INDEX

SR .NO. CONTENT PAGES

1. Introduction 1
2. Takeover, Expert’s view , Target, Offer, 2-5
Reactions , etc
3. Break through, Merger and after 6 - 11
4. Outlook 11 - 12
5. Arcelor Sustainable Development 13 - 14
Strategy
6. Annual reports , financial statement 14 - 18
balance sheet, cashflows , income
statement, statement of shareholders
equity
7. Conculsion 18
8. Bibliography 19
Birth of ArcelorMittal & After
This case has been compiled from published sources; mainly the annual reports of the two merging
companies, the merger documents, their press releases, the minutes of their AGMs/EGMs, SEC
filings, The Financial Times, London; The Economic Times, Mumbai; The Economist, London; The
McKinsey Quarterly, Rediffmail.com, and The Indian Express, Mumbai.

It is intended to be used as a basis for classroom discussion rather than to illustrate an effective or
ineffective way of handling a management situation. Though the information has been collected
from sources considered reliable, it is strongly suggested that this document should not be used as a
primary source of information on the companies or on the steel industry.

INTRODUCTION:

BIRTH OF ARCELORMITTAL

Mittal Steel Company, world’s largest steel producer, launched its bid for acquiring Arcelor, the
second largest steel producer of the world, on January 27, 2006. After months of tortuous
negotiations Mittal Steel succeeded in getting the shareholder’s approval in June 2006 and the
merged entity ARCELORMITTAL came into existence in November 2007

Acquirer: Mittal Steel Company NV (MSC), was a Holland based company of India born
industrialist L N Mittal. A very young company, MSC was formed in 2004 after a $4.5bn takeover of
International Steel Group of the US, and a merger of Mittal’s existing assets LNM and Ispat
International. The result, Mittal Steel, became the first truly global steel company. Before the
takeover of International Steel Group, described by many as “bold”, Mittal had been acquiring steel
assets all over the world, mostly in the developing countries including Eastern Europe. None of his
other acquisitions were in the same league as International Steel Group, which itself was a minnow
compared to Arcelor. The opening bid placed a deal value for Arcelor at $22.7bn, i.e. about four
times as much as Mittal paid for International Steel Group.

Target: Arcelor was headquartered in Luxembourg, with works in France, Spain, Brazil and other
countries. A young company, Arcelor came into existence in 2001 with merger of three steel
companies- Aceralia, Arbed and Usinor. (Usinor was France’s biggest steel maker.) In 2005, Arcelor
had revenues of 32 billion Euros and produced over 48 MMT of steel. Arcelor had greater
concentration on downstream facilities and was more in value added steel market.

Offer: The original offer of MSN valued the target at $22.7bn. The offer was part cash part stock –
Mittal Shares (75 percent) and cash (25 percent). Under the offer, Arcelor shareholders would have
received 4 Mittal Steel shares and 35 euros for every 5 Arcelor shares they held. The offer was
valued at about 27% premium over Arcelor’s closing price on the previous day.

Reactions: Stock markets reacted positively to the offer, both shares recording gains, target by as
much as 28.44%; acquirer by 6.09%. EU competition commissioner said the bid will be 3inalized3d
for any potential dominant market position. French finance minister, said he had “concerns”, as
Arcelor was among the largest employers in France. Arcelor announced a day after the bid was made
that its board had unanimously rejected the offer and recommended its shareholders not to tender
their shares to Mittal Steel. Prices of both, target and acquirer made further, though smaller gains on
European stock exchanges.

(1)
Competition Issues: In Europe, the Competition Commission ultimately decides on fate of merger
bids of this kind that may hurt competition by creating or strengthening a dominant company. The
commissioner, Ms Kroes made clear she would examine the takeover only in the light of competition
rules, not to see what effect it would have on employment. She said: “We will look at this issue, as
always, very carefully, on competition grounds – and on competition grounds only. The regulation
gives us no power to question mergers for other reasons. You can be sure that when the bid is
notified, we will do our job properly, taking into account the complete set of competition
regulations.” Although the Commission has the power to block takeovers outright, it has rarely used
that. Its concerns (emergence of an over dominant player) are more often addressed through disposals
of certain assets.

Incidentally Arcelor, just a week before announcement of Mittal’s bid had itself 4inalized the terms
of a $4.7bn hostile acquisition of Canadian steel maker Dofasco. The other bidder for Dofasco was
Thyssen Krupp Group of Germany. Mittal had announced that it would sell back this unit to Thyssen
Krupp if he succeeded in acquiring Arcelor; rightly surmising that competition regulators may insist
on such a divestiture. His calculations proved spot on, American antitrust authorities did insist on
this divestment and ArcelorMittal sold Dofasco to Thyssen Krupp in 2007.

Even though the combined group was set to be the biggest steel producer in the world by far, its
combined global market share will be only about 10 per cent – far below any thresholds that might
raise concern among regulators. However, in previous merger decisions affecting the steel industry
the Commission had usually defined steel markets much more narrowly, splitting up the industry into
both national markets and into different product categories. The proposed merged entity could
therefore still be found to be dominant in one or more of those sub-sectors.

