Contents

EXECUTIVE SUMMARY .......................................................................................................................... 2

INTRODUCTION TO THE MERGER AND ACQUISITION ................................................................... 4
Trends in global steel industry .................................................................................................................... 10
BACKGROUND OF MITTAL STEEL ..................................................................................................... 11
ABOUT ARCELOR-MITTAL ................................................................................................................... 13
Introduction ................................................................................................................................................. 15
The Rational Behind the Merger ................................................................................................................. 16
SYNERGIES CLAIMED ........................................................................................................................... 18
The Bid ....................................................................................................................................................... 24
Reactions to The Bid................................................................................................................................... 26
Arcelors defense ........................................................................................................................................ 29
How Mittal Swung the Arcelor Deal: The Arrangement for Aces ............................................................ 31
IMPACT OF THE TAKEOVER ................................................................................................................ 32
SUBSEQUENT PERFORMANCE ............................................................................................................ 33
Did The Deal Create Value? ....................................................................................................................... 36
Conclusion .................................................................................................................................................. 37
Bibliography ............................................................................................................................................... 40

EXECUTIVE SUMMARY

Arcelor-Mittal steel merger has been one of the most fascinating story of corporate merger that
redefined the nature of global steel business. The newspapers were replete with the development
of events that led to the merger and its implications for people across continents. Even today in
India a book or a simple talk on corporate merger and acquisition would not be complete without
the mention of this intriguing corporate takeover. It has been considered as the most talked about
corporate merger in India that attracted popular interest.
On August 1, 2006, Mittal Steel gained 91.9% of the offer capital of Arcelor (on a
completely weakened premise). Through resulting exchanges Mittal Steel expanded its
possession to 94.2%, which incorporated the issued and extraordinary shares of Arcelor and the
greater part of Arcelor's convertible securities, which were procured in return for roughly 680
million Mittal Steel class A typical shares and around 8.0 billion ($10.4 billion) in real money.
On August 1, 2006, Arcelor turned into an auxiliary of Mittal Steel and its consequences of
operations were incorporated into Mittal Steel's united aftereffects of operations from that date.
The obtaining was represented utilizing the buy technique for bookkeeping, which requires that
the benefits gained and liabilities expected be recorded at their assessed reasonable qualities at
the date of securing
In a Memorandum of Understanding entered into among Mittal Steel, Arcelor and the
Significant shareholder on June 25, 2006, (the Memorandum of Understanding or MoU),
Mittal Steel agreed that it would merge into Arcelor as soon as practicable following completion
of its revised offer for Arcelor, and that the combined entity would be incorporated, domiciled
and headquartered in Luxembourg. Following discussions at a meeting held on April 27, 2007,

the Mittal Steel Board of Directors decided to organize a two-step process pursuant to which
Mittal Steel would first be merged into ArcelorMittal, which would subsequently be merged into
Arcelor as the ultimate surviving entity.
ArcelorMittal was incorporated on August 13, 2004 under the name Verger Investments
S.A. It was a wholly-owned subsidiary of Mittal Steel from April 24, 2007 and was renamed
ArcelorMittal on April 26, 2007. It did not conduct any operations prior to the merger
summarized below. Effective September 3, 2007, Mittal Steel merged into ArcelorMittal, by way
of absorption by ArcelorMittal of Mittal Steel and without liquidation of Mittal Steel, and the
combined company was renamed ArcelorMittal.

INTRODUCTION TO THE MERGER AND ACQUISITION

Mergers, acquisitions and takeovers have been a business' piece world for a considerable length of time.
In today's dynamic financial environment, organizations are regularly confronted with choices
concerning these activities - all things considered, the employment of administration is to amplify
shareholder esteem. Through mergers and acquisitions, an organization can (from a certain perspective)
build up an upper hand and eventually expand shareholder esteem.

There are a few ways that two or more organizations can consolidate their endeavors. They can
accomplice on an undertaking, commonly consent to unite and union, or one organization can inside
and out get another organization, assuming control over every one of its operations, including its
property and obligation, and here and there supplanting administration with their own particular
agents. It's this last instance of emotional threatening takeovers that is the wellspring of a lot of M&A's
brilliant vocabulary.

DEFINITION of 'Takeover'

When an acquiring company makes a bid for a target company. If the takeover goes through, the
acquiring company becomes responsible for all of the target companys operations, holdings and
debt. When the target is a publicly traded company, the acquiring company will make an offer
for all of the targets outstanding shares.

A welcome takeover generally goes smoothly because both companies consider it a positive
situation. In contrast, an unwelcome or hostile takeover can be quite unpleasant. The acquiring
firm can use unfavorable tactics such as a dawn raid (where it buys a substantial stake in the

target company as soon as the markets open, causing the target to lose control of the company
before it realizes what is happening). The target firms management and board of directors may
strongly resist takeover attempts through tactics such as a poison pill, which lets the
targets shareholders purchase more shares at a discount in order to dilute the acquirers holdings
and make a takeover more expensive.

A takeover is essentially the same as an obtaining, with the exception of that "takeover" has a
negative intention, showing the objective does not wish to be acquired. Why might one
organization need to purchase another organization against that organization's will? The bidder
may be trying to build its piece of the overall industry or to accomplish economies of scale that
will assist it with lessening its expenses and in this manner expand its benefits. Organizations
that make alluring takeover targets incorporate those that have an exceptional specialty in a
specific item or administration, little organizations with feasible items or administrations
however deficient financing, a comparative organization in close geographic nearness where
consolidating strengths could enhance proficiency and generally reasonable organizations that
are paying a lot for obligation that could be renegotiated at a lower expense if a bigger
organization with better credit assumed control.

