Topic 10 Tutorial Questions-3.pdf - Topic 10 Tutorial...

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Topic 10 Tutorial Questions (discuss Wk12) 1. What effect does the empirical research find hostile takeovers have on shareholder wealth? 2. Case study: Arcelor and Mittal Steel, one of the meanest M&A deals ever Arcelor agreed on June 26, 2006 to be acquired by larger rival Mittal Steel for $33.8 billion in cash and stock. The takeover battle was one of the most acrimonious in recent M&A history. Arcelor was created in 2001 through the merger of steel companies in Spain, France, and Luxembourg. In contrast, Mittal Steel, the world’s largest producer of steel established its position through two decades of acquisitions in emerging nations. Prior to the Arcelor acquisition, Lakshmi Mittal, a member of an important industrial family in India and CEO of Mittal Steel, owned 88 percent of the firm’s stock. Mittal Steel acquired Arcelor to accelerate steel industry consolidation and to reduce industry overcapacity. Combining the firms’ operations would also mean greater leverage in setting prices and negotiating contracts with major customers. After having been rebuffed by Arcelor’s president, Guy Dolle, in an effort to consummate a friendly merger, Mittal Steel launched a tender offer in January 2006 consisting of mostly stock and cash for all of Arcelor’s outstanding equity. The offer constituted a 27% premium over Arcelor’s share price at that time. In early February, Arcelor doubled its dividend and announced plans to buy back about $8.75 billion in stock at a price well above the then current market price for Arcelor stock. Arcelor also backed a move to change the law in Luxembourg so that Mittal Steel would be required to pay in cash. This move ultimately failed. To counter these moves, Mittal Steel said in mid-February that, if it received more than one half of the Arcelor shares submitted in the initial tender offer, it would hold a second tender offer for the remaining shares at a slightly lower price. Mittal Steel pointed out that it could acquire the remaining shares through a merger or corporate reorganisation. In late 2005, Arcelor bought Canadian steelmaker Dofasco for $5 billion. Mittal Steel was proposing to sell Dofasco to raise money and avoid American antitrust concerns. Following completion of the Dofasco deal in April 2006, Arcelor set up a special Dutch trust to prevent Mittal Steel from getting access to the asset. The trust would be run by a board of three Arcelor appointees. Mittal Steel immediately sued to test the legality of this tactic. In addition to this, in a deal with Russian steelmaker Severstahl, Arcelor agreed to exchange its shares for Alexei Mordashov’s 90 percent stake in Severstahl. The transaction would give Mr Mordashov a 32 percent stake in Arcelor. After major shareholders pressured the Arcelor board to at least talk to Mr Mittal, Arcelor demanded an intricate business plan from Mittal Steel as a condition that had to be met. Despite Mittal Steel’s submission of such a plan, Arcelor still refused to talk. In late May, Mittal Steel

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