The European Commission’s commitment that it would examine the deal in the light of the
competition laws only meant a lot for acquirers as European governments were “famous for
preserving European control of corporations and jobs, at the expense of economic efficiency.”
Though the acquirer, Mittal Steel Company, was a Holland incorporated European corporation,
acquisition was widely viewed as an Indian’s attempt to takeover of European assets. (Aside, why so
few BPO deals are originating from Europe?)

Expert’s view: Professor Robert F Bruner, dean of the Darden School of Business, University of
Virginia and a leading M&A analyst from American academia: “This deal is driven by excess
capacity in the global steel industry and by technological innovation. Mittal is an instrument of
change for the industry, removing excess capacity and rationalizing the availability of capacity. Also,
Mittal is a proven operator that enhances the efficiency of the assets it acquires – mainly through the
transfer of technology and know-how. So far, Mittal’s acquisitions have helped this industry adjust to
the need for change. Customers and ultimately individual consumers are the beneficiaries of Mittal’s
actions.”

He however cautioned that “the scale of the proposed takeover dwarfs Mittal’s previous deals. Big
acquisitions are significantly harder to integrate successfully than smaller deals’ and went on to add
that “we should hope and expect that Lakshmi Mittal very carefully plans the post-merger
integration. So far the stock market has given this deal an enormous vote of confidence – but this too,
warrants caution since my study showed that overconfidence is another precursor of failure.”

(2)

Electronic copy available at: https://ssrn.com/abstract=1692910

Steel Industry: The steel industry was / is highly fragmented, the top 5 manufacturers in the steel
industry account for less than 25 percent of the market (to put that in perspective, the corresponding
figure for the automotive industry is 73 percent). LN Mittal believes that the consolidation will end
with three or four major companies dominating the industry around 2010.

World Steel Producers Output

(2005 total 1.3bn tonnes)
70
60
Million Metric Tonnes (MMT)

50
40
30
20
10
0
MittalSteel

Arcelor Nippon JFE Posco Corus

Steel Japan US
Steel

Bigger steel manufacturers have better bargaining powers against customers (such as auto
manufacturers) and against suppliers (iron ore). Consolidation helps in companies improving their
sourcing of raw materials; access to more markets, better utilization, and more flexibility in
production scheduling and better efficiency. (See the box: The Man)

Controversy: Mittal Steel bid was perceived as hostile by Arcelor. This perception, in all
probabilities, was because of the Arcelor management’s strong belief that Arcelor itself would have
been doing the acquisitions and not the other way around.

In its Annual Report for 2002 it had declared its medium-term objective to earn an average pre- tax
return of 15 percent on capital employed over the business cycle, coupled with a significant
improvement of the debt-to-equity ratio by the end of 2004. One of the initiatives it had identified for
achieving this objective was “to play a pivotal role in the development of the global steel industry,
driving the growth of the Group through targeted acquisitions that create value and anchor Arcelor’s
presence in key regions”. In its annual report for 2003 Arcelor reiterated this strategy of inorganic
growth when it professed to ensure “our growth through targeted acquisitions that create value and
strengthen the geographic presence of Arcelor”. Acquisition of Dofasco demonstrated how serious
Arcelor was about acquisitions. In 2004 Arcelor had also acquired a majority shareholding in CST (a
company producing carbon steel slabs in Brazil) and took control of another steel maker Acindor in
Argentina through one of its subsidiaries).

The CEO of Arcelor Mr. Guy Dollé had set sights on becoming the global leader through
acquisitions. In an interview published in Arcelor’s annual report for 2005 Dollé in response to how
do you see Arcelor’s performance in the medium term” observed that “We are currently embarking
on our strategic plan for 2006-2008, with the following key objectives: normalized EBITDA of €7bn;
maintaining free cash flow of €4.4bn per year; and value-accretive acquisitionsthat guarantee a return
on capital employed (ROCE) in excess of 15%.” Earlier in the annual general meeting of Arcelor in
April 2004, Mr Dollé had made the following comments: “…The strengthening of our balance sheet
enables us to embark on a new phase of external growth, which will consolidate and confirm our
global leadership. For a group like Arcelor, which generates 75% of its sales in the European
Union, it is clear that a shift in the geographical

(3)
Electronic copy available at: https://ssrn.com/abstract=1692910
Unfolding drama: Arcelor meanwhile announced a better-than-expected jump in its dividend
payout, €1.2 per share, an 85 per cent increase on 2004’s payment. Some observed that higher
dividend was a defence against the bid but Arcelor chief executive claimed it to be normal
“considering our fantastic results and our stock price performance”. Arcelor posted net profits of
€3.8bn last year, up from €2.3bn in 2004, in spite of a drop in steel prices. Company said the higher
payout “reflects structural improvements of Arcelor’s profitability”, and that the group was
“committed to keep increasing shareholder remuneration year on year”.