Hostile Takeover

This is an unfriendly takeover attempt by a company or raider that is strongly resisted by the
management and the board of directors of the target firm. These types of takeovers are usually
bad news, affecting employee morale at the targeted firm, which can quickly turn to animosity
against the acquiring firm. Grumblings like, "Did you hear they are axing a few dozen people in

our finance department" can be heard by the water cooler. While there are examples of hostile
takeovers working, they are generally tougher to pull off than a friendly merger.

Dawn Raid

This is a corporate action more common in the United Kingdom; however it has also occurred in
the Unites States. During a dawn raid, a firm or investor aims to buy a substantial holding in the
takeover-target company's equity by instructing brokers to buy the shares as soon as the stock
markets open. By getting the brokers to conduct the buying of shares in the target company (the
"victim"), the acquirer (the "predator") masks its identity and thus its intent.

The acquirer then builds up a substantial stake in its target at the current stock market price.
Because this is done early in the morning, the target firm usually doesn't get informed about the
purchases until it is too late, and the acquirer now has controlling interest. In the U.K., there are
now restrictions on this practice.

Saturday Night Special

A Saturday night special is a sudden attempt by one company to take over another by making a
public tender offer. The name comes from the fact that these maneuvers used to be done over the
weekends. This too has been restricted by the Williams Act in the U.S., whereby acquisitions of
5% or more of equity must be disclosed to the Securities Exchange Commission.

Takeovers are announced practically everyday, but announcing them doesn't necessarily mean
everything will go ahead as planned. In many cases the target company does not want to be taken
over. What does this mean for investors? Everything! There are many strategies that
management can use during M&A activity, and almost all of these strategies are aimed at
affecting the value of the target's stock in some way. Let's take a look at some more popular
ways that companies can protect themselves from a predator. These are all types of what is
referred to as "shark repellent".

Golden Parachute

A golden parachute measure discourages an unwanted takeover by offering lucrative benefits to

the current top executives, who may lose their job if their company is taken over by another firm.
Benefits written into the executives' contracts include items such as stock options, bonuses,
liberal severance pay and so on. Golden parachutes can be worth millions of dollars and can cost
the acquiring firm a lot of money and therefore act as a strong deterrent to proceeding with their
takeover bid.

Greenmail
A spin-off of the term "blackmail", greenmail occurs when a large block of stock is held by an
unfriendly company or raider, who then forces the target company to repurchase the stock at a
substantial premium to destroy any takeover attempt. This is also known as a "bon voyage
bonus" or a "goodbye kiss".

Macaroni Defense

This is a tactic by which the target company issues a large number of bonds that come with the
guarantee that they will be redeemed at a higher price if the company is taken over. Why is it
called macaroni defense? Because if a company is in danger, the redemption price of the bonds
expands, kind of like macaroni in a pot! This is a highly useful tactic, but the target company
must be careful it doesn't issue so much debt that it cannot make the interest payments.

Takeover-target companies can also use leveraged recapitalization to make themselves less
attractive to the bidding firm.

People Pill

Here, management threatens that in the event of a takeover, the management team will resign at
the same time en masse. This is especially useful if they are a good management team; losing
them could seriously harm the company and make the bidder think twice. On the other hand,
hostile takeovers often result in the management being fired anyway, so the effectiveness of
a people pill defense really depends on the situation.

Poison Pill

With this strategy, the target company aims at making its own stock less attractive to the
acquirer. There are two types of poison pills. The 'flip-in' poison pill allows existing shareholders
(except the bidding company) to buy more shares at a discount. This type of poison pill is usually

written into the company's shareholder-rights plan. The goal of the flip-in poison pill is to dilute
the shares held by the bidder and make the takeover bid more difficult and expensive.

The 'flip-over' poison pill allows stockholders to buy the acquirer's shares at a discounted price in
the event of a merger. If investors fail to take part in the poison pill by purchasing stock at the
discounted price, the outstanding shares will not be diluted enough to ward off a takeover.

An extreme version of the poison pill is the "suicide pill" whereby the takeover-target company
may take action that may lead to its ultimate destruction.

Sandbag
With the sandbag tactic the target company stalls with the hope that another, more favorable
company (like "a white knight") will make a takeover attempt. If management sandbags too long,
however, they may be getting distracted from their responsibilities of running the company.

White Knight

A white knight is a company (the "good guy") that gallops in to make a friendly takeover offer to
a target company that is facing a hostile takeover from another party (a "black knight"). The
white knight offers the target firm a way out with a friendly takeover.

BENEFITS OF THE MERGER AND AQUSATION

Gain market share

Economies of scale

Enter new markets

Acquire technology

Utilization of surplus fund

Managerial Effectiveness

Strategic Objective

Vertical integration

Trends in global steel industry

o Consumption of steel increased after 1950 and trend was continued till 1970
o Consumption of steel started decline from 70s to 80s
o After 80s, demand for steel increased continually
o International Iron and Steel Institute (IISI) forecasted increment in demand for
steel from 1.32 billion tones (in 2010)to 1.62 billion tones(in 2015)
o This demand will increase due to countries like India and china
o To capture this demand, biggest steel producer of India (TATA Steel ltd.) has
been increased its production base by acquiring 4th largest steel producer of
world(Corus steel)

