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Prologue 
In November 2005 Arcelor launched an unsolicited cash bid of $3.8 billion for the Canadian flat product producer Dofasco, with which it had a technology agreement. This agreement covered part of Dofasco's production and was for producing automotive exterior body panel galvanised sheet, one of the steel industry's highest-value-added products. The bid tried to pre-empt a rumoured agreed merger between Dofasco and ThyssenKrupp. The bidding see sawed up between the two companies, and although Arcelor equalised bids at one point to signal it was open to negotiations, eventually it had to outbid ThyssenKrupp with $5.6 billion on 17th January 2006, closing on 8th February. 
The price was almost unprecedented for a steel company (see Appendix 2), and there were mutterings in the financial press that some shareholders of Arcelor were less than happy with this use of the company's cash. Similar mutterings had been heard in 1998 when Usinor (one of the component companies of Arcelor) had purchased the Belgian flat product company Cockerill Sambre". 
First Phase 
Lakshmi Mittal launched his own bid of €18.6 billion for Arcelor on 27th January 2006. He had tried, without much success, to warn Guy Dollé, leader of Arcelor, who was then enmeshed in the final stages of Arcelor's acquisition of Dofasco. The two men knew each other well, and indeed at a dinner at Mittal's house in London on 13th January Mittal had at least broached the possibility of a merger. Opinions differ on exactly what was said, but Dollé claimed his reply was that 75% to 80% of mergers fail because of cultural differences4. 
The bid was not well received. Dollé said: “Arcelor does not want to embark on a future with Mittal. Arcelor has deep roots in Europe, extended now to Brazil. But we have a certain culture and values deeply rooted in the European way of doing things.” He also dismissed the bid financing, which was 25% in cash and 75% in Mittal Steel shares, as 'funny money', 'monnaie de singe' in French. 
Goldman Sachs was the lead adviser for Mittal Steel, Morgan Stanley was the adviser for Arcelor, and the size and importance of the battle involved a wide range of advisory Usinor paid the equivalent of approximately $200/t for Cockerill Sambre. New York Times, 16th October 1998. See Appendix 2 for comparisons. Fees would be at least $90 million to $110 million for the 14 merchant banks involved in the €18.6 billion bid, nearly 20% of the annual fees for mergers and acquisitions. The debate on the merits of the bid and the tactics of the two sides were news for the next five months. 
The Mittal Bid Justification, and Arcelor's Immediate Defence 
LNM's rationale for the bid was very simple on the face of it. Both companies nominally had the same strategy of going for size in the global steel industry, although each company had reached its existing form via a different route. LNM had a long series of acquisitions to his credit, while Arcelor was the product of a lengthy period of rationalisation in the European steel industry. The background is given in the industry note in Appendix 3. In response to the accusation that both companies had the same strategy Dollé said: “There is a difference between consolidation and amalgamation. We have both proposed ... the need to consolidate, but ... from different vantage points and with different growth strategies. "4 The histories of both companies are laid out in Appendix 4.

 

Questions
1. What was in this deal for Mittal? 
2. What was at stake for Arcelor? 
3. Evaluate the take-over: who won? 
4. What challenges face the new ArcelorMittal group going forward? 
5. Would you invest in the new group, and in the industry?

 

 

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