Meanwhile, in May 2006 Mittal had increased his offer to $25bn and had made cleared that he would
not increase it any further. Around the same time Arcelor contacted Russian steel maker Severstal for
a merger. (Severstal, based in the northern Russian city of Cherepovets is the second largest Russian
steel maker. It is listed in Russia and London and its produce are exported to over 50 countries.)
Arcelor and Severstal had been negotiating on joint initiatives for several months.

Arcelor reported that it had agreed to buy most of Severstal, Russia's third-biggest steelmaker in a
Euro 13 billion ($16.4 billion) transaction, which would give Russian tycoon Alexei Mordashov up
to 38 per cent of the combined company. "The Severstal transaction represents a key step in
implementation of Arcelor's value plan and growth strategy and it is consistent with its strategic
vision, business model and corporate values."

Arcelor set the price per share of the self-tender at Euro 44; that is six Euros more than offered by
Mittal. Stating that Severstal transactions were more "attractive alternative from a strategic
financial and social point of view," Arcelor took a dig at Mittal Steel, saying that "the revisions of
Mittal Steel's offer announced on May 19, 2006 demonstrate that its initial offer undervalued
Arcelor.”Notwithstanding the increase in the consideration offered by Mittal Steel, the Arcelor Board
of Directors believes that this offer is still inadequate as it continues to undervalue Arcelor," the
statement added.

Pitching for this deal with the Russian Steel group, the Arcelor management board, asked its
shareholders to support the Severstal transactions at the general body meeting on June 30.

Breakthrough: Around the same time, May –June 2006 Arcelor's supervisory board instructed its
management giant decided not to commence "such self tender offer until after the publication of
Mittal Steel's offer results” and mandated the group management board to meet with Mittal Steel in
order to review its proposal to further improve its offer. Dwelling on the reasons leading to the
rejection of Mittal Steel's offer, Arcelor said its 34 per cent increase offer was required to re-align
with the bid initially offered by the company due to its under-performing share price vis-à-vis
Arcelor's share price. Although there was no formal word from the Mittals, there were indications
that they might submit a revised offer. Arcelor board finally on 25th June announced acceptance of
Mittal group's takeover bid, improved to euro25.9 billion ($32.4 billion). Announcing the decision,
Arcelor Chairman Joseph Kinsch told reporters that his Board unanimously backed a new takeover
offer from Mittal Steel. "We concluded that Mittal Steel's was a better offer than thatof Severstal," he
said.

The details of the transaction with Severstal, which was recommended by the Board to shareholders,
were as under:

Mr. Alexey A. Mordashov, Chairman of Severstal was to transfer all his economic interests in the
Severstal steel business to Arcelor, which included:
Severstal North America,
Severstal Resources (iron ore and coal)
His stake in Lucchini

(4)
Electronic copy available at: https://ssrn.com/abstract=1692910
There was widespread opposition from the shareholders of Arcelor to this Severstal transaction.
Mittal by the final round of negotiation had substantially increased his bid from opening $22bn to
34bn and had agreed not to insist on majority holding in the merged entity and had also agreed to a
Board of the merged entity which would have majority from Arcelor. Under the agreement,
reportedly, the stake of the Mittal Group will reduce to 45 percent and the merged firm will be called
Arcelor Mittal. It was reported that Lakshmi Mittal will be the co-chairman and Joseph Kinsch is said
to continue to be chairman.

EGM and after: The shareholders met on the 30th June and 58% opposed the Severstal deal clearing
the bid of Mittal Steel. The deal was enthusiastically hailed in India. Commerce Minister Kamal Nath
called it a demonstration of the intellectual and entrepreneurial abilities of Indians, “I had raised this
issue when countries had tried to block it and said that globalisation is not a one- way street. We are
going to have in this new economic order, Indian corporates, people of Indian origin investing and
creating employment and creating economic activities in other countries. So this is happening and I
really think that countries need to realise this that there's a new economic architecture". Finance
Minister P Chidambaram also issued a comment: "We are very happy and proud that a company with
Indian links is the world's largest steel maker in the world".

Expert’s view: Jason Hunter of Steel Business Briefing said, "This may be attractive to some other
financial investors, but certainly for the individuals who are looking to gain additional long term
values to their investments, this may not be quite as attractive as they were hoping." The combined
entity will have 61 plants in 27 countries and some 320,000 employees all over the world. Industry
observers say that shedding excess staff and integrating the two management teams might pose a
problem.

Jason Hunter adds, "The difficult thing between the two companies is going to be the integration of
the management team, both in Europe and in North America and other regions, due to the hostilities
that had been going on over the last five to six months. Some of them have been fairly aggressive on
the comments from both sides.

Takeover: Mittal Steel, in terms of the revised offer was to give 13 Mittal Steel shares and 150.60
Euros for every 12 Arcelor shares. If the takeover was accepted by 100 per cent of current Arcelor
shareholders, they will end up owning 50.5 per cent of the combined group, with the Mittal family
owning 43.6 per cent of the capital and voting rights.