BACKGROUND OF MITTAL STEEL

Mr. Lakshmi Mittal founded Mittal Steel in 1976 in India. After a few years, Mr. Mittal found
that it would take him long to grow to a significant size and wanted a way to grow fast. He found
that there were various steel companies around the world, which had been performing badly, due
to cyclical nature of the industry and poor management of the companies. He started acquiring
these companies and turning them around through better management and economies of scale.
In 2005, when Mittal Steel acquired the American steel company, ISG, it overtook Arcelor as the
worlds largest steel maker, in terms of output. Towards the end of 2005, it made up its mind to
acquire Arcelor, the second largest steel producer by output and the largest by turnover. Mittal
Steel was headquartered in Netherlands.
Arcelor was created in 2002 through merger of three major European steel companies, Arbed
(Luxembourg), Aceralia (Spain) and Usinor (France). The idea was to leverage their technical,
industrial, and commercial resources in order to create a global leader in the steel industry. It was
headquartered in Luxembourg and Mr. Guy Doll was the CEO. Arcelor employed thousands of
people across 60 countries. Most of the employees were from Western Europe and in countries
with a traditionally strong labor union. Arcelor were still in the process of integrating the
business and were neither expecting nor ready for any deal, let alone a takeover offer.
It is important to understand where the main people stood when the deal was proposed. This is
because, finally it is after all these individuals who would consider and negotiate the deal. The
personal interests would play a critical role in the entire process.
Mr. Mittal, aged 55 and Mr. Doll, aged 63 shared the same vision. They believed that the steel
industry was too fragmented (top 5 companies controlled just 20% business) and was being

exploited by the raw material / commodity producers (top 3 iron ore companies controlled 70%
business) as well as consumer companies (top 5 automobile companies control 70% business).
Consolidation was required and both wanted to emerge as the leader once it gets achieved. Both
had contributed their fair share to this process of consolidation in the industry. Their aim was to
do things in a way that, before they retire, the companies reach a dominating position in the
industry. And that they are considered responsible for that leading position of their companies.

ABOUT ARCELOR-MITTAL

ArcelorMittal is the world's largest steel company, with operations in more than 60 countries.
The company was formed in 2006 by the merger from Arcelor and Mittal Steel and is
headquartered in Luxembourg City. Additionally, the company ranks 28th on the Fortune Global
500 list. They produce a range of finished and semi-finished carbon steel products and stainless
steel products.

They provide their products to the automotive, appliance, engineering,

construction, and machinery industry in approximately 170 countries.

ArcelorMittal predominates in major global steel markets, including automotive, construction,

household appliances and packaging, with leading R&D and technology, as well as sizeable
captive supplies of raw materials and outstanding distribution networks. With an industrial
presence in over 20 countries spanning four continents, the Company covers all of the key steel
markets, from emerging to mature.
In 2008, ArcelorMittal had revenues of $124.9 billion and crude steel production of 103.3
million tons, representing approximately 10 per cent of world steel output. Through midyear
2009

the

company

had

experienced

revenues

of

ArcelorMittal is listed on the stock exchanges of New York (MT), Amsterdam (MT), Paris
(MT), Brussels (MT), Luxembourg (MT) and on the Spanish stock exchanges of Barcelona,
Bilbao, Madrid and Valencia (MTS).

WHY ARCELOR?
An Attractive Target:
Arcelor had 71% pre merger revenue share from Europe while Mittal had only 34%. While in
North America The revenue share for Arcelor was only 9% but Mittal had 42% . So they had
complementary industrial and market footprint.

Fig: ArcelorMittal in the steel industry

Products & Services
ArcelorMittal is the only producer offering a full range of steel products and services. From
commodity steel to value-added products, from long products to flat, from standard to specialty
products, from carbon steel to stainless and alloys, ArcelorMittal offers a complete spectrum of
steel products - and supports it with continuous investment in process and product research.

THE ARCELORMITTAL STEEL MERGER

Introduction
For the nearby spectators of business world the ascent of Mittal Steel has not been astonishing.
Despite the fact that no one can disregard the remarkable ascent of Mittal Steel in the course of
recent years to end up the world's biggest stee l maker however the story is not the same as the
late media and masses caught it: 'the conception of a behemoth' ,'the conception of a monster',
and so forth. The ascent of Mittal Steel is not to be clarified by the Big Bang hypothesis, its
fundamental engineer Lakshmi Mittal has voyage a long trip from the waterless deserts of
Rajasthan to his gem encrusted swimming pool in his 70 million pounds in addition to London
house, a standout amongst the most costly house on the planet! In the way he purchased the
battling steel plants far and wide and deliberately sewed them in a chain to make world's greatest
steel organization - the Mittal Steel. The development of this organization speaks to the
beneficial interaction of scholarly and money related quality, which in a systemic and arranged
way, were used to turn 'straws into gold'.The takeover of Arcelor by Mittal Steel can be termed
as one of the most strenuously contested takeover attempts in the recent business history (The
Hindu, June 27, 2006). It was a five month long business battle for taking control of the worlds
second largest steel company (i.e. Arcelor) by the worlds largest steel making company (i.e.
Mittal Steel).
The various events that led to the merger of Mittal Steel and Arcelor can be summarized as
follows- (Source: The Times of India, June 26, 2006).

The Rational Behind the Merger

It is of the view that Mr. Mittals daringly hostile bid for the Arcelor was based on a vision of
reaping at least two vital synergies, viz1. The combined entity would have a product range across the entire spectrum of steel products,
in terms of value as well, as quality as Arcelors product mix is tilted towards high-end products
while Mittal Steel has focused on large volume, but relatively low-value products; and
2. The second synergy would be between Arcelors strength in Europe and Mittal Steels strong
focus on Americas. Also with Mittal Steel having announced plans to set up a new venture in
Jharkhand (India), the combined entity would have a footprint in all the major steel producing
and consuming regions of the world.

