XLRI

Mittal Steel in 2006: Changing the Global Steel Game

Word Count: 800
Introduction:
This case is about the merger of Mittal Steel Industry and Arcelor Steel
Industry which was merged in 2006. Mittal steel was on the verge of announcing
unsolicited 18.6 billion bid to acquire the European steelmaker Arcelor. Mittal
steel and Arcelor were at this point the two largest and most global steel
producers. No one in the global steel industry had predicted or prepared for such
a large scale merger of two giants in the industry. Additionally, it was also
believed that as a result of this merger, the company would be able to achieve
maximum synergies in marketing, trading and purchasing and reduce the risk.
Mittal approached Arcelor with a proposal for a friendly deal which was
rebuffed by Mr. Dolle, the CEO of Arcelor. This case discusses the rationale of the
acquisition in the recent global trends, the value chain of the industry and how
Mittal Steel planned to leverage it. It also discusses how Mittal Steel could
leverage the acquisition by strengthening its position across the globe.
Mittal steel which started with trading scrap metals in Calcutta, India, has
grown into one of the largest steel manufacturers in the world through Mergers
and Acquisitions. They preferred the inorganic growth which gave them the
advantage of having a global customer base and ability to predict the market
trends across the regions and conferred purchasing power because of its vast
size.
The Growth Roadmap:

XLRI
Mittal Steel in 2006: Changing the Global Steel Game
Word Count: 800
All the M&A activities were based more or less on the same strategic
principles. They looked for distressed steelmakers at diversified geographical
locations for acquisitions. They employed a team of experts who would travelling
to different locations and impart the knowledge and best practices followed in
one location to other like cost
cut measures and marketing
methods. The principal focus in
the deal making and turnaround
stages fell on one-time value
creation principally by importing
modern
management
techniques
into
previously
inefficient state-run mills. Mittal
Steel
gave
significant
importance
to
knowledge
sharing programme, technology
expertise and encouragement of
talent at each level of the
organisation. One such example
is
Knowledge
Integration
Program (KIP), an early Mittal
initiative to keep stirring the
whole organization. The KIP
involved twice-yearly meetings
in which (operating and staff) functional representatives from all Mittal Steel
plants would meet for 24 days to review performance against targets, highlight
accomplishments and setbacks, discuss technical issues of common interest,
update each other on developments in their respective areas, and jointly commit
to future targets44 The venue would rotate among the various plants, and the
agenda was set in consultation with the functional heads. Apart from being an
informational forum, the KIP meetings facilitated the creation and nurturing of
interpersonal networks. Mittal steel enjoys a global workforce with good blend of
cultural mix, purchasing power and multiple sources of revenue to mitigate risks.
Mittal Steel also eyed the organisation run by government for acquisitions to
minimize opposition and garner political support. One such examples is
acquisition of Kryvorizhstal which was bought from Ukraine government.

XLRI
Mittal Steel in 2006: Changing the Global Steel Game
Word Count: 800

Global Competitive Advantage:

The major advantage of this consolidation would be creating a global customer
base and being in a better position to predict market trends. Besides that, the
companys strong manager integration program an approach that was unheard
of in the steel industry would help it integrate better. Third would be global
purchasing power for the company that would help it in maintaining considerable
competitive advantage.
Analysis of the Merger:
Strength:
The merger of Mittal & Arcelor would result in the creation of the world's largest
steel company with the production capacity of approximately 138 million tons i.e.
10% of global output. It would sell its products to a diverse range of automotive,
appliance, engineering and construction companies across 60 countries.
Weakness:
It would face the uncertainty and risk of paying too much investment on the
takeover, restructuring management & culture difference.
Opportunities:
The merged company would become the first to produce more than 100 million
tons. It would achieve greater geographic reach & have access to more raw
materials.

Threat:
It induces complexity, duplication of people, processes and technology. Besides,
cultural differences might create failure if not managed properly. It will be subject
to political, social and legal uncertainties in some of the developing countries in
which it will operate. Any disruption or volatility in the political or social

XLRI
Mittal Steel in 2006: Changing the Global Steel Game
Word Count: 800
environment in those countries could have a material adverse effect on
ArcelorMittal's business, financial condition, results of operations, etc.
Conclusion:
In summary, this acquisition provides Mittal with several strategic advantages
delivering a leading position in high-end segments in North America, with strong
R&D capabilities. Also, it would get access to operations in high-growth
economies of Asia and South America with low-cost profitable assets and local
operations expertise in numerous emerging markets and access to raw materials
and upstream integration.