The minimum condition for takeover was acquiring 50% of Arcelor shares. MSC made a public offer
and by 18th July claimed "Mittal Steel announces that on a preliminary basis and based on statements
made by financial intermediaries, the minimum tender condition of the offer (i.e acquisition of 50 per
cent of Arcelor's outstanding shares on a fully diluted basis) has been met".

Mittal Steel, on the 26th July announced that it had acquired 92 per cent control over Arcelor from
shareholders who had tendered 594.5 million shares and 19.9 million Arcelor convertible bonds had
so far, representing 91.88 per cent of the group's fully - diluted share capital. Mittal Steel announced
to reopen the offer giving remaining shareholders time till August 17 to tender their shares. It was
reported that between end of January 2006 and the end of July 2006 i.e. between the first offer made
by Mittal to Arcelor and closure of the offer to the target’s shareholders, the combined market
capitalisation of the two companies had gone up by $8 billion.

By September 2006 L N Mittal was reportedly 'pleasantly surprised' at how complementary the
$34.3 billion merger of his company Mittal Steel with its nearest rival Arcelor proved to be. Mittal
was appointed the non-executive chairman of the merged entity and expected to “play a part in
setting strategy, giving a vision for the company, looking at growth opportunities, talking to
employees, strategic investors and overseeing and helping the integration”.

(5)
Electronic copy available at: https://ssrn.com/abstract=1692910
Merger: By August 2006, MSC had become the majority shareholder of Arcelor, but the two
companies had not really merged yet. Legal and regulatory provisions of different countries – The
Netherlands (where Mittal Steel was registered), Luxembourg where Arcelor was registered and
USA as both companies were listed at New York Stock Exchange, among other. The mechanics of
the acquisition and merger, as agreed between the parties is graphically represented here:

Mittal Steel makes open offer to shareholders of Arcelor; Acquisition

issues shares in exchange in addition to cash completed

Mittal Steel gets absorbed into a new company (We call

it vehicle for transition), shareholders of MSC get shares First step
in the transition vehicle

The transition vehicle will automatically get listed on all

exchanges where MSC was listed – (Reverse Merger)

Transition vehicle gets absorbed into Arcelor. Second step

Shareholders of transition vehicle get shares in Arcelor

Name of Arcelor is changed to signify the changes

The transition vehicle was Verger Investments S.A., a wholly owned subsidiary of Mittal Steel,
registered in Luxembourg in 2004. It had no activities and no assets except an insignificant amount
of cash. In April 2007 its name was changed to ArcelorMittal S.A. Shareholders of ArcelorMittal and
Mittal Steel agreed to a merger and the terms of the merger proposal and the
explanatory memorandum, Mittal Steel will merged into ArcelorMittal, by way of absorption by
ArcelorMittal of Mittal Steel and without liquidation of Mittal Steel. The combined company was
continued to called “ArcelorMittal.” After this merger became effective (3rd September 2007) all the
assets and liabilities of Mittal Steel (as such assets and liabilities that exist on the effective date),
stood transferred to ArcelorMittal, Mittal Steel ceased to exist and ArcelorMittal issue new shares to
the (then former) holders of Mittal Steel Shares.

Mittal Steel had two types of equity shares – Class A Common shares and Class B Common shares.
In this merger shareholders of Mittal Steel received one share each of ArcelorMittal for each share
(whether Type A or Type B) they held of Mittal Steel Company. Dutch and Luxembourg law permit
treasury shares – shares of a company, held by the company itself to be sold later in the market or for
other treasury operations. These shares are acquired by the companies in buyback programmes. This
merger agreement clearly stated that all treasury shares of Mittal Steel held by the company or by
ArcelorMittal would cease to exist from effective date. Thus on effective date 100% of the shares of
ArcelorMittal was held by former shareholders of Mittal Steel.

(6)

Electronic copy available at: https://ssrn.com/abstract=1692910

(These also included the former shareholders of Arcelor who had sold their Arcelor shares to Mittal
Steel for shares exchange and cash considerations in 2006.)

Mittal Steel’s shares were listed on stock exchanges at Madrid, Bilbao, Amsterdam, Brussels, Paris,
Luxembourg, Barcelona, Valencia, and New York Stock. From effective date ArcelorMittal shares
would be listed on all these exchanges and admitted for trading. Lakshmi Mittal, together with his
wife, Mrs. Usha Mittal, directly and indirectly owned 623,598,333 of Mittal Steel’s outstanding
shares on May 31, 2007, representing 44.79% of Mittal Steel’s outstanding voting equity. After the
merger, they owned the same percentage of the outstanding ArcelorMittal shares.

On 26th September ArcelorMittal and Arcelor announced details of the merger of ArcelorMittal into
Arcelor. On the 3rd September the merger of Mittal Steel Company N.V. (“Mittal Steel”) into
ArcelorMittal had become effective, which was the first step towards merger of Mittal Steel and
Arcelor. The merger announced on the 26th September between Arcelor and ArcelorMittal
constituted the second step of the two-step merger process between Mittal Steel and Arcelor.

