ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Arcelor Mittal: Emergence of a Giant

Emergence of a Giant On June 25 the board of the European steel industry champion Arcelor accepted Lakshmi Mittal

ARCELOR MITTAL

Emergence of a Giant

O
n June 25 the board of the European steel industry champion Arcelor accepted Lakshmi Mittal’s second revised offer of one Arcelor share for euro 12.55 in cash and 1.084 Mittal Steel shares, recommending to shareholders the merger of the company with Mittal Steel and the scrapping of the merger plan with Russia’s Severstal. The episode that began with the announcement of Mittal’s hostile euro 18.6 billion bid for Arcelor on January 27 this year climaxed with an acceptance of Arcelor’s equity valuation at euro 26.9 billion to be traded 31 per cent in cash and the rest in Mittal shares. It had all the ingredients of high drama – shameless invective, including racial slurs hurled by Arcelor’s president and CEO, Guy Dolle and its chairman, Joseph Kinsch, and the entry of a “white knight” in the form of the Russian oligarch Aleksei Mordashov as a competing suitor for one of “old Europe’s” top companies. Indian commerce minister Kamal Nath decided to figure too, with his veiled but rather incredible warning against any attempt by the French government to block the deal.

Lakshmi Mittal will be the largest shareholder in the new company Arcelor Mittal, with a 43 per cent shareholding. He will be non-executive president, with the present chairman of Arcelor, Joseph Kinsch as non-executive chairman till his retirement next year when the former will then assume the post. The 18-member board of directors will be composed of six from Arcelor and six from Mittal Steel, three big shareholders and three employee representatives. The seven-member management board, which will control day-to-day operations, will have Aditya Mittal, the present president and chief financial officer of Mittal Steel, as a member. But is all this really the great Indian story that it is being made out to be? The Indian media seems to have lost its balance and gone gaga over the whole affair, gripping as the whole drama may have been for the TV news channels and their fleeting audiences. But what of the changing oligopolistic dynamics of the global steel industry of which Arcelor Mittal will now be the market leader?

The merchant bankers and financial institutions, Goldman Sachs, Merrill Lynch, J P Morgan Chase, Lazard, Morgan Stanley, Deutsche Bank, BNP Paribas and UBS, have all played their role in the merger. Apart from earning huge fees for their services in this merger and acquisition business, it is in the interests of finance capital to protect the value of their steel holdings by managing product market competition, essentially by containing imports from subsidiaries. Arcelor itself was the result of the three-way merger of Usinor of France, Aceralia of Spain and Arbed of Luxembourg in 2001. Mittal Steel, a product of acquisitions and turnaround of former public sector steel companies and unwanted private sector steel assets in the wake of huge worldwide overcapacity, joined the big steel league when in more recent times it acquired major steel assets in the US – Inland Steel and the International Steel Group of Wilbur Ross, which had earlier acquired the plants of Bethlehem Steel and LTV for a song.

More recently, when Arcelor initiated significant inroads into the north American market with the acquisition of the Canadian steel firm, Dofasco, and the two giants bid against each other in the Ukraine for the Kryvorizhstal steel facility, Arcelor and Mittal seemed to be coming in the way of each other’s moves.

Now with the merger, the two sides will be hoping that the new company, Arcelor Mittal will be accepted by the other oligopolists – Thyssen-Krupp, US Steel, Nippon Steel, POSCO, Shanghai BaoSteel, and so on – as the world market leader, signalling when to moderate output, smoothening thereby the peaks and troughs of the demand cycle that significantly influence profitability. After all, the very large firms are all interested in controlling markets to deal with overproduction. But the big question is: Are we going to witness an Asian response – a Nippon Steel-POSCO-BaoSteel merger in the near future? In China, steel capacity has been expanding at a historically unprecedented rate. Some analysts expect that domestic capacity there will sooner or later outstrip domestic demand and China will emerge as a huge net exporter of steel. The Chinese government already has plans to consolidate the fragmented capacity, and Arcelor Mittal may be expected to get into the M&A game there. Of course, the consolidation of the assets of Arcelor and Mittal Steel will take a while, but thereafter one can expect the new company to focus on the emerging markets of China and India, in competition with POSCO and Nippon Steel.

Economic and Political Weekly June 30, 2006

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