THE ARCELOR MITTAL MERGER
THE ARCELOR MITTAL MERGER
Contents
Steel Industry – An Overview Mittal Steel – An Overview Arcelor – An Overview The Deal The Valuations Post Merger Scenario Conclusion
Steel Industry – An Overiew
Steel is the world’s third largest commodity
World production1.3 bn metric tons in 2007-08
World production1.244 bn metric tons in 2005-06
Average growth rate per annum in 2005-06 was 9% and that over 2000 to 2005 being 6.1%
Steel Industry – An Overiew
World demand for steel has slowed down during the current recession
MITTAL Steel – An Overview
Mittal Steel Company N.V. was formed by 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
The company has led the way in consolidating the world steel industry
1989: Acquisition of Iron & Steel Company of Trinidad & Tobago
1992: Acquisition of Sibalsa 1994: Acquisition of Sidbec-Dosco 1995: Acquisition of Hamburger Stahlwerke > Ispat
International Ltd. and Ispat Shipping formed > Acquisition of Karmet
1997: Ispat International NV goes public 1998: Acquisition of Inland Steel Company 1999: Acquisition of Unimétal 2001: Acquisition of ALFASID > Acquisition of
Sidex
Mittal Steel Growth Timeline
Mittal Steel Growth Timeline
2002: Business assistance agreement signed with Iscor
2003: Acquisition of Nova Hut 2004: Acquisition of Polski Huty Stali > Acquisition
of BH Steel > Acquisition of Macedonian facilities from Balkan Steel > Creation of Mittal Steel and proposed acquisition of International Steel >
2005: Acquisition of a stake in Hunan Valin > ISG Acquisition completed > Mittal Steel Europe created > Mittal Steel makes Fortune 500 list of top companies> MDA with Liberian government > Acquisition of Kryvorizhstal > MoU with State of Jharkhand, India > Acquisition of Stelco subsidiaries > Stake lifted in Mittal Steel Zenica
Suppliers, Subsidiaries and Products Suppliers -
40% of its Iron ore and Coal requirement from Group Companies. World’s largest producer of coke and DRI.
Subsidiaries Mittal Steel Annaba Mittal Steel Zenica Mittal Canada Mittal Steel Ostrava Mittal Steel Gandrange Mittal Steel Hamburg Mittal Steel Hochfeld
Products Longs: Automaive Forgings, Free Machining Bars, Wire rods etc. Flats: Hot and Cold Rolled, Galvanised, Exposed Quality
Automotive, Plates, Pipes and Tubes etc
Arcelor – An Overview
Arcelor was created in February 2002 by combining three steelmaking companies, Aceralia (Spain), Arbed (Luxembourg) and Usinor (France)
World’s second largest steel maker Over 104,000 employees in more than 60
countries (2006). 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
Financial Statements
COMPANY MITTAL ARCELOR
2005 Sales (bil.) $28.10 $38.84
1-Year Sales Growth 27% 8%
2005 Net Income (bil.) $3.37 $4.58
1-Year Net Income Growth
-28% 66%
Employees 175,000 96,000
Mittal’s inclination for merger To become largest company and outplay
competition. To achieve economies of scale. Strong R & D structure of Arcelor. In 2006, world steel demand was strong
in developing countries. Expected steel demand growth was 3-5% per year.
Merger Synergies
Total value of synergies to be realized US$1.6 billion
Key Risks
Contrasting culture of two companies
The Steel Price may slow down
Extent of synergies realized through the Merger
First Bid From Mittal
Mittal made a bid worth €18.6 billion for Arcelor
Exchange four Mittal shares plus €35.25 in cash for every five shares of Arcelor.
Offer price was at a premium of 27%
Declaration of dividend –
On February 16, Arcelor declared a dividend to convince the shareholders of a positive situation under current management
The Russian Angle –
To thwart the offer from Mittal Steel, Arcelor released a 16.6 billion Euro merger plan with Severstal, a Russian company
Strategy adopted by Arcelor to thwart Mittal bid
An Insight into Severstal deal
$ 16.6 billion euro deal with Severstal- Russian Company
Arcelor will get an 89.6 per cent stake in Severstal and 1.25 billion euros in cash
Control of Severstal's steel and mining assets and Italian steelmaker Lucchini SpA.
