Are you following the Arcelor steel hostile bid by Mittal Steel and recent drama by the board of both the companies confusing investors to the maximum.
Game history:
Arcelor Steel and Mittal steel which are considered first two of world's very large steel companies, are in a tussle. In a hostile attempt Mittal steel(world's largest) has been trying to acquire Arcelor steel(world's second largest and major competitor to Mittal), to become the monopolistic large steel company in the world.
Arcelor being a large company itself, obviously not willing to be acquired that too by chief competitor Mittal, called for various methods to counteract the hostile attempt of acquisition by Mittal.
(For newbies to public share based company manipulations: If a major part of shares of a company is acquired by a person or another company, the other company is said to be acquired since the buyer being the major stock holder gets the largest voice in the company's business and operations. So, someone needn't actually request a company to accept acquisition.. its often forced acquisition like this with almost all big companies, Database Software giant Oracle acquiring CRM & Management software giant peoplesoft (which was leader in the domain) to give a big entry for Oracle in the sector, is another forced acquisition example which happened last year)
Arcelor in this situation had sought even legal sanctions from its country's government to block the acquisition attempt by Mittal, and a lot of activity has been happening since then. On the Mittal side, Mr. Lakshmi Mittal considered one of the most wealthiest in Britain is doing everything legally and informally possible to make the acquisition flow through, since it will allow Mittal to dominate the market and today steel is hot cake next only to Oil.
Lately...
Lately there was a protest by Arcelor employees against the acquisition which failed to gain momentum but made Mittal increase the bid amount by almost 30% of an earlier bid.. Lastly Mittal's asking was "25. point nuts billion Euros". Arcelor ignored this offer too and was busy working ways to stop Mittal.
Counteraction later, led to Mittal going to the stock market and announcing an open offer to buy all Arcelor stocks traded, for a premium, if investors wanted to sell it to Mittal. The offer is currently open.
Arcelor's turn again.. and ball is being given another shot.. Arcelor yesterday announced a tie-up with a russian steel maker 'Severstal', and the chairman of Severstal Alexei Mordashov will sell his majority stake in the company.. which will make Arcelor the major stake holder of the Russian firm, and in return Mordashov will get 32% of the merged Arcelor-Severstal steel Co. ..which takes Mardashov directly to the big board of Arcelor.
This new tie-up will need Arcelor's public stake holders approval, as like any company level decision.. and the approval will be sought by June 28th.
There are two things now.. If Arcelors investors approve of the tieup the new company cannot be acquired by Mittal probably because it will be bigger and have more share holders to woe. But if before july Mittal makes more than or close to 50% of shares of Arcelor in its open offer making Mittal major stake holder of Arcelor, then Mittal will obviously cancel the tieup with the russian giant and remain the major share holder.
So, the ball is now rolling.. July will decide where Arcelor settles.
There are many reasons why Arcelor would not like to be acquired by Mittal.
* Arcelor is already a giant in steel, and is a core competitor to Mittal, just that it has less money than Mittal shouldn't become its weakness and give into Mittal's bid. It affects mindset of Arcelor employees and directors who are currently working with "their" company Arcelor. (If Mittal takes over, it could be more Mittal's company)
* Mittal groups corporate governance, they say has more of his family, bringing more family interests, and that, Arcelor says, is not convincing that Mittal will be able to carry the new merged business better than what Arcelor is now.
* Mittal is an indian settled in Britain.. and this may disturb or atleast raise some eyebrows if he becomes more heavier in an industry dominated by Europeans since industrial revolution.
Small investor interests anybody ?
This is like the arranged marriage system in India.. where parents arrange for two people to get married based on everything else except the bride and the groom who stand strangers till almost 2-3 months after marriage.
What I mean is... Whatever said, Investors are plain simply considered traders on the stock market by all public companies and not actually people who the company. There are rules that things need be transparent with the investors, much more stricter rules like the recent SOX compliance, but its still left to the board of the companies to decide what information goes out..
The interests of the carefully appointed board of the company are the core of the business, and share holders are only for annual body meetings and approval votes. Even if the general public share holders vote against a company decision, its highly probably and most often still approved since the major stake holders who are on the board, approve it. And what not, major stake holders are not people who buy here..there and gain a major share, they are always business contacts of the other major stake holders of the company.
The background processing
In my opinion, its hightly unlikely that Mittal wins... because there are always political interests in large companies and there will background dealing which will decide what happens. And for that, Mittal could already be working in the background to attract medium -majority stake holders to his offer.
Processing.. please wait.
Lets wait to see how this game turns...Mittal or Arcelor.
Related...
Arcelor Severstal deal - Hindu on net
buzzle.com The takeover bid story so far
European protectionism.. says Felix online
Close
I don't believe Mittal will be able to takeover Arcelor. Living in France I really know how the government protects its major companies and Im sure a lot of governmental intervention is involved in this deal. Even amiable mergers have theirill-effects , considering that what Mittal is trying to do this is more of an hostil takeover. I think the idea of racism is also quite a large factor, not exactly coz the french dont like Indians..they just dont like anyone to take over any of their larger enterprises.You can see it in the example of Enel and Suez..When Enel, an Italian power company tried to buy the french energy giant Suez, the government intervened by making Gaz de France (which was a majority shareholder in Suez) step in. They didnt like the idea of a not so rich european country taking over their Suez. They even got scared when Pepsi wanted to takeover Danone. Well, al in all I think the french government's attitude has to change if they want to improve the state of their sluggish economy.
