book review on cold steel by laxmi mittal

1. A book review on
Submitted By
• Kameshwari Kvl 75
• Kavita Patil 77
• Vaishnavi Kulkarni
82

2. The Multi Billion Dollar
Battle For A Global Empire

3. “Cold Steel” is the story of the biggest and most
hard-fought industry takeover in recent years,
bringing to life the cut and thrust of big
businesses at war with each other.

4. Book Description
• A compelling account of the biggest corporate
takeovers of recent years, and an insight into the life
of Lakshmi Mittal, the UK's richest man
• Tim Bouquet and Byron Ousey have written an
account of the takeover in the style of a thriller.
• Cold Steel describes the often brutal and chaotic
five-month battle between Mittal and Arcelor.

5. • This book shows, money and business logic
prevailed in the end over politics and protection.
• Mittal’s vision, which he kept on repeating
throughout the battle for Arcelor was that, the
state run steel companies had no place in the
modern world.
• Steel would have to go global.

6. • Mittal Steel Company N.V. – CEO Lakshmi Mittal
• Formed by the merger of
• - LNM holdings & ISPAT International
- International Steel Group Inc.
• Headquartered in Rotterdam, Netherlands. 2005 Revenues was
$28.10 billion
• World’s largest steel producer by volume and also the largest in
turnover
• Major player in following products : Steel, Flat Steel products,
Coated Steel, Tubes and Pipes
Mittal Steel

7. Arcelor
• Arcelor was the world's largest steel producer in terms of
turnover before takeover.
• Second largest in terms of steel output.
• Guy Dolle was the CEO of Arcelor and its headquarter was
in Luxembourg city.
• In 2005, Arcelor had revenues of $38.84 billion.
• Arcelor was created through the merger of three
companies:
Arbed, Aceralia and Usinor

8. The Deal

9. Why Arcelor?
• An Attractive Target:
 Arcelor had 71% pre merger revenue share from
Europe while Mittal had only 34%
 While in North America The revenue share for Arcelor
was only 9% but Mittal had 42%
 So they had complementary industrial and market
footprint

10. • 27 January 2006 : Mittal Steel offers the shareholders of
Arcelor to create the world's first 100 million tonne plus
steel producer.
• The deal valued at $27.05 billion offer to Arcelor’s
shareholders
• The deal was split between Mittal Shares (75 percent)
and cash (25 percent)
• But soon the deal landed into controversy

11. Indian Government Stance
• Deal was not getting pushed due to MITTAL’s Indian
Nationality
• But LN Mittal himself felt that there was no case of
“racism”
• He emphasized that Mittal Steel was a European
company and NOT an Indian one.

12. THE FINAL DEAL
 Deal finally clinched when the shareholders of Arcelor
agreed to Mittal Steel’s offer – In June 2006
 Mittal raised its valuation of Arcelor to $32.9 billion.
The Mittal family holds 43 % of the combined group.
 The combined company holds 10 percent of the global
market for steel.

13. The flow of fierce fight
• At the age of 39, Mittal knew that he did not have enough time in
front of him to build many more plants from scratch. So he started
acquiring loss making steel manufacturing entities and turning
them around completely.
• The state-owned Iron & Steel Co. of Trinidad and Tobago
(ISCOTT) was facing bankruptcy which was his first opportunity
for acquisition in1989.
• The next year he baught “Graveyard” and made the plant private
firm. Later he bought Sidbec-Dosco in Quebec in 1994 and the
next year Hamburger Stahlwerke which formed Ispat
International.
• Next ISG was sold to Mittal Steel for $ 4.5 billion.

14. • In october 2005, mittal wanted to win the bid for ukrain’s
kryvorizstal, he won the deal by strategically bidding in
tough auction against guy Dolle.
• They have predefined the range for their bidding as well
as they have forecasted the range for their competitors
as well, which helped them to win it.
• Arcelor was planning to acquire Dofasco, as it was a big
potential prize for both the Arcelor and ThyssenKrupp
because it would give them entry to the North American
market.

15. Controversy
 Arcelor Management –
The management was extremely hostile to Mittal Steel’s bid
which he called “150% hostile”
The CEO of Arcelor dismissed Mittal Steel as a “company of
Indians”
 European governments –
•The French, Spanish and the government of Luxembourg was
against the deal,
• The French opposition was initially very fierce,
• But It was criticized in the British, American and Indian media
as double standards and economic nationalism in Europe

16. • Arcelor tried to create a “poison pill” using Dofasco, a
Canadian steel firm that it had recently bought.
• Later the firm proposed a share buyback, but denied the ruse
was intended to hamper Mittal's bid.
• Mr Dollé's attempt to paint Mittal as a firm that did not share
European “cultural values”. Saying Mittal suffered from
“mono-cultural management” describing the offer as “monkey
money”
• Arcelor rubbished the quality of Mittal's steel and criticised its
corporate governance.