On May 16, 2007, Mittal Steel, ArcelorMittal and Arcelor had announced that they would propose to
the shareholders of ArcelorMittal and Arcelor to implement the second-step merger based on a ratio
of 7 Arcelor shares for every 8 ArcelorMittal shares. On September 25, 2007, the Boards of Directors
of ArcelorMittal and Arcelor decided to restructure the share capital of Arcelor prior to the giving
effect to the second-step merger so as to have a one-to-one exchange ratio in the merger. This was
supposedly done to limit the effect of the merger on the ArcelorMittal share price and hence its
comparability pre- and post-merger. This was done by an exchange of every 7 pre-restructuring
Arcelor shares for 8 post-restructuring Arcelor shares. This of course had no economic effect on
Arcelor or ArcelorMittal shareholders.

In terms of the agreement entered into between Arcelor and ArcelorMittal, the latter i.e.
ArcelorMittal got merged into Arcelor by absorption. Thus all assets and liabilities of ArcelorMittal
(which were what earlier were the assets and liabilities of Mittal Steel) become assets and liabilities
of Arcelor from the effective date of merger. (For accounting purposes the entities were treated under
common control with effect from January 2007.)

In terms of this merger all shares of Arcelor held by ArcelorMittal ceased to exist (or evaporated, as
the Luxembourg laws read) on the effective date. We may recall that over 92% of the existing shares
of Arcelor were held by Mittal Steel, acquired in 2006, which had been transferred to ArcelorMittal
in the first step merger. All those shares now ceased to exist. All assets and liabilities of
ArcelorMittal became assets and liabilities of Arcelor and Arcelor issued one share of Arcelor for
each share of ArcelorMittal held by the shareholders of the latter.And finally Arcelor changed its
name by changing the articles of association on 5th November 2007 to ArcelorMittal. The company
Verger Investments S.A. which had changed its name to ArcelorMittal finally got merged into
Arcelor and Arcelor changed its name into ArcelorMittal!

Why did Mittal want to merge his operations with Arcelor?

While the negotiations were still going on (though Arcelor board had approved the merger), in the
annual general meeting the chairman of the Dutch shareholders’ association of Mittal Steel raisedthis
question in a rather pointed manner. Neither Laksmi Mittal nor his son were present during this
meeting, busy with meeting Arcelor top brass. A top functionary of Mittal Steel was in chair. The
question was about the identified synergy effects between Mittal Steel and Arcelor in terms of their
content and the risks involved, on the long term intentions concerning the voting rights, on the vision
with respect to the possibilities of an opening in the Arcelor discussion, and on the selling of Dofasco
to Thyssen Krupp.

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Electronic copy available at: https://ssrn.com/abstract=1692910

The Chairman advised that cost synergies were identified in three major areas: purchasing,
distribution and service center & operations. He quantified that the identified synergies added up to
1.25% of the total business of the two companies. He added that this was actually less than achieved
synergies in other acquisitions of Mittal Steel. (As the two charts would indicate, 1.25% would
amount to € 0.65bn per year. This by itself, perhaps, may not justify acquisition at $ 32bn.) He
however added that there were more synergies expected on the sales side, that were not quantified
yet.

They had also created a special arrangement for preserving Dofasco and in the process perhaps
safeguarding them from a possible takeover. (See the box)

Did the merger gain any new geographic areas for Arcelor Mittal chokes on its own poison pill
Mittal Steel? Merger made the new entity by far
the biggest player in Americas. But Mittal were To deter Mittal Steel from takeover, Arcelor
already bigger in Americas as the table would had set up a Dutch foundation (akin to a trust in
show: India), Strategic Steel Stichting in April 2006 to
$ bn hold shares of Dofasco. Its creation had evoked
Americas Europe RoW Total outcries of foul play from Mittal camp during
those politically charged early days of the
Arcelor takeover battle. The foundation’s directors,
2004 6.6 9.9 7.6 24.1 mandates included taking an independent view
2005 12.5 7.7 9.8 30.0 on sale of shares of Dofasco entrusted to them
Mittal Ste el for and on behalf of Arcelor.
2004 4.4 23.4 2.4 30.2
2005 6.5 23.2 2.9 32.6 In November 2006 when the two fighting
ArcelorMi ttal companies had already made truce and ink had
2005 19.0 30.9 12.7 62.6 dried on their well publicized merger agreement,
Sichting foundation refused to wind itself up,
despite requests for it to do so from the boards
Arcelor had a big lead over Mittal Steel in Europe. of both Arcelor and Mittal. Insisting on carrying
And despite being Dutch incorporated it seems out their original responsibility of taking an
Mittal Steel was viewed by many as an Indian independent view of any sale of Dofasco,
company and it must have been that much more Stichting directors were objecting on the grounds
difficult for Mittals to enter the fortress. The that Dofasco owns technology important to
differences become still starker if we bifurcate the Arcelor and that the price offered by
data in EU and Rest of Europe. It may be right to ThyssenKrupp was too low.
say that the merger had allowed Mittal to grow in
home turf. By this time, the United States Department of
Justice had made the sale of Dofasco a
The other difference that can be seen in the precondition for the approval of the merger.
operations of the giants is the realization of value Mittals had already started talks with the
per tonne. Mittal Steel produced and dispatched department to see if sale of any other North
much more than Arcelor in 2005 and realized less! American asset would satisfy them.
(Though Arcelor was charged of creative
accounting when it came out with its 2005 results How did Sichting directors change their hearts?
in the thick of the takeover battle, we must We do not have any account of that. It can be
understand that it is far more difficult to fudge safe to surmise that they finally buckled to the
revenue figure than net results.) Was there some full force of famous Mittal charm. You do not
merit in Guy Dollé’s ranting about eau d’ Cologne create an empire of the size of ArcelorMittal in
and parfum? One thing is clear; the merger did not 17 years if you can’t win over support of some
bring Mittals any closer to the fastest growing dissentingdirectors.
Chinese markets. However, the
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Electronic copy available at: https://ssrn.com/abstract=1692910

