Mittal Vs. Arcelor – A Strategy Lesson
The Mittal-Arcelor entanglement is a wonderful case of business strategy. Look at it this way. The steel industry is undergoing tremendous amount of consolidation. Both Mittal steel and Arcelor have been involved in mergers and acquisitions to build their potential. At this stage, how does one steel manufacturer get an upper hand over his rival? One way is to make sure that the competitor does not buy more firms. How to do that? Well, make sure the rival's money is tied up somewhere else so that he does not possess the financial muscle power to buy more companies. How is that possible, you ask? Look at what Mittal has done.
Mittal’s takeover bid on Arcelor would succeed only if a percentage of Arcelor's stock holders sell their shares to Mittal. So Arcelor's management is left thinking over ways to make the share holders happy with the current management. They give dividends and sport a friendly face, while at the same time erode their cash reserves. No more cash reserves - no more consolidation. How cheeky?
If that is some strategy by Mittal, then look at Arcelor's new strategy. Forget convincing your share holders not to sell and just make them a minority. If they are a minority then their intention to sell stocks wouldn't hit the management. How to do that again? This is how Company A takes over company S. Of the newly formed company A1, S's management is given a substantial stake with the agreement that they wouldn't succumb to M's offer. Now A's former stock holders become a minority though their wealth actually increases. Nice strategy, right? Except for one glitch. The takeover of Severstall has to be approved by 50% of Arcelor's share holders, and they seem to be getting greedy over Mittal's offer (Check: Arcelor shareholders urge Mittal talks)
Too much of strategy? I feel not. After all we have not considered the possibility that Mittal is genuinely interested in Arcelor
Mittal’s takeover bid on Arcelor would succeed only if a percentage of Arcelor's stock holders sell their shares to Mittal. So Arcelor's management is left thinking over ways to make the share holders happy with the current management. They give dividends and sport a friendly face, while at the same time erode their cash reserves. No more cash reserves - no more consolidation. How cheeky?
If that is some strategy by Mittal, then look at Arcelor's new strategy. Forget convincing your share holders not to sell and just make them a minority. If they are a minority then their intention to sell stocks wouldn't hit the management. How to do that again? This is how Company A takes over company S. Of the newly formed company A1, S's management is given a substantial stake with the agreement that they wouldn't succumb to M's offer. Now A's former stock holders become a minority though their wealth actually increases. Nice strategy, right? Except for one glitch. The takeover of Severstall has to be approved by 50% of Arcelor's share holders, and they seem to be getting greedy over Mittal's offer (Check: Arcelor shareholders urge Mittal talks)
Too much of strategy? I feel not. After all we have not considered the possibility that Mittal is genuinely interested in Arcelor
posted by Jammy at 3:56 PM
1 Comments:
hmm Makes some sense, as you said but its only a side of the coin , what if Mittal is genuinely Interested in arcelor?? .. Whats going to be his next step, alleast what are his options???... Is it game over for him if this deal is sealed?? ...the only way to have a chance is to make more than 50% of current arcelor stake holders against the new deal????
Lotsa business
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