17. Other related facts of tussle
• Luxemberg government was not in favour of the hostile
takeover bid for Arcelor.
• Special secret team was created by Guy Dolle to
envision circumstances where they might be under
attack from Mittal and plan out defences in advance.
One of the plans was to acquire a steel company in
USA, which was infact acquired by Arcelor

18. Various Strategies by Arcelor
• Various meetings with all banks like Deutsche bank for
issues related to investments for winning the bid.
• Took advise from Michael Zaoui, a successful banker,
• Consulted Romain Zaleski of Milan (involved in many
world’s industrial strategic decisions), his experience
was very important for the Arcelor

19. Various Strategies by Mittal
• Initially Mittal invited Guy Dolle at his home and tried to
convince him for takeover, and after that also he
consistently tried to convince Guy Dolle for the same.
• Later, Mittal had Roland Verstappen, appointed him as
director of government affairs, and Goldman’s as his lead
advisor,
• Goldman’scrafted the bid and built the assault team of
bankers, lawyers, political advisers and PR spinners,

20. • A cabal of banks was created with credit suiss, HSBC,
Citigroup to help finance the biggest steel deal in history.
• They made offers direct to Arcelor’s board members and
shareholders,
• He was trying hard so that every regulating authority
clears Mittal's offer before he could open it formally to
Arcelor's shareholders.
• Spanish billionaire Jose Maria Aristrain, second biggest
share holder in Arcelor with 3.6% stake, showed interest
in Mittal.

21. Proposal by Mittal to Arcelor Management
• ‘They suggested enlarging the Mittal Steel board to
fourteen members, with Mittal Steel and Arcelor equally
represented with six members each, plus two further
independent directors.
• They proposed a management board of six people, with
Mittal Steel and Arcelor equally represented.
• They proposed moving to a one-share one-vote
principle. And they also said that in the context of a
recommended transaction, Mittal Steel would be
prepared to revise the value of its offer.'

22. • Various poison pills were used by Arcelor, a
special protectionist takeover law put on table by
Luxembourg govt. but which was never passed,
the political charm offensive of Lakshmi Mittal
and how in the end every single defence
strategy that was put in place by Arcelor failed
and the only option they were left with was the
While Knight in SeverStal.

23. Defence strategies used by Arcelor
• It increased the dividend from euro 1.25 per
share to euro1.85 per share
• To really woo the shareholders Arcelor declared
buy back of shares and returned the
shareholders money.
• For the first time in its history the company
offered to buy shares and at a decent price, from
its shareholders, especially those who might be
wavering towards Mittal.

24. • Arcelor planned to takeover Severstal
Russian steel making company.
• In return, SeverStal would get 32 Percent
of the combined group, equating to 295
million new shares valued at €44 each,
totalling around €13 billion.

25. • SeverStal would be allowed six directors on a
newly confuted board of eighteen, and
Mordashov(owned SeverStal) would become
president of the strategy committee, with Kinsch
seeing out the rest of his two-year tenure as
chairman and Dolle retaining his CEO role.
• This new deal would enable Arcelor now to
distribute a Mittal-matching €7.6 billion to
shareholders who sold back their shares at €44
a share, an attractive proposition for hedge
funds

26. Mittal’s situation after announcement of
SeverStal Takeover by Arcelor
• Mittal have to secure 50 per cent of the fully
diluted shares to win and to have the SeverStal
deal come undone.
• It means that they have to win in the tender offer
50 percent of the sum of 614 + 295 - i.e. 455
million shares.

27. • Arcelor was rigging it so Mittal could never win
Cold Steel 281 outright. And there was another
problem was identified. 'Mittal could "win" the
tender, say, by getting 50 per cent of the 614
million outstanding shares, but with Arcelor on
automatic pilot to issue 295 million shares to
Mordashov, Mittal's shareholding would be
diluted down to 34 per cent, giving Mordashov
32 per cent with the remaining 34 made up of
other shareholders.' 'A three-way standoff,'

28. • Mittal would like to have the proposed SeverStal
combination proposed to and approved by
shareholders in a manner consistent with widely
followed procedures across Europe and in
accordance with best corporate governance
practices ... allowing shareholders a meaningful
opportunity to choose between the SeverStal
and Mittal Steel transactions.

29. Mittal’s Move
• The Arcelor by-laws say that if the shareholders,
who hold in aggregate more than 20 per cent of
the issued share capital, call f0r a meeting, then
the company has no option but to hold it
• In accordance with Article 70 of Luxembourg law
dated August 10, 1915, on companies, the
convening of a shareholders' meeting to be held
within 30 days from the date of the letter.

30. • Mittal also revised it share price to Arcelor’s
shareholder and shared Mittal business plan
with Arcelor’s Chairman.
• This made the Chairman Kinsch to have a
meeting with Mittal.
• In the meeting Kinsch and Mittal discussed
various aspects of the Arcelor-Mittal merger and
agreed to wait till the shareholders made right
decision.

31. • Finally Arcelor had the longest general
meeting with its shareholders and in which
Mittal offer was accepted and Mittal won
the bid for Arcelor.
• The final share price Mittal Paid was 40
euro per share to Arcelor’s shareholders.