two merging partners had some obviously complementary strength. As noted earlier, Mittal Steel had
vertically integrated business model (with iron ore mines around the globe) and Arcelor was more
concentrated on downstream facilities. (This explains Arcelor’s better realization per MT of
dispatch.) And as we would see, in spite of its spectacular size, the merger did not give rise to the
difficult problems when capacities need to be rationalized because of overlaps.

ARCELOR: Revenue & EBIDTA Mittal Steel: Revenue & EBIDTA

€ mn € bn
35000 35
30000 30
25000 25
20000 20
15000 15
10000 10
5000 5
0 0
2001 2002 2003 2004 2005
2002
1
2003
2
2004
3
2005
4

More than immediate synergies, Mittal perhaps wanted to merge because he, as had others in the
steel business, had sensed the underlying consolidation phase of the industry and did not want to lose
the position of control he enjoyed as the biggest steel manufacturer. By merging with the second
biggest he was ensuring that the new second biggest will be less than a third of the size of the new
biggest (Arcelor, Mittal combine). To paraphrase Prof. Bruner of University of Virginia Mittal was
an instrument of change for the industry, removing excess capacity and rationalizing the availability
of capacity. While increasing the bid, Mittal Steel must have taken in account the funds that would be
released by selling Dofasco to Thyssen Krupp.

Mittal Steel’s view was very clear. With the absolute leading position in North America, the
combined entity would not need Dofasco. Dofasco was also very expensive: in absolute terms, its
acquisition cost as much as the whole acquisition of ISG, which was four times bigger. Mittals
naturally felt that that money was better spent somewhere else. Disposing Dofasco was not a simple
task. Arcelor management had bought it and felt that it was a very important acquisition.
Laxmi Mittal, about nine months after the merger went on record saying that “One of the most
exciting things about this merger was that the two businesses were entirely complementary with
virtually no overlap. In a consolidating steel industry, Arcelor and Mittal Steel were natural business
partners and the past nine months have only served to further convince us of the compatibility
between the two companies. Arcelor Mittal is the first truly global, diversified and integrated steel
producer and there are a wide range of benefits associated with such a model.

AND AFTER:

Mittal conceded a lot of ground to clinch the deal. His biggest bargain, other than the merger, was
perhaps, removal of then Arcelor CEO Guy Dolle. Mittal conceded to the Arcelor board’s demand of
greater professionalism and better corporate governance by agreeing to a majority representation by
Arcelor on the board of the merged entity, even though he owned 45% equity. He agreed to shift the
headquarters to Luxembourg and also agreed to be co-chairman of ArcelorMittal with Arcelor’s then
chairman Joseph Kinsch. Finally, despite his majority ownership, he agreed to ArcelorMittal as the
new name and not Mittal or MittalArcelor.
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After conceding so much, it would have been tragic if the merger had not worked out well. Laksmi
Mittal devoted the same energetic attention to post merger integration that he had unleashed for
overcoming corporate and political objections when he had launched the takeover bid. However
nothing of thekind happened.

It is important to note that before the merger, both companies had grown strongly and had
demonstrated successful integration. Arcelor itself was the outcome of the merger of Aceralia, Arbed
and Usinor in 2002. Mittal Steel (and its predecessors) had been growing at a breakneck pace through
acquisitions. These past experiences ensured that the merged entity had plenty of integration
experience to call on. In the merged company’s Activity Report for 2006, Mittal observed that the
success of the merger had surpassed even his own expectations. “One of the clear priorities for 2007
is ensuring a successful integration” he said, and “It was clear from the beginning that the two
businesses benefited from complementary business models, which formed the basis for a positive
integration”.