In exchange, Mordashov will receive about 32 per cent of the new merged group and the position of non-executive president of the Arcelor board of directors
Strategy adopted by LNM
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 unions
The Merger
Finalized: 25th June, 2006 ( initiated on 27th January, 2006)
Valued at 26.8 billion euros,($33.5 billion) -44% higher than initial offer of 18.6 billion euros
Mittal to be the largest share holder with 45% stake in the merged entity
Terms Laid Down By Arcelor
New company to be called Arcelor-Mittal, and not Mittal-Arcelor
Majority of board members will be from Arcelor despite Mittal’s high stake
The company will be headquartered in Luxembourg
LN Mittal will be co-chairman along with Arcelor chairman Joseph Kinsch
Merger Process
2 step process First step-Mittal Steel was merged into a ad
hoc subsidiary named ArcelorMittal Second step-ArcelorMittal was merged into
Arcelor, which was renamed ArcelorMittal
Corporate Structure: Arcelor
Calculation of the Indirect Valuation of Arcelor Brasil
Arcelor and Arcelor Brasil Proportionate EBITDA Contribution Analysis
Determination of Arcelor Brasil enterprise value implied by Mittal Steel offer for Arcelor
Calculation of Arcelor Brasil MTO Reference Value per Share
Post Merger
Arcelor + Mittal = ArcelorMittal
Building our Company with the needs of future generations in mind
Market Position By Region
Operations in more than 20 Countries. Annual production capacity of 130 million tonnes Produced over 116 million tonnes of steel. Steel shipments totaled approx. 110 million tonnes Generated revenues of US$ 105.2 billion. Announced 35 more acquisitions. Organic growth of 20 million tonnes. Unique R&D capability in the steel industry
Business Strategy
Merger Synergies: Realized
Financial Performance
Income statement
Arcelor
Mittal steel
Arcelor Mittal
2004 2005 2004 2005 2006 2007
Liquidity Ratio
Current Ratio 1.44 1.77 1.54 2.09 1.60 1.44
Quick Ratio 0.88 1.01 0.72 0.77 0.60 0.60
Efficiency Ratio
Receivable turnover
8.03 8.73 17.7 13.1 10.7 13.2
Inventory turnover 4.44 4.54 6.1 4.3 3.8 4.3
Fixed asset turover 1.97 1.79 4.2 2.4 1.7 1.8
Total assets turnover
0.97 0.97 1.8 1.1 0.8 0.9
Solvency Ratio
Debt/Equity 0.2 0.07 0.42 0.79 0.43 0.40
Interest Coverage Ratio
Industry Comparison
Particular Arcelormittal Industry
Net profit 11.36% 13.3%
ROE 25.4% 21.6%
ROCE 9.7% 12%
P/E 11.6 11.3
Price / BV 1.4 3.5
Dividend Yield 1.9% 2.6%
Total Asset Turnover 0.9 0.9
YoY Revenue Growth
YoY EBITDA Growth
YoY Net Profit Growth
YoY Growth Return On Equity (ROE)
YoY Growth Return On Capital Employed (ROCE)
YoY Growth Earning Per Share(EPS)
Earnings and estimates
Revenues
Stock Market Performance
Why the merger was successful…
Synergy
Brought iron ore ,technology and marketing expertise together
Adept at combining businesses
Growth plan
Growth Plan 2012 calls for a 20% increase in shipments in the next five years.
Production of 131 million tonnes by 2012. Focus on high-growth markets and low-cost
areas. Approximately 75% of the Growth Plan 2012 was already done or approved for a potential
investment of 7 billionUS$ over 6 years.
Conclusion and summary
Largest global player
Smoothen out the price fluctuations
Created a much stronger and more sustainable business
Clear strategy to deliver further growth and value creation
INSIDER TRADING IN M&A
What is insider trading?
Who is an insider?
Arguments for insider trading
Arguments against insider trading
Introduction
CASE STUDY
Many times, Insider Trading is used as a illegal tool by the companies, MBs and brokers to make huge profits.
