Group 5 - Merger & Acquistion

8/7/2019 Group 5 - Merger & Acquistion

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GROUP 05 :

TARUN ± 06PRIYANKA ± 11

NIKITA ± 25

DEEPIKA ± 51

RAVI - 54

Mergers & Acquisition

NMIMS, PTMBA 3rd year Marketing DIV -A



MERGER & ACQUISITION -INTRODUCTION

CASE OF ACQUISITION ±

ARCELORM

ITTALCASE OF MERGER ± HP & COMPAQ

THE BIG DEALS

THE VALUATIONS

POST MERGER AND ACQUISITIONSCENARIO

CONCLUSION

Contents

NMIMS, PTMBA 3rd year Marketing DIV -A



WHAT ARE MERGERS AND

ACQUISITIONS?Corporate Strategy, Corporate Finance &

Management

Buying, Selling & Combining of different

Companies

Aid, Finance or Help a growing Company in a

given Industry



An Acquisition (takeover) is buying of one company (target) by another

An Acquisition may be friendly or hostile

An Acquisition can be a ¶Reverse Takeover·

Acquisitions can be done in two ways ²

� the buyer buys the shares of the target company

� the buyer buys the assets of the target company

There are pros and cons involved in every take over

WHAT ARE ACQUISITIONS?



MITTAL STEEL - AN OVERVIEW

Mittal Steel Company N.V. was formedby the merger of

� LNM holdings & ISPAT International

� International Steel Group Inc.

CEO Lakshmi Mittal·s family owned 88% of the

company and its headquarter was in Rotterdam,

Netherlands

The company was the world·s largest steel producer by

volume and also the largest in turnover and is now a part

of ArcelorMittal

It was the major player in Steel, Flat Steel products,Coated Steel, Tubes and Pipes



Arcelor was created in Feb 2002 through the merger of Arbed(Luxembourg), Aceralia (Spain) , Usinor (France)

The merger was officially launched on 19 February 2001

The choice of the Arcelor name was announced on 12 December 2001

Guy Dolle was the CEO of Arcelor and its headquarter was in

Luxembourg city.

World·s Second largest steel maker and first in terms of revenues.

Arcelor generated revenues of 40.6 billion euros and produced 53.5

million tonnes of crude steel

Products: Flat Carbon Steel; Long Carbon Steel; Stainless Steel; and

Steel Solutions and Services

It was a major player in all its main markets: automotive,

construction, metal processing, etc

Guy Dolle

ARCELOR - AN OVERVIEW



FINANCIAL STATEMENTS -



´ In January 2006, Mittal steel launched a 22.7 billion offer to

Arcelor share holders

´ The deal was spilt between Mittal 75 % share and cash 25 %

Under the deal :

´ 4 Mittal steel shares and cash ½35.25 for every 5 shares of

Arcelor.

´ The offer values shares of Arcelor at ½28.21 each, which

means that it involves a premium of 27% over the closing

price on the stock market the day before

THE OFFER BY MITTAL ± THE BIG

DEAL



TOP PRODUCERS OF STEEL (VOLUME) AROUND

THE GLOBE in 2005



MITTALS INTEREST´

Mittal wants to grow, to strengthen itself and to eliminatecompetitors in a mature sector where costs are a fundamental

factor.

´ Mittal·s interest in Arcelor is based on the type of production

each company is involved in

Mittal type production & target :

´ Produces low-cost steel

´ It has factories in countries where labor costs are low, and its mills are

located near mines and close to markets where there is a lot of demand.

´ In contrast, Arcelor produces steel for industries that demand higher

quality products, such as the auto sector.µ

´ Thus Mittal·s offer was an attempt to enter the higher range of the steel

industry as well as new markets where the company does not have any

production facilities



Arcelor Management ²

� The management was extremely hostile to

Mittal Steel·s bid

� It believed to have been doing the acquisitions

and not the other way around

� The CEO of Arcelor dismissed Mittal Steel as a

´company of Indiansµ

European governments ²

� The French Government and the government of

Luxembourg was against the deal

� The European Union approved of the deal

THE CONTROVERSY



´ Arcelor Management:

Arcelor·s senior executives saw the offer as hostile

board of directors called an urgent meeting where it

unanimously rejected the Mittal offer

´ Arcelor·s board arguments to justify a rejection is that Arcelor

and Mittal do not share the same strategic vision, the same

model for development or the same values.

´ Guy Dollé President of Arcelor, told a press conference

´Arcelor is not going to share its future with Mittal,µ.