Two very senior professionals, Bill Scotting and Jérôme Granboulan were in charge of speedy
integration. The top management had set three clear objectives to them: first, to achieve an efficient
and rapid integration—aligning people, delivering synergies, creating the appropriate organization;
second, to secure and manage the day-to-day business; and third, to drive continued growth. The first
two are fairly common objectives in any merger, though generally with more emphasis on integration
than on managing the business. The third one was unusual. The merger process also suffered from
the fact that it was highly visible. The scale of the merger operation and the tumultuous courtship of
the partners gave it a much greater visibility than in most mergers. Many more people inside and
outside the company were following the integration activities to see how things would progress. A
particularly significant factor was that the merger was strategically driven by growth rather than by
restructuring objectives. Its aim was to combine two complementary businesses with a wide range of
capabilities in order to create a more complete entity. In contrast, many of earlier acquisitions at
Mittal Steel were turnarounds focused on cost and productivity improvements.

Bill and Jérôme conducted interviews and surveys with employees to gain a better understanding of
their views about the two companies, a process that culminated in an entire rebranding exercise. They
questioned people about the company’s strengths and weaknesses and what they thought
ArcelorMittal should stand for. This clearly indicated what people are thinking and both found it
extremely useful.

As could have been expected one of the greatest challenges was to get line managers involved and to
sell the merger to the operating teams. The top management top-management conducted road show
which was very successful and so was the communication programme launched to keep the people
informed of what was happening. The integration team established a Web site and introduced Web
TV, which is perhaps the first large-scale application of this tool. Top executives recorded two- to
three-minute interviews on various topics, and everyone with access to a PC was able to watch them
onscreen.

The new ArcelorMittal brand was launched with an employee convention at which the company’s
top 500 executives had gathered. This provided a great boost and marked the end of the formal
integration process, in spring 2007. In the early days of the merger, as would be inevitable, everyone
was wondering what impact this process would have on them, and the uncertainty level was quite
high. Managers need to have a well-structured message about the significance of the merger and the
direction the company is going in, and this should be done very clearly and as a matter of urgency.
With relatively few operational overlaps, initially the merger only directly affected employees
working in procurement, sales and marketing, and the corporate center— besides those operating
managers involved in benchmarking and the integration task forces, of course. So a lot of time may
have elapsed before it had a direct impact on the activities of many other employees. That time lag
may have contributed to the uncertainty.
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A key impetus to quick integration was agreeing on the medium-term value plan for the new group.
The budgeting cycle, started in August 2006, and budgets for 2007 had to be finalized in November.
This worked in favour of the integration team and added impetus to the process.

The integration team’s goal at the beginning was to complete the formal phase of integration within
the first six months. It was therefore critical to agree quickly the role of the integration office; the
essential characteristics of the integration process, including how decisions would be made; and what
problem-solving mechanisms might be needed. In large mergers progress is often reviewed on a
monthly basis, but Mittal, a man in a hurry, made the review cycle weekly. The group-management
board met every Monday, and the integration office, met every Wednesday. There were many
decentralized taskforces. Weekly review ensured that the progress of the 20 to 25 decentralized task
forces was reviewed in the middle of every week. These reviews identified the roadblocks early the
management board could take a decision on them a few days later. This cycle continued throughout
the integration effort. This was an extremely efficient way to maintain tension and momentum
within the organization and this pace is a major component of the success of the integration process
anywhere.

In many mergers, teams from the two merging entities are nominated. These teams then propose a
draft organization to the management board. The profiles of the people who will occupy the senior
positions are defined and committees established to select them. Once these senior managers are
nominated, they build their own teams to identify the synergies and build action plans. In
ArcelorMittal case, all these different tasks were conducted in parallel. Teams were formed even
before the organization had been fully announced; and the implementation of certain actions was
started even before the detailed plans had been developed.

As is common in merger of equals, everything was initially divided 50–50 between the two
companies. There were 6 members on the new group-management board, for example—3 from each
side. The integration office comprised 10 to 12 people, again evenly split. In many mergers this team
is much larger, but many believe that 10 to 12 is an optimal size and makes the movement speedier.
Typically, the larger the team, the more complicated the process becomes.

OUTLOOK:
The latest IISI Short Range Outlook finalised on Friday 2 March forecasts a slowing of global steel
demand growth from 8.5% in 2006 to 5.9% in 2007, but rebounding to 6.1% in 2008. Asia, from
being the weakest region in terms of Apparent Steel Use (ASU) growth in 2006 becomes the
strongest this year with Chinese consumption rising 13% as inventories are re-stocked. World growth
excluding China will fall to only 2.5% this year, down significantly from over 8% in 2006 but an
improvement on the 0.4% decline recorded in the 2005 downturn After an almost 12% increase in
2006, the US apparent steel use is expected to fall by 4.4% in 2007 as high steel service centre stocks
and weak demand force cuts in inventories in the first half of the year. Steel demand in Mexico will
continue to rise this year, while demand in Canada is expected to follow the US and decline by 3% in
2007. Despite a very strong ASU growth of over 11% in the EU 27 last year, the forecast is for
continued expansion of 1.5% in 2007 with EU 15 demand estimated to grow by 0.7% given the
strength of EU manufacturing over the short-term Growth in Asian ASU is expected to accelerate in
2007 after growing below the global average in 2006 as low growth in Japan and falling demand in
Thailand, Singapore and Indonesia meant ASU grew by only 6.2% across the
region................................