IFCI Case ---
In January 2007, it has gained 53% on a/c of stake sale to strategic investor and further it rose to 210% in March 2007.
The strategic sale had been called off in December
2007 and this led to shed of prices.
Date Open High Low Close Volume
2-Jan-07 12.60 13.60 12.50 13.45 11,818,678
15-Jan-07 22.24 25.15 22.00 24.65 55,224,685
31-Jan-07 26.50 26.90 25.36 25.56 20,380,514
5-Feb-07 25.00 30.00 25.00 29.65 49,029,050
1-Mar-07 27.70 30.85 25.90 30.45 49,718,523
2-Apr-07 32.80 32.95 30.50 30.80 17,886,955
16-Apr-07 38.70 38.95 37.20 37.40 10,333,539
Share Prices of IFCI Ltd
30-Apr-07 40.65 45.95 40.30 44.80 35,866,951
15-May-07 47.70 48.25 46.90 47.65 8,605,752
1-Jun-07 47.50 48.10 47.00 47.20 4,349,737
15-Jun-07 47.95 49.80 47.50 49.25 14,112,697
29-Jun-07 56.25 56.90 55.50 55.90 12,785,079
2-Jul-07 56.70 60.50 56.55 59.60 20,329,586
Open Offer or Buy back of Shares
If a company acquires 5% or more than 5%, it has to inform SEBI.
In a take over, if a company acquires more than 14.99% of another company, then it has to come up with Open Offer of at least 20% with the public.
Emami-Zandu Case:- Hostile takeover
Insider Trading in Takeovers
Emami acquired Zandu stake from one of the major shareholder and came up with the Open offer.
Mr. Parekh was not interested in giving up his control
Prices of Zandu has gone sky rocketing and rose to approx Rs.25000 per share.
Recently the take over completes and Parekh was compelled to sell his shareholding to Emami and share prices has gone down to level of Rs. 7000/- per share
Insider Trading in Takeovers…contd
Date Open High Low Close Volume
1-Apr-08 6,705.00 6,710.00 6,700.10 6,700.10 6
2-May-08 6,850.05 6,895.00 6,850.00 6,853.65 148
2-Jun-08 8,400.00 9,752.60 8,400.00 9,714.90 12,770
18-Jun-08 14,437.10 14,437.10 13,900.00 14,437.10 11,709
1-Jul-08 14,259.00 14,300.00 13,657.50 13,658.55 1,552
15-Jul-08 19,844.40 20,006.90 18,125.00 18,775.90 4,637
23-Jul-08 23,469.90 23,469.90 22,700.00 23,469.90 2,543
5-Aug-08 16,453.20 17,400.00 16,453.20 16,463.15 1,879
18-Aug-08 15,714.20 15,800.00 14,750.00 14,947.80 383
1-Sep-08 17,401.00 18,203.85 16,870.00 18,203.85 2,420
1-Oct-08 16,101.00 16,101.00 15,254.10 15,254.10 1,667
31-Oct-08 8,195.00 8,698.00 8,194.60 8,316.60 4,045
Share Prices of Zandu Pharma
Movement of Zandu Share Prices
• Rationale: insider trading corrupts the ‘level playing field- Insider cannot trade in shares when in possession of unpublished price
sensitive information
- Trading window closed for employees/ directors 15 days before publication of price sensitive information.
- Directors and designated employees are required to continuously disclose their share holdings.
- Prohibits any company from dealing in the securities of another company while in possession of any unpublished price sensitive information
SEBI Regulations
SEBI may impose a penalty of not Rs 25 Crores or three times the amount of profit made out of insider trading; whichever is higher
SEBI may initiate criminal prosecution
SEBI may issue orders prohibiting an insider or refraining an insider from dealing in the securities of the company
Penalty/Punishment
•Sound implementation of restrictions
•Difficult to track secondary insiders
•Comprehensive Integrated Market Surveillance
System to track out unusual trading
•Proposed that monetary penalties should be levied
on the company
•Investors should look out for unusual stock price
movements
Conclusion
THANK YOU
Submitted by: Enrollment Id