Corporate Governance Case Study: Arcelor Mittal Merger Analysis

This case study analyzes the 2006 merger of Arcelor and Mittal, the world's largest steel company. The analysis addresses key questions regarding the merger's rationale, the impact on corporate governance, and the roles of the Mittal family and shareholders. It explores the pros and cons of the merger, including increased revenue, market growth, and profit, while also considering potential risks such as high monetary costs and potential negative impacts from differing corporate cultures. The study examines the Mittal family's control, shareholder rights, and the implications of the merger on the company's board structure and governance. The analysis highlights the importance of corporate governance in ensuring long-term business success and value creation for the merged entity. The case study concludes that, despite certain risks, the merger was beneficial for both companies, creating a stronger and more sustainable business.

Running head: CORPORATE GOVERNANCE
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Table of Contents
Introduction................................................................................................................................2
Discussion..................................................................................................................................2
In Response to Question 1......................................................................................................2
In Response to Question 2......................................................................................................4
In Response to Question 3......................................................................................................5
Conclusion..................................................................................................................................7
References..................................................................................................................................8

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Introduction
The assignment actually deals with the case study, which is the merger, and the other
consequences which are actually related to such kind of €27 billion merger between the two
companies. Lakshmi Mittal was actually one of the India’s largest steel billionaire and
recently emerged as one of the world’s biggest company which is actually based on the
audacious five-month takeover struggle. Mittal Steel and Arcelor of Luxembourg have agreed
a €26.9bn ($33.6bn) merger which is actually larger than the nearest rivals which are actually
present ion the industry. The main business of Mittal is actually related to the manufacturing
of steel and Arcelor on the other hand deals with the automotive, construction and metal
processing.
Mittal was a family company with a tradition of growth through acquisition and until
now constantly dominating their actual presence. Further Arcelor had criticized Mittal for
being unable to manipulate effectively and efficiently as it had the family of the Mittal with
actually few directors of the board.
Discussion
In Response to Question 1
During the time of the merger and acquisition of the firm it is actually important to
understand the reason behind such kind of merger. Basically the merger actually takes place
which comes to benefit for both the company which is Mittal and Arcelor in this case. The
merger actually takes place based on the goal and objectives of both the company which may
actually be long or short term basis (Ehrhardt and Brigham 2016). Boing going for the merger
there are some of the significant aspects, which the company needs to certain, or further the
risk which are actually associated in that case. In this case, Arcelor was actually struggling
with the hostile takeover which was actually valued at around $35 billion. Due to the merger
of the Mittal and Arcelor there had been a significant changes in the management system of

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the company like the board of directors and the top level managers. The certain pros and
cons, which are actually associated, in this case are as follows:
Pros:
 The main advantage of the merger which is that it actually creates value to both the
combined entities which a single company on its own cannot produce. It further helps
the company to enhance the overall revenue in the business along with the production
of the company at the same time (Fisher 2018).
 The merger and acquisition further helps the new companies to flourish along with
that enhancing the customers base with the improvisation of the goods and services in
the market.
 The merger of the firms is basically a cost effective method in order to expand the
business prospects of the company in the long run. If the company hires the talented
employees then it will possible for the companies to expand or grow accordingly.
 The merger between the firms actually enhances the core competence in the business
which actually means that the company will be effective in the overall business
process. The consumer price of the goods and services provided by the company will
be increased at the same time which is actually suitable in the case of merger between
the Mittal and Arcelor (Shoup, C., 2017).
The cons and risks, which are actually depended on the merger and acquisition of the firm,
are given bellow:
 There actually exists the potential business risk which may put a dent in the overall
production of the company. There actually remains certainty that consolidate position
within the company may be duplicated at times.

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 It may further enhance the level of debt in the business of the firm The leverage in
that case remains high which will also increase the propensity of risk associated with
the business.
 The difference in the corporate culture in the business will definitely create a
negative impact in the overall business prospects of the company as a whole. At the
commencement of the business, it is quite important for the company to take care of
the understanding the new companies with the merged companies (Hirshleifer 2015).
 Due to merger the additional cost of the business also increases which can further add
create more tension in the business to accumulate funds at the time when the business
of the company is in huge progress.
In Response to Question 2
Mittal family actually retained 43.5% of the voting equity which includes 18 board of
the members in this case. As per the information it can be said that the Mittal family actually
owns 67.2 percent of the A shares along with the B shares of 10 votes. The ratio of the voting
structure with the non-voting structure is actually 10:1 (Gitman, Juchau and Flanagan 2015).
In such a situation a particular institutional investors of the business will definitely make
investments in the company along with the directors of the company who can actually make
the significant investment prospects of the business.
This information will auto automatically motivate the potential investors in the
business to make contribution in the governance of the company after the merger of the
Mittal and Arcelor (Cesa-Bianchi, Imbs and Saleheen 2019). The powers of the company
actually rests on the owners’ equity or rather the shareholders of the company. Before making
the potential investment in the business the shareholders of the company needs to get access
related to the information of the government. The shareholders of the business will
necessarily collect the relevant information’s of the business along with that analyzing the