32. Few Facts
• Times named Lakshmi Mittal its 'Person of the
Year'.
• The thirteen banks that advised both sides on
the deal banked, between them, $200 million in
fees.
• Mittal's total adviser bill for the banking, legal,
lobbying and communications work required to
acquire Arcelor amounted to $188 million - a
million dollars a day, according to the first annual
report of the new company.

33. Analysis – Financial View
The first, and probably the dominant one, is financial. From
the perspective of financial markets, their view triumphed.
The Arcelor board was forced to give full voice to the
shareholders rather than impose their own view of what
was good for the company. It was an object lesson in the
force of international capital markets, even if at times the
tactics were murky. Particularly noteworthy was the role of
hedge funds, which claimed to speak for far more of the
shareholding than in the end proved to be the case.

34. Analysis – Industrial View
• The second point of view is industrial. Did this combination make
sense? On paper, with no integration or consolidation of
significance, the arguments were decidedly mixed. In essence
the Arcelor defence was industry-based: ‘We have a plan and a
vision; we don’t need Mittal.’ ‘The Mittal bid is a financial
construct, not an industrial plan.’ This point of view was
defensible, but it ultimately stands up only if the financial point of
view supports it. This of course is the logic of the market for
corporate control, i.e., takeovers. From an industrial point of view
the result is inconclusive. LNM never publicly changed his plan,
which involved little reshuffling or rationalisation of assets. Even
in an expanding market, many regard this as a vital component
of a good steel company merger.

35. Analysis – Strategic view
• Running a low–value-added–product steel
mill (hence emphasising productivity) is
not the same job as running a high–value-
added–product steel mill (hence
emphasising quality).

36. Analysis – Strategic view
• The merits of consolidation were clearly one important
issue. How far consolidation should go was still a
debatable issue. Big equals good pleased the bankers
and analysts who had been persuaded that because
there were only three or four large iron ore suppliers
worldwide (and not many more coke suppliers), the steel
industry should be similarly structured. This was
debatable for several reasons.

37. • The first reason concerns price-fixing and cartel concerns.
Quite apart from issues of where the market is and how is it
defined, the question was ‘when is price discipline not price
fixing?’4 How many companies per market do you need to
stop this happening (although it is of course exactly what
steel companies want to happen)?
• Second, it is all very well concentrating in front of suppliers;
what about in front of customers? Only two groups were
cohesive (automotive and white goods), plus one that was
vocal (construction). The first two groups (with their own
problems) generally want at least four or five potential
suppliers. And to be potential they have to be actual, i.e.,
get orders.

38. • Third, at what point does big equal inefficient? Is this the
correct direction for the steel industry to go? Both
companies nominally have the same strategy of size and
globalisation, so there should be no disagreement. The
bid process has shown that this is too simplistic a view.
One could characterise the growth of Mittal as the fruit of
long period of privatisations, now largely (India and
China excepted) complete. And the growth of Arcelor
was a response to a need to consolidate (largely in
Europe) and to find new growth (largely in Latin America)
built round a tight product focus. For both strategies size
is a driver, but this does not make them the same
strategy, and the bid process showed this.

39. Market Analysis
• There was no pressure for this merger from the steel
markets. However, both companies had proposed
strategies of consolidation as the means to raise returns.
There was resistance from the markets for some specific
products where the combination would have created a
dominant supplier — of structural beams in Europe, and
of tin plate in the US. In the latter case this was one
reason to dispose of Dofasco, but other Mittal North
American facilities could also have been sold.

40. Analysis Technological Factor
• Technology was not a major factor. Both companies had
both major melting technologies (furnaces based on
either iron ore or scrap). Arguably Mittal wanted Arcelor
for its better technology. Mittal argued that a bigger
company would have a bigger (undeniable) or better
(debatable) R&D effort. A bigger company would have
more power vis-à-vis the steel equipment suppliers, who
are very concentrated and who lead innovation, but as
both companies were only renewing existing capital this
was not important.

41. Analysis – Economic Factors
• The degree of backward integration into raw materials,
greater for Mittal, was certainly a factor. European mills,
having abandoned local national sources over the years,
were at the mercy of the highly oligopolistic sea-borne
suppliers of iron ore and coke. This was one of the
arguments for larger scale. Competitiveness of local
labour was not an issue, although the governments
clearly were worried it might be. Steel companies
consume a great deal of cash, and it was suggested that
Mittal wanted Arcelor for its stronger cash flow (because
it was better invested, hence over the cycle would at
some stage be throwing off a lot).

42. Key learnings
• Prove your critics wrong, accept the challenges and you should
dedication, commitment and passion in what you are doing will
differentiate you from others.
• Knowledge is the key: To win you should have prior knowledge and
tactics to handle, about the possible scenarios. you should know your
areas of strength, there is so much knowledge available today which
you should grasp and use to make strategies.
• If you want to grow you have to do things differently than what
everyone else is doing.

43. Key learnings
• Being responsible is vital to a firm’s long-term success.
• Goals should keep on changing as we move forward in the life,
don’t set high goals, always make “a small step forward” to become
stronger to gain confidence then you change your pose.
• Take Bold decisions: Bold decisions are not free of risks as we
should analyse the risks very carefully, however it could be very
transformative in the business you are. Analyse the situation and
take bold decision.