Arcelor Mittal deal (finally) to make steel powerhouse
After five months of fervent opposition by Arcelor management, the Luxembourg-based steel company has finally agreed to the hostile-buyout initiated by Dutch-based Mittal, The final price, $33.8 billion, is the result of Mittal repeatedly sweetening its original bid in order to make Arcelor shareholders finally demand acceptance of the buyout, in spite of both management and (French) government opposition,
The companies currently represent the #1 and #2 steelmakers in the world, and in combination they will produce 10% of the world market. That may not sound like much, but this is an industry where there is considerable nationalistic pressure against global firms. The new company will be dominant in Europe and the Americas. By comparison, the #3 steelmaker, Nippon Steel, has only a 3% world market share. The new giant will have even more power in negotiating with customers and in taking the lead in setting prices. It also may allow the company to negotiate with more authority to the iron-ore oligopoly.
Already it looks like there is more consolidation in the works as smaller companies panic. As a Wall Street Journal article ("Arcelor Agrees to Acquisition by Rival Mittal", 6/26/06) notes:
That dynamic, some say, will shake up the steel industry world-wide and could prompt more mergers and alliances that create a few steel giants in the industry. Many analysts now are expecting a round of deals in other top steelmaking countries and regions such as Japan, South Korea, China, Russia and Brazil.
In fact, two Australian steelmakers today agreed to merge. OneSteel Ltd. will buy Smorgon Steel Ltd., in a $1.1 billion deal.
There are still some messy prices to clean up. Arcelor's $5 billion acquisition of Canadian steel firm Dofasco has been placed in a trust as part of Arcelor's defensive measures. Breaking that trust may run into antitrust questions in Canada.
More important is Arcelor's deal with Russian steelmaker Severstal, which would have given the Russian principal of that company a major stock position in Arcelor in exchange for the company. Mittal will owe, at minimum, a large breakup fee because of the change. The Russians are insisting that their deal with Arcelor is final. Also, Arcelor shareholders have to accept the deal,
If all this comes off, Mittal's meteoric rise from a small company snapping up unwanted and antiquated mills to becoming the biggest steel power with some of the most modern and high-end mills as well as the older and lower-end works.. In the course of a few years, a sharply fragmented industry has seen its prosperity return (albeit with some cyclical variations) and its players reduced. Mittal's drive to be a dominating #1 has caused changes throughout the industry.
