takeover has been an ultimate success because it needs to be examined more by time and market. However, we should unanimously consent to the actual fact that ethnic issues and unexplainable concerns cannot do good to a good mighty establishment in face of a solid onslaught.
Figure - 5 (Source: INSEAD)
Figure - 6 (Source: INSEAD)
Figure - 7 (Source: Equitymaster. com)