Week 2 Mittal Acquires Arcelor in a Battle of Global Titans_Solutions.docx

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Seminar 2: Mittal Acquires Arcelor in a Battle of Global Titans Ending five months of maneuvering, Arcelor—created in 2001 by a combination of steel companies in Spain, France, and Luxembourg—agreed on June 26, 2006, to be acquired by larger rival Mittal Steel Co. for $33.8 billion in cash and stock. Mittal is headquartered in the Netherlands and has plants outside Europe where labor costs are lower. Mittal acquired Arcelor to accelerate steel industry consolidation and reduce industry overcapacity. The combined firms could have more leverage in setting prices and negotiating contracts with major customers such as auto and appliance manufacturers and suppliers such as iron ore and coal vendors; in addition, they could eventually realize $1 billion annually in pretax cost savings. The takeover battle was one of the most acrimonious in recent European Union history. It shows how far a firm can go in an attempt to halt an unwanted takeover. Mittal first tried to consummate a friendly merger but was rebuffed by Arcelor’s president. Then, in January 2006, Mittal launched a tender offer, mostly of stock and cash, for all of Arcelor’s outstanding equity at a 27 percent premium over the share price at the time. Arcelor’s management, European trade unions (fearing job losses), and government officials reacted swiftly and furiously. Arcelor’s president then undertook one of the most aggressive takeover defenses in recent corporate history. Early that 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—aimed at motivating Arcelor shareholders not to tender their shares to Mittal. Arcelor also backed an unsuccessful move to change the law to require Mittal to pay in cash. To counter these moves, Mittal Steel announced 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 pointed out that it could acquire the remaining shares through a merger or corporate reorganization. This rhetoric sought to encourage Arcelor shareholders to tender their shares during the first offer. A host of other defensive steps were then taken. In April, Arcelor com- pleted a deal initiated in 2005 to buy Canadian steelmaker Dofasco for $5 billion and then set up a special Dutch trust to prevent Mittal from getting access to the asset, which Mittal was

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