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IMPACT OF MERGERS AND ACQUISITIONS 1. On workers or employee- layoffs 2. On top level management - clash of egos - variation in culture 3. On shareholders: Acquiring firm - most affected, they are harmed by the same degree to which target firm shareholders benefitted Target firm - benefitted the most -acquiring company usually pays a more
THE TWO COMPANIES MITTAL STEEL Was one of the world's largest steel producers by volume, and turnover. Formed when Ispat International N.V. acquired LNM Holdings N.V. (both were already controlled by Lakshmi Mittal) and merged with International Steel Group Inc. (the remnants of Bethlehem Steel, Republic Steel and LTV Steel) in 2004 ARCELOR Was the world's largest steel producer in terms of turnover Second largest in terms of steel output. Created by a merger of the former companies Aceralia (Spain), Usinor (France) and Arbed (Luxembourg) in 2002.
THE YEAR 2006… January 2006 - Mittal Steel offer to the shareholders of Arcelor to create the world's first 100 million tonne plus steel producer. February 2006 - Mittal Canada completes the acquisition of three Stelco subsidiaries, the Norambar and Stelfil plants, located in Quebec, and the Stelwire plant in Ontario. April 2006 - Renewal after Hurricane Katrina and new galvanised line May 2006 - Mittal Steel announces US antitrust clearance for Arcelor bid and the approval of the offer documents by European regulators.
THE YEAR 2006… June 2006 - Mittal Steel and Arcelor reach an agreement to combine the two companies in a merger of equals. September 2006 - Arcelor Mittal announces new dividend policy, under which it will pay out 30% of net income annually. December 2006 - sells Thüringen long carbon steel plant, sells the Italian long carbon steel production Travi e Profilati di Pallanzeno and San Zeno Acciai to Duferco, acquires Sicartsa, the leading Mexican long steel producer, signs a MoU for the Greenfield project in Orissa,
RESULT The merger resulted in the creation of the world’s largest steel company. 2007 revenue - $105 billion Steel production - 10 percent of global output 320,000 employees Presence in 60 countries A global leader in all of its target markets.
RESULT Though competitors they exhibited little overlap in terms of their operations. Arcelor’s attributes proved to be highly complementary with Mittal owning much of its raw materials such as iron ore and coal and Arcelor having extensive distribution and service center operations. Unlike many mergers involving direct competitors, a relatively small portion of cost savings would come from eliminating duplicate functions and operations.
REACTIONS TO THE TAKEOVER Directors strongly opposed the takeover, with Arcelor's chief executive at that time, Guy Dollé, even dismissing Mittal as a "company of Indians". The French, Luxembourg and Spanish governments strongly opposed the takeover. The French opposition was initially very fierce and has been criticized in the British, American and Indian media as double standards and economic nationalism in Europe.
THE INDIAN GOVT’s STANCE Deal was not getting pushed through because of Lakshmi Mittal’s Indian nationality. Issue raised at several forums especially through commerce minister KamalNath. Alleged that India had threatened not to ratify a taxation accord with Luxembourg due to the latter’s opposition to the deal. Irony - LN Mittal himself felt that there was no case of “racism” here as Mittal Steel was a European company and NOT an Indian one.
TOP MANAGEMENT ArcelorMittal top management set three driving objectives before undertaking the post-merger integration effort. - Achieve rapid integration - Manage effectively daily operations - Accelerate revenue and profit growth.
CULTURAL INTEGRATION Most integration initiatives fall short of reaching their goals during implementation stage and follow-up. The company should recruit and promote service oriented candidates, train the workforce in techniques of service Set goals that are based on service Reward an recognize people for higher level of service
STRATEGIES FOR MANAGING HUMAN RESOURCE IN M&A Communication Common culture Training and development Mutual respect Individual counseling
CULTURAL PROBLEMS ADDRESSED COMMUNICATION - Between different cultures and time zones - Internal communications play a very important role - Regular conference calls with CEO’s, management and employees, send out news up-dates, hold proximity meetings, etc.
CULTURAL PROBLEMS ADDRESSED AVOID REDUNDANCIES - Introduced a range or measures to avoid forced redundancies to date. - Launched Group-wide VRS and early retirement programmes. - Flexible rotating work schedules at various sites.
CULTURAL PROBLEMS ADDRESSED THE MONEY PART - Voluntary salary cuts at management level. - Necessary measures. - Employees affected will be taken care of in the most socially sensitive way possible in-line with economic employment legislation, where the company continues to take responsibility.
THE VISIBLE DEATH! (FINANCIALS) 2007 - Sales increased by 10% - Net profit increased by nearly 30% 2008 - Sales increased by 11% - Net profit decreased by 10% 2009 - Sales decreased by 47.5% - Net profit decreased by 98.7%
BAD TO WORSE!! Malay Mukherjee, a former SAIL executive, stepped down from ArcelorMittal's Board, opposing the measures taken by Arcelor Mittal, indifference to employees, no effort to put down strikes, massive lock-outs, no effort to reduce pollution.
THE DUTCH Vs THE FRENCH Strike is a typical French corporate practice, the Dutch adapt and go ahead. The Dutch were work oriented – Low cost operations was their strength. In France, higher you are placed in the hierarchy, more tensed is the atmosphere.
THE DUTCH Vs THE FRENCH The French are more stressed, but spend on average less time at their offices or workplaces in general. For the Dutch performance mattered – while for the French their pride mattered-ARCELOR, the largest turnover company in Steel. Arcelor had high end customers while Mittal dealt with the low end customer base.
CHECKLIST - MERGERS AND CORPORATE CULTURE Develop a strategy for cultural integration Analyze existing cultures - identify cultural barriers, differences in communication and other potential problems. Decide which role the new culture shall play in the merged organization. Establish ‘bridges’ between both companies. Establish a basis and mechanisms for the new culture. Be patient People take time to be acquainted to a new cultural reality.