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potential impact and the recent news related to the merger of both the firms which are the
Mittal and Arcelor (Pilbeam 2018).
The eye catching information for the shareholders of the company before making
investments it is actually needed by the company to notice the significant situation which is
Mittal will actually get 43.4% of the shares after the merger and the executive role in that
case will be played by the Arcelor Mittal. The shareholders must keep into record the
potential business ups and downs along with the changes in the management system of the
company in the recent years in the business after the merger of the Mittal Arcelor (Arcand,
Berkes and Panizza 2015).
Based on the merger there was a deal which actually took place within the system of
the company is that for every Arcelor share the company will receive €12.55 in cash and
1.084 Mittal shares (Bailey 2017). The owners equity in that will be valued based on the
€26.9bn equity value, 31 per cent will be accounted for by a cash payment, the rest in Mittal
shares. This are the significant business information must be accumulated by the potential
investors in order to make significant contribution towards the governance as good corporate
governance will definitely enhance the overall business perspective of the company in the
end.
In Response to Question 3
After going through the information, which is actually laid, on the article along with
the positive and the negative impact of the merger in the business of the Mittal and Arcelor
(Cochrane 2017). The pros and cons of such kind of merger in the business have been
depicted accordingly:
Pros:

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 The main benefit of the deal is that there has been significant increase in the revenue
of the company from the amount of $28.123 billion to the amount of $105.2 billion in
that case. Further it will definitely put a positive impact in the operating income of the
company from the amount of $4.746 billion to the amount of $14.83 billion.
 The start of the venture in the business actually resulted in the business and the
market growth in the potential countries, which are the Luxemburg, Senegal, Liberia,
and further the company is actually looking for the potential expansion in the areas of
the high growth Chinese and the Indian market (Bacry, Mastromatteo and Muzy
2015). The concentration of the companies in this market will definitely increase the
overall business prospects of the company based on the long run objective of the
merged company.
 Due to the merger, the profit of the company in that case has also increased in a
significant proportion which is actually from $3.36 billion to $10.36 billion. This
further resulted in the enhancement in the economies of scale of the company after the
merger along with the decreased competition and increase market share of the
company (Brine and Poovey 2017).
Cons:
 The main disadvantages in the merger of the firm is that the company actually
involves the high monetary cost with the target company which is in this case
Arcelor amount to $32.9 billion.
 The monetary cots was a potential risk of the firm at the time merger which
genuinely took place within the business prospects of the company. This is the
moment when the business must go for minimizing the advantage which is actually
associated in the company (Härdle, Chen and Overbeck 2017).

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From the above evaluation of the pros and cons of the merger it can be said that the pros
of the merger of both the companies actually outweighs the cons associated with the business
(Morrell 2018). Hence in this case it is actually the benefit for the both the company to
enhance the business based on the long term objective of the Arcelor Mittal. The deal actually
became successful for both the company in terms of production of steel which actually
benefitted the people and the world in such a decision of merger (Fracassi 2016).
The merger, which actually took place, was successful due to the fact that there was
actually synergy effect involved at the time of the merger of the two business. The company
actually bought the iron ore, technology and the marketing exercise all together to enhance
the efficiency in the business based on the long term objective of the firm. This actually
smoothen out the fluctuation in the prices of the product, which actually happened before the
merger took place between the Arcelor Mittal. The merger on the other hand create a much
stronger and more sustainable business in the future. This will moreover help the business of
the company to grow in the future and attract the potential stakeholders in the business
(Melvin and Norrbin 2017). The strategy, which is actually involved at the time of merger,
was of potential benefit regarding the growth and value creation in the market. The value of
the company on the other hand will definitely increase and further the value of the company
will actually meant to be benefitted based on the long run aspects of the company.
Conclusion
From the above discussion, it can be concluded that Mittal actually owns 88% of the world’s
largest steel company and the merger of both the company will automatically enhance the
business prospect of the company based on the long-term goals of the overall organization.
Despite of the certain cons which have been depicted along with the facts and figures, it can
be said that the merger decision of the company was actually fruitful which will help both the

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company to sustain in the future along with the potential growth of the business. The merger
and acquisition of the companies are basically the preferred competitive option for the
company to enhance the productivity along with the profitability position of the company
despite of the rapid changing global business scenario.
References
Arcand, J.L., Berkes, E. and Panizza, U., 2015. Too much finance?. Journal of Economic
Growth, 20(2), pp.105-148.
Bacry, E., Mastromatteo, I. and Muzy, J.F., 2015. Hawkes processes in finance. Market
Microstructure and Liquidity, 1(01), p.1550005.
Bailey, S.J., 2017. Strategic public finance. Macmillan International Higher Education.
Brine, K.R. and Poovey, M., 2017. Finance in America: An Unfinished Story. University of
Chicago Press.
Cesa-Bianchi, A., Imbs, J. and Saleheen, J., 2019. Finance and synchronization. Journal of
International Economics, 116, pp.74-87.
Cochrane, J.H., 2017. Macro-finance. Review of Finance, 21(3), pp.945-985.
Ehrhardt, M.C. and Brigham, E.F., 2016. Corporate finance: A focused approach. Cengage
learning.
Fisher, R.C., 2018. State and local public finance. Routledge.
Fracassi, C., 2016. Corporate finance policies and social networks. Management Science,
63(8), pp.2420-2438.

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Gitman, L.J., Juchau, R. and Flanagan, J., 2015. Principles of managerial finance. Pearson
Higher Education AU.
Härdle, W.K., Chen, C.Y.H. and Overbeck, L. eds., 2017. Applied quantitative finance (Vol.
2). Springer.
Hirshleifer, D., 2015. Behavioral finance. Annual Review of Financial Economics, 7, pp.133-
159.
Melvin, M. and Norrbin, S., 2017. International money and finance. Academic Press.
Morrell, P.S., 2018. Airline finance. Routledge.
Pilbeam, K., 2018. Finance & financial markets. Macmillan International Higher Education.
Shoup, C., 2017. Public finance. Routledge.