Apart from this other important benefits accruing through this merger is as follows(i)

Unprecedented Scale and Diversification

The unification of worlds two largest steel companys will create the worlds first 100mt+ steel
company. The united companys annual production will be more than three times larger than its
next competitor i.e. Nippon Steel. The accrued scale and diversification by the new entity will
provide for reduced volatility in earnings and access to unique growth opportunities. It will be
able to attract best customers and suppliers due to its enhanced product development, R & D, and
operational flexibility.
(ii)

Significant Cost Synergies - Mittal Steels Investor Presentation on Sept 7, 2005

gives following sources of expected cost synergies amounting around US$ 1bn
annual synergies with minimum implementation costs, given below in a tabulated
form Source Total Synergies Drivers Examples Purchasing $ 600m 1.25% of COGS
of combined entity Improved purchasing power Optimized material flows to reduce
landed cost

Access to non-traditional suppliers ISG (Achieved $67m annual

synergies-1.2% of COGS) Inland (achieved $225m of synergies-7.5% of COGS in 3

years) Marketing and Trading Opportunities $ 200m Savings in distribution costs by
integrating distribution channels Additional quantities to be available for Arcelor
distribution network Cross product flows Estimated cost savings of approx $10-15/t
on 18mt of production in Europe Estimated crossproduct flows of 2-4mt
Manufacturing Process $ 200m Optimize capacity utilization-right product at
Inland/ISG capacity utilization savings of 5123 Optimization right mill Specialization
of facilities-larger order size per facility $2.5/t on 20mt forecasted 6 month realized

synergies of $13m 1% yield improvement in Europe will translate into $150m on

60mt of shipments
(iii)

Growth and value creation opportunities will be maximized through the availability
of unique global platform; and

(iv)

Financial strength and strategic flexibility will get reinforced; and

(v)

Leadership in R&D/ product development; and

(vi)

Increase in stock market capitalization, liquidity and sustainability; and

(vii)

This consolidation will create value in steel industry by offering product solutions for
global customer base, etc. However, in spite of these concrete statistics to support the
rationale

SYNERGIES CLAIMED
1. Step change in steel sector consolidation
The blend of Mittal Steel and Arcelor speaks to a stage change in the steel's combination part.
The consolidated gathering was relied upon to have around 320,000 workers around the world,
yearly offers of more than US$69 billion and yearly unrefined steel generation of roughly 115
million metric tons, which speaks to a worldwide piece of the pie of around 10 for every penny
by volume. This exchange was required to make a steel organization with uncommon scale, an in
number worldwide vicinity and an expansive based item advertising. This novel stage was
required to furnish the joined organization with unrivaled budgetary quality and vital adaptability
to seek after development and worth creation opportunities. In spite of a pattern towards
expanding solidification in the course of recent years, the worldwide steel industry remained

moderately divided contrasted with end-market clients and crude materials suppliers. Late
combination has prompted expanded center amongst makers on changing generation to
economic situations. The top's blend two steel organizations on the planet was required to speak
to a further step towards accomplishing an economical working environment for the steel
business.
1.2 Expanding geographic footprint with leading positions in a number of regions
The geographic overlap between Mittal Steel and Arcelor was limited. This combination was
expected to create a truly global steel company with leading
positions in the five main regions (South America, NAFTA, European Union, Central Europe
and Africa). Geographic diversification was expected to reduce volatility for the enlarged group
while presenting numerous strategic opportunities. Through its diverse asset base in both
emerging and developed markets, the company was expected to be ideally placed to take
advantage of multiple market opportunities.
Mittal Steels North American activities were to be complemented by Arcelors strong position
in Western Europe. These developed markets had expertise in producing highly value-added
products and provided opportunities for new product development. Mittal Steel had leading
positions in emerging markets in Eastern andCentral Europe, Asia and Africa. These regions
offered low cost production, high growth prospects and in many cases, access to significant raw
material reserves.

1.3 Strengthening the range of products and solutions for global customers
The developed gathering was relied upon to have driving positions in various item portions and
can supply clients over a scope of geographic districts and in end-markets, for example, car,
residential apparatuses, bundling, development and oil and gas. The organization was likewise
anticipated that would have an in number worth included contract business which will take into
consideration decreased evaluating unpredictability.

In the car part, the new gathering was relied upon to be the pioneer in both the European Union
and NAFTA locales and will likewise have driving positions in South America, Eastern Europe,
Africa and Asia. In machine and bundling, the gathering was relied upon to be the pioneer in the
NAFTA locale and one of the pioneers in the European Union. In development, the gathering
will have a main position in the greater part of the business sectors it serves and a developing
vicinity in the oil and gas division. The skill of both gatherings in the different applications and
end markets could be consolidated to grow new market opportunities.
1.4 Maximizing opportunities with a global distribution and trading network Mittal Steel and
Arcelor together was expected to have the ability to optimize production and distribution on a
global basis. The international production base of the group was expected to facilitate global
sourcing of materials and products that can be directed to the markets where they are ultimately
required. The combined companys access to a broad range of customers enabled the group to
capitalise on market opportunities and expand into new areas. The combined company was
expected to eliminate cross-border trade flows and thus generate substantial savings.

1.5 Increasing efficiency of the combined asset base through investment and operational
excellence
Mittal Steel aimed to maximise the value and opportunities within the combined portfolio of
assets. Major initiatives included:
(i) Leveraging Mittal Steels R&D capabilities for processing and product innovation
(ii) Improving productivity through global benchmarking and continuous improvement
programmes across the network of operating units
(iii) Maximising industrial potential between units, for example through product specialization
by unit
By organising and optimising product flow and investments throughout the production system,
the company was expected to have the ability to realize more potential and value from its asset
base.