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POST BALANCE SHEET EVENTS:

On 26 January 2006, Mittal Steel and ThyssenKrupp AG entered into letter agreement which
provided that if Mittal Steel was successful in its tender offer for Arcelor and was able to exert
management control “with the ability to sell Dofasco,” Mittal Steel would cause Arcelor to sell
Dofasco to ThyssenKrupp. During March and April 2006, Arcelor acquired 100% of the shares of
Dofasco. On 3 April 2006, Arcelor transferred 89% of the shares of Dofasco to the Strategic Steel
Stichting (“S3”), an independent Dutch foundation, thereby removing Arcelor’s ability to sell or
otherwise dispose of such shares without S3’s consent. On 25 June 2006, Mittal Steel and Arcelor
agreed to the terms of a recommended offer, pursuant to which Mittal Steel has acquired
approximately 94% of the share capital of Arcelor On 1 August 2006, the U.S. Department of Justice
(the “DOJ”) required with a consent decree the divestiture of Dofasco or, if Mittal Steel were unable
to sell Dofasco, the divestiture of either Mittal Steel’s Sparrows Point Facility in Maryland or Mittal
Steel’s Weirton facility in West Virginia. The consent decree provided that the DOJ in its sole
discretion would choose which plant would be sold. It was stipulated that Dofasco would be
maintained as a separate business, independent of the other businesses.

After the consent decree was filed in court, the Boards of both Mittal Steel and Arcelor requested the
directors of S3 to dissolve the foundation in order to allow the sale of Dofasco. On 10 November
2006, however, S3’s directors unanimously decided not to dissolve the foundation and to retain the
Dofasco shares, thereby continuing to prevent their sale. On 22 December 2006, ThyssenKrupp
initiated summary legal proceedings against Mittal Steel in the District Court in Rotterdam alleging
that Mittal Steel had breached the letter agreement by failing to cause Arcelor to initiate litigation
against S3 to force S3 to transfer the Dofasco shares to Arcelor so as to permit their sale to
ThyssenKrupp. On 23 January 2007, the District Court in Rotterdam denied ThyssenKrupp’s petition
for an order. On 20 February 2007, the DOJ informed Mittal Steel that the DOJ has selected the
Sparrows Point steel mill located near Baltimore, Maryland for divestiture under the consent decree
filed by the DOJ in August 2006. According to the decree, any such divestiture must take place
within ninety days from 20 February 2007, subject to possible extensions by the Department of
Justice.

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Electronic copy available at: https://ssrn.com/abstract=1692910

Arcelor Sustainable Development Strategy:

Arcelor and the United Nations Global Compact Arcelor joined 2,500 companies around the world
by signing the United Nations Global Compact in September 2003. The Global Compact
(www.unglobalcompact.org) was launched in 2000 by the UN Secretary-General. It aims to
incorporate a set of fundamental values relating to the Universal Declaration of Human Rights,
international labour standards, environmental protection and the fight against corrupted business
practices. Signatory companies commit individually to applying the Global Compact’s ten principles
and to promoting their diffusion among all stakeholders. Human rights Principle 1: Business should
support and respect the protection of internationally proclaimed human rights; and Principle 2: Make
sure that they are not complicit in human rights abuses. Labour standards Principle 3: Business
should uphold the freedom of association and the effective recognition of the right to collective
bargaining; Principle 4: The elimination of all forms of forced and compulsory labour; Principle 5:
The effective abolition of child labour; and Principle 6: The elimination of discrimination in respect
of employment and occupation. Environment Principle 7: Business should support a precautionary
approach to environmental challenges; Principle 8: Undertake initiatives to promote greater
environmental responsibility; and Principle 9: Encourage the development and diffusion of
environmentally friendly technologies.

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ANNUAL REPORTS & FINANCIAL STATEMENTS:

(14)

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 (15)

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CASHFLOWS:

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INCOME STATEMENT:

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STATEMENT OF SHAREHOLDESR EQUITY:

CONCULSION :

The Arcelor Mittal Company recognizes their success depends on maintenance and continuation of
'license to operate'. The management system of the company emphasizes to maximize the
opportunities and minimize risks for better social development and improve competitive advantages.
At ArcelorMittal, our goal is to help build a better world with smarter steels. Steels made using
innovative processes which are more efficient, use less energy, and emit significantly less carbon.
Steels that are cleaner, stronger and reusable.
Based on the procedures we have performed and the evidence we have obtained, nothing has come
to our attention that causes us to believe that the Selected Information is not fairly stated and has not
been prepared, in all material respects, in accordance with the Criteria. This conclusion relates only
to the Selected Information, and is to be read in the context of this Independent Limited Assurance
Report, in particular the inherent limitations explained overleaf.

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BIBLIOGRAPHY:

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(19)

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