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Mittal and the art of deal-making

The decision of the board of Arcelor to recommend to its shareholders a merger with Mittal Steel — creating Arcelor-Mittal, to be headquartered in Luxembourg — may bring to a close one of the most strenuously contested takeover attempts in recent business history. The fructification of the merger is a tribute to the tenacity, strategic vision, and tactical skills of Lakshmi Mittal, the Indian born chairman of Mittal Steel, a company that has grown phenomenally over the past 12 years to become the world's largest steel producer. Mr. Mittal effectively led the first wave of consolidation in the steel industry by taking over, in improbable places, steel mills that had seen better days. His first bid for Arcelor in January 2006 can now be recognised as the launch of a second stage of consolidation in an industry that, for all its recent prosperity, is known to be highly cyclical. Mr. Mittal's daringly `hostile' bid for Arcelor was based on a vision of reaping at least two vital synergies. The combined entity would have a product range across the entire spectrum of steel products, in terms of value as well as quality. (Arcelor's product mix is tilted towards high-end products while Mittal Steel has focussed on large volume, but relatively low value products.) The second synergy would be between Arcelor's strengths in Europe and Mittal Steel's strong focus on the Americas. With Mittal Steel having announced plans to set up a new venture in Jharkhand, the combined entity would have a footprint in all major steel producing and consuming regions of the world.

Yet neither such business reasoning nor the 25 per cent premium on share price that was offered to Arcelor's shareholders in the first instance was enough to swing the deal without going through a fight with chauvinistic overtones. Politicians from France, Spain, and Luxembourg rallied against the proposal. While their publicly aired apprehensions were over possible closure of units and job losses — Lakshmi Mittal effectively countered these fears — perceptive observers saw in the political opposition a strong undercurrent of economic nationalism. Unfortunately for the obstructionists, this seemed to cut no ice with Arcelor shareholder opinion or, for that matter, public opinion in Europe. After all, Mr. Mittal, a resident of the United Kingdom who presided over a company headquartered in the Netherlands, has been running his businesses under European laws and regulations. To be fair to the European regulators, none of them even countenanced blocking the deal on extraneous grounds. Arcelor did its best to stop the merger — by wooing its shareholders through extraordinary dividends and entering into a joint venture with the Russian steel company Severstal, which still threatens to play the spoiler. Whichever way the Arcelor shareholders vote on June 30, Mr. Mittal's remarkable deal-making skills that converted wholesale opposition in the board to unanimous support are likely to feed business school case studies around the world for years to come.

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