1.6 Controlling input costs by maximising the synergies from integration of mining and steel
making Integration of mining activities with steel production was a key element of the groups
strategy. The combined company was expected to be one of the five largest producers of iron ore
worldwide and also have direct ownership of DRI plants, coal mines, coke production and
certain infrastructure assets. The group was expected to have the opportunity to expand its
mining operations in order to reduce the dependency on third-party supplies of iron ore and coal.
By 2010, the combined group aimed to be about 50 per cent self -sufficient in iron ore.

1.7 Targeting operational synergies of US$1 billion

Target annual cost synergies were expected to reach US$1 billion before tax by the end of 2009.
The integration and restructuring costs to realize this level of synergies were expected to be
minimal. The industrial plan for the combined entity identified several synergies, primarily from
purchasing, marketing opportunities and manufacturing process optimization.

1.8 Maximising financial opportunities

Based on the closing Mittal Steel share price on the New York Stock Exchange of US$32.30
(equivalent to 26.45 per share at an exchange rate of US$1.2214 per 1) on 26 January 2006,
the pro forma equity market capitalisation of the enlarged group was expected to be
approximately US$40 billion and the free float was to be significantly increased to
approximately 43% (assuming 100% acceptance of the Offer). The Group was expected to
benefit from a lower cost of capital, improved access to the capital markets, enhanced profile
with investors and a high level of liquidity for trading of the companys shares. Finally, the
financial resources of the enlarged company were expected to provide the flexibility for the
Group to pursue both internal and external growth opportunities. Mittal Steel was committed to
maintaining an investment grade rating.
GAINS FOR ARCELOR

Operations in high-growth economies with low-cost, profitable assets and local operating
expertise in numerous emerging markets

Leadership position in high-end segments in North America, with strong R&D

capabilities

Access to raw materials and upstream integration

Access to very low cost slab potential in Ukraine to serve West Europe

GAINS FOR MITTAL STEE

Leadership position in high-end segments in Western Europe, with strong R&D

capabilities

Low-cost slab manufacturing in Brazil thatcan be expanded for export to Europe and
North America Increased free float and liquidity

Successful distribution business in Europe

(viii) behind Mittal-Arcelor merger some industry expertsare of the view that Mr. Mittals
victory is only partial as he was forced to raise his offer price to Arcelor to more than
40 euros/share, a figure that went just a little beyond the Luxembourg companies own
evaluation of itself. Also Mr.Mittal have to make considerable concessions on the
new board, and he would hold only a 43% stake in the new company and hewould not
have the right to exceed a holding of 45%. (TOI, op.cit.)

The Bid
On January 27, 2006, Mittal Steel disclosed a spontaneous $22.7 billion offer for Luxembourgbased Arcelor, the world's biggest steel maker as far as turnover around then. Arcelor was at the
time the world's second biggest steel maker and the offer from Mittal Steel brought about a great
deal of restriction and numerous parts got included, including the previous French President
Jacques Chirac who openly contradicted the threatening offer. In the event that effective, the
offer would have made the world's initial 100 million ton in addition to steel maker, making a
substance four times bigger than Mittal Steel's, at the time, nearest match. Mittal Steel offered a
28.21 per Arcelor offer, which implied that Arcelor would be getting a premium of 27 for each
percent for every offer following the offer was 27 for every penny over the business sector cost
for one Arcelor offer and the aggregate offer on Arcelor from Mittal was esteemed 18.6 billion.
The merger would besides make an organization whose business sector position in steel
generation and also in the car segment, would be world driving in NAFTA, the EU, focal
Europe, Africa and South Africa. In addition, Mittal Steel's stand-alone crude material (iron
mineral) had an independence rate at 60 for each penny and this limit consolidated with Arcelor,
would make the world's fourth biggest iron metal maker. The offer was liable to three conditions:

(1) a base acknowledgment of more than 50 for each penny; (2) Mittal Steel shareholder regard
and the Mittal family undertaking to vote for the exchange; and (3) no adjustment in Arcelor's
substance, at the end of the day no transfer or securing from Arcelor was permitted amid the
offer. The offer from Mittal comprised of a blend of money and stocks as the primary offer from
Mittal comprised of four Mittal Steel offers 26 in addition to an extra of 35.25 trade out trade
for five Arcelor offers (or 0.8 Mittal offers in addition to an extra 7.05 money for each Arcelor
offer). Option offers comprised of 16 Mittal offers for 15 Arcelor offers or as beforehand
specified 28.21 for each Arcelor share.
As we have already seen, that both companies had been acquiring others in the industry. Both
thought that it was a competition against each other. They had been part of various bidding fights
for acquisitions of steel companies. But at least one side was not thinking of both going hand in
hand against all others.
In one such typical bidding, the steel company, Kryvorizhstal of Ukraine was on the block. Many
companies entered the fray and the price kept on increasing. Mittal Steel and Arcelor were the
last two remaining in the tussle, and the price increased from $3.5bn (when the last company left
leaving these two) to $4.8bn where Mittal Steel won the bid.
There was clear scope for saving money in such context. Mr. Aditya Mittal, son of Lakshmi
Mittal, was of the view that there were a large number of synergies between the two companies
not to mention getting better valuations while buying different companies. There were
complementary strengths that could be leveraged. After intense internal discussions, they
decided to take the leap, and find ways to make this acquisition possible.