Reply | | Report Abuse
Actually you bring in a good point about oracle and peoplesoft. Recall HP and compaq. That was a very bitter "internal" battle too, with Fiorina ultimately paying the price. Mittals will not have to do that. Even then, what intrigues me is their escalating bid. Will try to find out more and put it here. On the surface, does not make sense.
Reply | | Report Abuse
i understand mittals and arcelors are different clients.. but there sure is some scraping of each others customers which would happen in business so huge and when they are the top guys, also, since they are the mostly considered top two the scraping could actually be more, and the cold war would have been there for a long time unlike what many think as a new war because of a new interest of acquisition.
i am not for acquisitions, it helps the acquiring company become bigger suddenly.... but sure swallows all the vision and drive the acquired company and its employees had. Further it stops innovation in products and services of both companies for a while, waiting for the settling the sudden growth... All big companies that acquired another big one go out of news and new launches for a while, like digesting a huge mouthful with fear of spilling.
but i am feeling it that mittal wont be able to take up arcelor, because of the highhanded interests of seemingly many external parties including the country's government in blocking the acquisition by trying sanctions. On the other hand, if this takeover wins, like how oracle forcefully bought a fast-growing company peoplesoft without peoplesoft's interests, it would revive confidence in all those hungry big companies after a long time of failures with the gallop- majority-stock acquisition method. Who knows microsoft might try renewed efforts to acquire SAP.
Reply | | Report Abuse
As the previous comment said, a very nice and clear explanation of what is happening. A couple of things I would like to add.
1. Arcelor is not exactly a competitor to Mittal as you said. Arcelor is a leader in high quality specialty steels whereas Mittal is the giant in the lower end in North America and the emerging economies. Arcelor would have given Mittal the entry into specialty and high quality steels. So they are complementary and not competitive. So there is a logic to Mittal's bid for Arcelor, and it is not exactly an anti-competitive move. Moreover, the industry at all ends is consolidating fast, and it is in the interests of Arcelor to wake up to that. Norwegians sold out to the Brazilians and so on. But the French predictably resist.
2. Corporate governance in Arcelor was pretty good until recently whereas Mittal is still run like a family business despite its size. The Mittal family members have disproportionately high weightage in voting which means that minority shareholders can only trust the Mittal family to do what is right for them, and have little say. When confronted with these differences, the Mittal family has made some noises about retaining the governance structure of Arcelor even after acquisition but one cannot be too sure. It is very possible that the Mittals will do what is good for every investor even if they retained tight control. But intention is not the same as judgement, decision and outcome. The giant that it is now, Mittal Steels is liable to eventually come under the same pressures of decay and sluggishness that other large companies did. It is at that point, minority shareholders and outsiders matter but more often than not, family-run businesses recognize that only too late. Everyone loses in the end.
This is a good time for the Mittals also to reflect and change for their own good. What is more, changing the way they govern their businesses will also bring in a modicum of respectability.
3. Arcelor has deviated from its own governance practices just to ward off Mittal. First, in April they transferred a Canadian acquisition of theirs, Dofasco, to a Foundation. Foundations are run by trusts, and difficult to disentangle. Mittal, if he acquires Arcelor, will have to sell Dofasco to keep the anti-trust people away. But now, the German foundation (Stichting) can potentially frustrate the sale. Moreover, Arcelor hastily raised its dividends to placate the institutional and individual shareholders. The wisdom of that can be questioned. People are saying that all this is being done by the CEO Dolle to keep his seat. Some speculate that the governments- Spanish and French- might be encouraging this move from behind the scenes since they took a lot of flak for their earlier jingoistic stance.
4. Given the long drawn battle over these assets, is there some racism involved? There certainly is. Racism and elitism are involved. Recall what Luxembourg did.
The latest Arcelor deal with Severstal is not likely to get the nod of the investors. Ultimately, whether any good will come out of this bitter battle is doubtful. If Arcelor succeeds in warding off Mittal, it would have done so by endangering its own future by dealing with the devil (the Russians), and not unlike the stupid woodcutter who was chopping off the branch on which he was seated. Too many resources were diverted and too much energy spent on warding off the Mittals, and that will show in the future.
As for Mittals, after all this, there is a big question mark of their capability to run a business which is not in trouble (therefore, employees will not go with anything you ask for, especially given the strong unions) and a business that is used to certain governance norms. Moreover, it is a business in which they have no experience. Too many companies over the decades have learnt that running a business is not exactly the same as trading assets. Moreover,the latest bid (May 31) is already very high. So, if Mittal wins against Dolle, we will have to wait and see what happens to the company five years from now.
I personally think that the Mittals are making a mistake by acquiring Arcelor. But that is an analytical judgement, and could be wrong or right. However, the charged atmosphere surrounding the battle is anything but analytical.
Reply | | Report Abuse
i don't know much of mergers , finances and stocks ,
but ur write up was well explained ,
an amatuer can also understand it ,
ur veiwing these two company happenings
like a cricket match , please do post the outcome ,
will mittal own the other ?
Reply | | Report Abuse