THE CONTROVERSY



Declaration of dividend ²

On February 16, Arcelor declared a dividend of 1.2 euros to

convince the shareholders of a positive situation under

current management

The Russian Angle ²

To thwart the offer from Mittal Steel, Arcelor released a 13

billion Euro merger plan with Severstal, a Russian company

STRATEGY ADOPTED BY ARCELOR TOTHWART

MITTAL BID



Analysts believe that Guy Dolle had issues

with the personality and management of LN Mittal

Guy Dolle raised several issues about thesafety record of Mittal

Guy Dolle is not a part of the new

Arcelor-Mittal organization

ROLE OF GUY DOLLE



Most Indians believed that the deal was not

getting pushed because of Lakshmi Mittal·s

nationality

The Indian government raised the issue through

commerce minister Kamal Nath

LN Mittal himself felt that there was no case of ´racismµ here as Mittal Steel was a European

company and NOT an Indian one

THE STANCE OF INDIAN GOVERNMENT



Increased valuation to 40.40 euros

Gathered the support of shareholders

Wooed the European governments namely

Luxembourg, France and Spain

Obtained the support of trade union

STRATEGY ADOPTED BY LNM



Contrasting culture of two companies

The Steel Price may slow down

Extent of synergies realized through the Merger

KEY RISK INVOLVED



On 25th June, 2006 the deal finally clinchedwhen the shareholders of Arcelor agreed to

Mittal Steel·s offer

Mittal had to considerably sweeten

the initial offer-by raising its valuation of Arcelor to $32.9

billion

The Mittal family holds 43 percent of the combined group

The combined company holds 10 percent of the global

market for steel

END RESULT- THE FINAL DEAL



New company to be called Arcelor-Mittal, and not

Mittal-Arcelor

Majority of board members will be from Arcelor

despite Mittal s high stake

The company will be headquartered in Luxembourg

LN Mittal will be co-chairman along with Arcelor

chairman Joseph Kinsch

TERMS LAID DOWN BY ARCELOR



POST MERGER



MARKET POSITION BY REGION



TOP STEEL PRODUCER 2007 IN MILLIONS OFMETRIC TONNES



Arcelor Mittal is now the largest steelcompany in the world

ArcelorMittal is the leader in major

global markets, including automotive,

construction, household appliances

& packaging

The company is headquartered in southern

Luxembourg City, the former seat of Arcelor

Lakshmi Mittal (owner of Mittal Steel), a non-resident Indian

is the Chairman and CEO

Headquarters atLuxembourg city

ARCELORMITTAL ± THE UNION OF TITANS



It employs 310,000 employees in

more than 60 countries

Organic growth of 20 million

tonnes

ArcelorMittal key financials for2007 show revenues of

US$ 105.2 billion

A crude steel production of 116 million tones, representing around 10%

of world steel output

Unique R&D capability in the steel industry

As of May 17 2008, the market capitalization of ArcelorMittal was

$144.37 billion

ARCELORMITTAL ± THE UNION OF TITANS



INDUSTRY COMPARISON



The deal has been in favor of both the companies. This can be suggested by thefollowing

PROS of the deal ²

Increase in revenue of the company from $28.123 billion to $105.2 billion and

operating income from $4.746 billion to $14.83 billion

Venture into new businesses and market like Luxembourg, Senegal, Liberia and

looking to develop positions in the high-growth Chinese and Indian markets

Profit of the company has risen from $3.36 billion to $10.36 billion

Decreased competition and increased market share

Enlarged brand portfolio

Increase in economies of scale and share value.

THE PROS AND CONS OF THE DEAL



The CONS of the deal include ²

High monetary cost of the target company (Arcelor) which is $32.9

billion

As the pros of the deal completely outweigh the

cons involved, it can be said that the deal has been a

successful one for both the companies, its people

and the world.

THE PROS AND CONS OF THE DEAL



WHY THE AQUISITION WAS SUCCESSFULSynergy

Brought iron ore ,technology and marketing expertise

together

Adept at combining businesses

Smoothen out the price fluctuations

Created a much stronger and more sustainable

business

Clear strategy to deliver further growth and value

creation



Now the Mittal family owns 88% of the world·s largest steelcompany.

Its most recent purchase, last year, was International Steel,

the U.S. company, at a cost of $4.5 billion.

Mittal Steel is now using the same strategy to challenge the

sector by presenting an offer for its closest rival.

Mittal may already be the leader in the United States and

Asia, but it could soon reach the top spot in the European

rankings.