Reactions to The Bid

This threatening offer did not come without repercussions or feedback. The leading body of
Arcelor expressed that the organization did not have the same vital vision, plan of action or
values as Mittal Steel, gambling extreme outcomes on the gathering, shareholders,
representatives and its clients. (Som, 2009) Furthermore the administration of Arcelor, in
endeavor to unnerve its shareholders about the takeover, clarified that the merger did not make
any 'modern sense' and utilized what as a part of the hypothetical structure is alluded as an
'assault on the offer's rationale' by Weston et al (2004) in 2.5.1 which gave the same results as
the guard technique in principle ought to do, which was to purchase Arcelor time and in addition
build the offer premium got.. Arcelor contended that the Mittal Steel Company had feeble
corporate administration, actualized a monoculture administration and a powerless technique.
The administration of Arcelor kept expressing that the organization's shareholders would be in an
ideal situation without Mittal Steel, in this manner framing a resistance procedure against the
unfriendly takeover, 'Venture Tiger' (Som, 2009). Arcelor initially rose up out of national steel
intrigues from France, Luxembourg and Spain while additionally working in Belgium. Despite
the fact that just Luxembourg has offers in the organization (5, 6 for each penny), France, Spain
and Luxembourg had freely restricted the takeover while Belgium stayed impartial. In result, the
leader of Luxembourg, Jean-Claude Juncker showed up in the press, saying that the offer was
"endless" and urged activities to stop the takeover by "every single fundamental mean". Before
long the French Prime clergyman Dominique de Villepin and Finance Minister Thierry Breton
joined in, scrutinizing the offer's 'modern rationale' and in addition pushing for an assembly of
'financial patriotism'. The takeover issue even moved to the highest point of the plan list when
the French President Jacques Chirac met with Mr. Juncker in Luxembourg days after the fact.
Besides, Spain's Finance Minister declared its resistance against the offer and the Belgium

government, which claimed 2.6 percent offer in Arcelor, even named Lazard keeping in mind the
end goal to direct a more exhaustive break down 27 of the offer. Indeed, even the Department of
Justice of the US government got included in the issue, declaring they would direct an antitrust
audit of the arrangement (ArcelorMittal, 2011). Besides, trying to shield French organizations
from antagonistic takeovers, Thierry Breton, the French priest of Economy, Finance and Industry
at the time, proposed another law, permitting organizations recorded in the realm to issue new
imparts without requiring a meeting to the shareholders when a threatening takeover is within
reach. This new law implied practically speaking that the offering organization needs a 95 for
each penny offer in the objective organization, keeping in mind the end goal to drive minority
shareholders to offer. As the talks went on, nationality, society and patriotism had been
connected with the offer's refusal. Since the executive and CEO of Mittal Steel, Lakshmi Mittal
initially is an Indian-conceived native, the Indian government felt need to secure and bolster him,
along these lines bringing about that the Indian Trade Minister, Kamal Nathn, openly blamed the
European governments for being supremacist and segregating (Som, 2009).

Arcelors defense
Project tiger
While facing the hostile bid from Mittal Steel, Arcelor developed a communication plan, Project
Tiger, in hope to prove to and to persuade its shareholders that the company was better off
without Mittal Steels involvement and to not sell their shares to Mittal Steel. They introduced a
2006-2008 plan with the aim to maximize value creation for shareholders and the board of
Arcelor even promised an increase in results by 24 per cent and generous bonuses. In the last
week of May 2006, the management of Arcelor announced a 13.6 billion merger proposal with
Severstal, the largest Russian steelmaker, as an attempt from being hostelry overtaken by Mittal
Steel. If this merger would have succeeded, a combination of the second largest steel company
and the largest Russian steel company would have created globally the largest and most
profitable steel company in the world, removing Mittal from its number one position. The offer
from Severstal was described as friendly as they valued each share of Arcelor to a price at 44,
which represented a 100 per cent premium compared to Arcelors closing share price on 26
January 2006. 28 The possible merger did not get positive reactions from analysts, who
described a merger with Mittal Steel as a more attractive and reasonable option than merging
with Severstal. Seversta lArcelor would geographical have been mainly restricted to the EU,
Russia and Latin America, whereas a merger with Mittal would contribute to a greater global
presence, a larger production capacity and a greater self-sufficiency for iron ore (ArcelorMittal,
2011). Even though rumors were cited in the press about a defense strategy against the Hostile
bid from Mittal, Arcelor did not adopt the in our theoretical framework mentioned White
Knight defense strategy by Weston (2001) in 2.5.2, which in theory would have made the offer
by Mittal even more expensive and time consuming. Eventually Mittal agreed to pay 40.27 for

each Arcelor share, almost double the amount they first offered, and a merger between the two
giants occurred. Furthermore, Arcelor had to pay Severstal a fine of 140 million, as a result in
failing to close a deal after negotiations with the Russian giant.
TAKEOVER DEFIANCE:
Arcelor later implemented a white knight defence through a transaction structure contemplating
the issuance of shares to a friendly strategic partner (SeverStal of Russia), which was also a
technique allowed in certain jurisdictions in Europe (but not in the U.K.) and used in the U.S.
Just as Arcelor took actions to protect Dofasco with the S3, Arcelor believed that an opportunity
to acquire SeverStal was consistent with Arcelors corporate interest and should, if possible, be
presented as a viable alternative to Mittal Steels original offer, which Arcelor believed was an
inadequate offer. While Arcelor had a previous mandate from its shareholders to issue the
Arcelor shares proposed to be issued to Mr. Mordashov (SeverStals controlling shareholder), the
Arcelor Board felt it was important to give the shareholders an opportunity to express their
opinion on the transaction, in particular given the outstanding takeover offer from Mittal Steel.
The Arcelor Board called an extraordinary meeting of shareholders on June 30, 2006, to vote on
the SeverStal transaction. Unless more than 50% of the then outstanding Arcelor shares opposed
the transaction, the merger with SeverStal would proceed. While the 50% unwind mechanism
was criticised by the market, including institutional investors, the SeverStal transaction caused
Mittal Steel to increase the price of its offer and to deliver better overall corporate governance
and other terms. And in the end, the proposed SeverStal merger was unwound as over 50% of
Arcelors shareholders voted to unwind it.

How Mittal Swung the Arcelor Deal: The Arrangement for Aces
Indeed it appears from the beginning that Mr. Guy Dolles choice, decisions and reactions were
driven more by his desire to keep an Indian out than by overall interest of the company and its
shareholders. The attempt to procure a white knight in the form of Severstal was a bad idea from
the start as the deal was a win-win situation for both Arcelor and Mital shareholders, see the
table below-

However, overlooking these benefits, Arcelor under the compulsion of its racial prejudice
hurriedly penciled the deal with Severstal and announced it as a fait accompli to its shareholders,
allowing the agreement to be automatically approved unless an unprecedented number of its
shareholders voted it down. The Ensuing shareholder revolt-hedge funds, small shareholders, and
institutional investors all planning to oust the Arcelor management and sue its board membersobliged the Arcelor management to enter into top level secret negotiations with Mr. Mittal.
Taking stock of this situation De Tijd, Belgium (2006) writes Arcelor shareholders have the
feeling that the steel groups management is doing too little to defend their interests. They feel,

by contrast, that Lakshmi Mittal, the Indian founder of Mittal Steel, is scoring points. The
general vi ew is that at least he knows what to do with his assets and is putting together a
fortune.
However, all did not go as planned for Mr. Mittal either. The possibility of a merger between
Arcelor and Severstal obliged Mr. Mittal to consistently and substantially to raise his offer from
initial 18.6 billion Euros to a hefty 26.9 Billion Euros.
Arcelors share price as a consequence went up from 23 euros/share to the 40.40 euros/share.
Also as a result of merger there was another 6.7% spurt in the Arcelor share valve. Such moves
by Mr. Mittal clearly made the shareholders the main victor, who in turn by an overwhelming
majority, obliged Mr. Mital by voting down his Russian rivals bid.

IMPACT OF THE TAKEOVER

The most definitive benefit that has been derived from this merger is the increment in the value
of the steel assets worldwide and AreclorMittal has emerged as one supergiant with almost no
competition from others for many years to come (Steel Consult International, 2007). As per Steel
Consult International, (2007) the merging of the top 2 players in the steel market implies a 14%
global market share in the next 10 years, which when compared to the top players of other
industries is much less. It is believed that this deal would create global leadership in steel not just
by tone but also by value (Arabinda Kar, 2009). Also, the merger is believed to help contain the
volatility of prices in the steel industry (The Economic Times, 2006). Another aspect of the
merger is that it will foster the consolidation in the global steel industry and hence, steel
producers will be able to maintain consistent performance through higher efficiencies and
economies of scale (Anon., 2008). Aditya Mittal maintains that this merger is expected to

reshape the global steel industry and the financial strength of the entity will support continued
investment and growth initiatives. He also believes that ArcelorMittal will be able to meet
customer requirements in a better fashion through broad product offering and will lead in
technological advancements (Javed Sayed, 2006).
But this merger has awakened in the other players a need to pursue inorganic growth more
aggressively and strategically. Such players are now faced with powerful competitor
(ArcelorMittal) whose activities show an inclination towards not only horizontal expansion but
also to expand vertically over the entire supply chain. Thus, it can be believed that the global
steel market can now be faced with a stream of hostile takeovers. At present, one can expect the
consolidation to benefit the steel industry worldwide but in future whether this will lead to
imperfect economic market conditions such as being oligopolistic in nature or highly skewed
month.

SUBSEQUENT PERFORMANCE

Pro forma results twelve months ended December 31, 2006 versus twelve months ended
December 31, 2005
Arcelor Mittal pro forma net income for the twelve months ended December 31, 2006, was $8.0
billion, or $5.76 per share, as compared with pro forma net income of $8.3 billion, or $5.97 per
share for the twelve months ended December 31, 2005. Pro forma sales and operating income for
the twelve months ended December 31, 2006, were $88.6 billion and $11.8 billion, respectively,
as compared with $80.2 billion and $11.6 billion, respectively, for the twelve months ended
December 31, 2005.

As the table shows the book value of share has increase almost 116%.
Total steel shipments for the twelve months ended December 31, 2006, were 110.5 million
metric tonnes as compared with 102.9 million metric tonnes for the twelve months ended
December 31, 2005. Pro forma depreciation for the twelve months ended December 31, 2006,
increased to $3.4 billion as compared with $3.3 billion for the twelve months ended December
31, 2005.Pro forma net financing costs for the twelve months ended December 31, 2006,
remained flat as compared with $1.3 billion for the twelve months ended December 31, 2005.
Pro forma net financing costs for the twelve months ended December 31, 2006, include a charge
of $367 million OCEANES1 and a gain of $450 million resulting from a Canadian dollar swap.
Pro forma income tax expense for the twelve months ended December 31, 2006, increased to
$1.7 billion as compared with $1.4 billion for the twelve months ended December 31, 2005. The
effective tax rate for the twelve months ended December 31, 2006, was 14.9% as compared with

12.6% for the twelve months ended December 31, 2005. Pro forma minority interest for the
twelve months ended December 31, 2006, remained flat at $1.5 billion as compared with the
twelve months ended December 31, 2005.