CONCLUSION



CASE STUDY OF HP-COMPAQMERGER - 2001



It all began in the year 1938 when two electrical engineering graduatesfrom Stanford University called William Hewlett and David Packard

started their business in a garage in Palo Alto

In a year's time, the partnership called Hewlett-Packard was made and by

the year 1947, HP was incorporated.

Starting with manufacturing audio oscillators, the company made its first

computer in the year 1966 and it was by 1972 that it introduced the

concept of personal computing by a calculator first which was further

advanced into a personal computer in the year 1980.

The company is also known for the laser-printer which it introduced in the

year 1985.

HP INTRODUCTION



The company is better known as Compaq Computer Corporation.

This was company that started itself as a personal computer company in

the year 1982.

The company introduced its first computer in the year 1983 after at a priceof 2995 dollars.

In spite of being portable, the problem with the computer was that it

seemed to be a suitcase.

Nevertheless, there were huge commercial benefits from the computer asit sold more than 53,000 units in the first year with a revenue generation of

111 million dollars.

COMPAQ INTRODUCTION



Carly Fiorina, who became the CEO of HP in the year 1999, had a key role to playin the merger that took place in 2001.

Her basic aim was to modernize the culture of operation of HP.

In spite of the growth in the market value of HP's share from 54.43 to 74.48

dollars, the company was still inefficient. This was because it could not meet thetargets due to a failure of both company and industry.

HP was forced to cut down on jobs and also be eluded from the privilege of having

PriceWater House Cooper's to take care of its audit.

So, it was decided that the company would be acquiring Compaq in a stocktransaction whose net worth was 25 billion dollars.

The idea behind the conversation was to discuss on a licensing agreement but it

continued as a discussion on competitive strategy and finally a merger.

REASONS FOR THE MERGER



In spite of the decision coming from the CEO of HP, the merger was strongly

opposed in the company.

The two CEOs believed that the only way to fight the growing competition in terms

of prices was to have a merger.

But the investors and the other stakeholders thought that the company would

never be able to have the loyalty of the Compaq customers, if products are sold

with an HP logo on it.

Other than this, there were questions on the synchronization of the

organization's members with each other,the change in the organization cultureas well.

THE CONTROVERSY



Fiorina had put it this way that after the company's merger, not only would it have

a larger share in the market but also the units of production would

double.

She was of the view that much of the redundancy in the two companies would

decrease as the internal costs on promotion, marketing and shipping would come

down with the merger

She said that the merger is based on the ideologies of consolidation and not on

diversification.

She said that the company requires being consistent with creativity, improvement

and modification. This merger had the capability of providing exactly the same.

ADVANTAGES OF THE MERGER



The following are the ways in which the company can be advantageous toits shareholders:

Unique Opportunity

Stronger Company

Compelling EconomicsAbility to Execute

The new portfolio would be less preferable

Huge Integrated Risks

Financial Impact

ADVANTAGES TO THE SHAREHOLDERS



Positive Aspects

Having an eye over shareholders' value

Development of Markets

Propagated Efficiencies

Allowances to use more resourcesManagement of risks

Listing potential

Necessary political regulations

Better Opportunities

Extra products, services, and facilities:

STRATEGIC ANALYSIS OF THE CASE



Negative Aspects

Conversations are not implemented

Legal Contemplations

Compatibility problems

Fiscal catastrophesHuman Resource Differences

Lack of Determination

Risk management failure

STRATEGIC ANALYSIS OF THE CASE



Marketing : The advantages of this merger in the field of marketing can be seen in the caseof shared branding, sales and service. Even the distribution procedure is likely to be

enhanced with Compaq playing its part.

Operations :The foremost advantage in this area is that in the location of raw material. Even

the processing style would be same making the products and services synchronized with the

ideas and also in making a decent operational strategy.

Technology :The technical strategy of the company can also be designed in common now.

With a common product and process technology, the technological strategy of the merged

company would promote highly economical functioning.

Buying : The buying strategy of the company would also follow a common

mechanism.

Infrastructure: The companies would have common shareholders for providing the requisite

infrastructure. The capital source, management style, and legislation would also be in

common. So, the infrastructure strategies would have to take these things into account.

HP would now have to ensure another fact that with this merger they would be able to prove

competitors to the present target and those of competitors like IBM as well.

STRATEGIC SHARING - CONCLUSION



THANK ± YOU

Mergers and Acquisitions continue to be amongst the

preferred competitive options available to the companies

seeking to grow and prosper in the rapidlychanging global business scenario.

Group 5 - Merger & Acquistion

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