Pro forma results three months ended December 31, 2006 versus three months ended September
30, 2006
1 Arcelor Mittal pro forma net income for the three months ended December 31, 2006, was $2.4
billion, or $1.72 per share, as compared with pro forma net income of $2.2 billion, or $1.58 per
share for the three months ended September 30, 2006. Pro forma sales and operating income for
the three months ended December 31, 2006, were $23.2 billion and $3.2 billion, respectively, as
compared with $22.1 billion and $3.4 billion, respectively, for the three months ended September
30, 2006. Total steel shipments for the three months ended December 31, 2006, were 26.7
million metric tonnes as compared with 26.9 million metric tonnes for the three months ended

September 30, 2006. Pro forma depreciation for the three months ended December 31, 2006,
decreased to $875 million as compared with $910 million for the three months ended September
30, 2006. Pro forma net financing costs for the three months ended December 31, 2006, was
$4million income as compared with $352 million expense for the three months ended September
30, 2006, primarily due to a gain resulting from a Canadian dollar swap in the three months
ended December 31, 2006. Pro forma income tax expense for the three months ended December
31, 2006, decreased to $642 million as compared with $669 million for the three months ended
September 30, 2006. The effective tax rate for the three months ended December 31, 2006, was
18.6% as compared with 20.5% for three months ended September 30, 2006. Pro forma minority
interest for the three months ended December 31, 2006, increased marginally to $443 million as
compared with $420 million for the three months ended September 30, 2006.

Did The Deal Create Value?

Strong financial performance in the second half of 2006

Full-year (EBITDA) rose 2.1% to $15.27 billion from $14.96 billion in 2005

Combined sales slightly decreased in 2006 but had a quantum jump in 2007

Sales figure for Mittal Steel more than doubled after the merger.

Net Income of the company has risen from $3.36 billion to $6.10 billion in 2006 and to
$11.8 billion in 2007

Venture into new businesses and market like Luxembourg, Senegal, Liberia

Enlarged brand portfolio

Conclusion
Mittal & Arcelor According to what we have managed to learn from the Arcelor-Mittal case, a
hostile takeover goes rarely flawless or without opposition. Since dealing with such a big player
like Arcelor, one might think that the opposition faced by Mittal Steel was inevitable, and surely
enough several governmental organs and actors opposed the bid issued by Mittal. What Arcelor
did to prevent the hostile takeover to a start, was to develop a communications plan, Project
Tiger, in hope to convince its shareholders not to sell their stocks. Furthermore, they looked for
alternatives, thus engaging negotiations with Russian Severstal in hope to create a mergence
through what in media and press had been referred as a friendly merger. The deal never closed
and Arcelor failed to adopt what potentially could have been a White Knight defense strategy.
What we would have liked to see from Arcelors side in its line of fending off the hostile bid
from Mittal Steel, is perhaps that they would have considered implementing other strategic
defense strategies, such as either Staggered Board or even the Poison Pill defense. These options
are available of course only to Arcelor before receiving a hostile bid. Arcelor could have had
issued a proposal with the consent from their shareholders, to implement certain defense actions
that would have had a pro-active effects when facing a hostile takeover. Furthermore, we believe
it is rather ignorant of Arcelor not to have prepared certain defense measurements against future
potential hostile takeovers, based on the share size and attractive market position of the
company. One would think that such a well-established and big company such as Arcelor,
competing globally, would have had developed defense measurements to fend off any hostile
attempt on the company. With the implementation of the poison pill defense measurement,
Arcelor could have potentially diluted their stocks, thus forcing the bidder to have consensus
from the board of directors, in order to be able to gain ownership over enough amount of stocks

to control the company. Furthermore, the poison pill defense strategy also works as a tool for
creating more time. More time for the target company to evaluate and analyze the bid and logic
behind it while potentially engaging negotiations with the bidder in hope to increase its bid offer,
thus receiving a higher bid premium which in the end increases the wealth of the shareholders.
36 A flip-in poison pill enables the target company to issue new shares when facing a hostile bid.
The new shares issued, are available to the target companys shareholders only and are usually
sold at a price far beneath the market price of the share. This makes it more difficult for the
bidder to gain a majority stake of the shares in the company, thus buying the target firm some
time to reflect over the actual bid as well as potentially increasing the bid premium received from
the bidder. Furthermore, the poison pill defense strategy could be implemented in combination
with for instance, the staggered board defense strategy. A combination of these two defense
measurements would potentially have made the bid issued by Mittal, far more time consuming
and probably a lot more expensive. In practice, the Staggered Board defense strategy, prohibit a
replacement of the entire board of directors of the targeted firm in one single year. By
implementing the Staggered Board strategy, the acquiring firm is only allowed to replace parts of
the management and board of directors each year, even if they have control and the majority in
shares. In conclusion of this case study, based on the case study on Mittal-Arcelor and the
different strategies used in defense, we believe that the actions taken by Arcelor was relatively
rationale and reasonable. They did not implement any official conventional defense strategy, but
instead developed a communications plan, in hope to persuade its shareholders not to sell to
Mittal Steel. They engaged negotiations with Russian Severstal, the possible White Knight for
Arcelor, but the deal never went through. According to our research, there were possible
alternatives for Arcelor in defending against the hostile bid. For instance, they could have

implemented either a poison pill defense strategy, a staggered board defense strategy or even the
two of them combined for the best potential result. Instead, Mittal Steel increased its offer for
Arcelor and this time, a merger

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