Final Od Project

7/29/2019 Final Od Project

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When a piece of a log is subjected to severe pressure becomes charcoal.

And if it is subjected to extreme pressure results in a diamond.

Entrepreneurs are made from men like that.


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CASE STUDY

TAKE OVER BY LAXMI NIWAS MITTAL: THE BIGGEST DEAL IN

THE GLOBAL STEEL INDUSTRY, ARCELOR MITTAL

A European Company Had To Finally Give In and Merge with A Company Of Indians .

Introduction:

Mergers are strategic decisions leading to the maximization of a company's growth by enhancing

its resources. According to Sec 2(1A) of INCOME TAX ACT 1961 defines Amalgamation as

the merger of one or more companies with another company or the merger of two or more

companies to form a new company (called amalgamated company) in such a way that all assets

and liabilities of the amalgamating company or companies becomes assets and liabilities of

Amalgamated company.

Many global MNCs used to take over Indian companies in the past. During the pre-liberalization

era foreign companies were on the offensive mode to take over Indian companies. In post

liberalization, things have changed for better for the Indian industry. As a result, the Indian

industry changed its stance from being defensive to offensive.

About Mittal Steel (Acquirer):

There is one global Indian who thrived in business with a strategy of series of acquisitions. He is

none other than Mr.Laxmi Niwas Mittal. He was born in Sadulpur village, in the Churu district

of Rajasthan, India. He graduated in Commerce from St.Xaviers College in Kolkata, India. He

was born in Steel family. Due to the differences with his father and brothers he left India and

branched out by doing business independently across the seas.

His first attempt was in Indonesia where he acquired a steel company which is related to wire rodmanufacturing and turned around and succeeded. One success led to another success and he

began acquiring steel plants all over the world. He can also be calledTake Over Tycoon.

Mittal Steel is the world's largest and most global steel company, with shipments of 49.2 million

tons and revenues of over $28.1 billion in 2005. They own steel-making facilities in 16 countries,


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spanning four continents. They employ 224,000 people spanning 49 different nationalities. Their

shares are listed on the New York and Amsterdam stock exchanges.

There are different ways and means by which any company can

grow such as:

Organic growth,

Mergers,

Strategic alliances and

Acquisitions.

The secret to success for Mittal is series of acquisitions. He took

over the companies at cheaper price which are not doing well and

developed and turned around the same. Besides, he is:

An excellent negotiator,

Communicator and

Has deep understanding of cultural differences across the world.

He always believed in his core strength steel and never believed in unrelated diversification.

As a result LN Mittal is called as a Steel Czarand as crowned as the Carnegie of Steel.

The Target Company- Arcelor

Arcelor was created through the merger of

Arbed (Luxembourg)

Aceralia (Spain)

Usinor (France)

Merger was launched on 19 February 2001. Guy Dolle was

the CEO of Arcelor and its headquarter was in

Luxembourg City.

And the mother of all acquisitions is the attempt to acquire Luxembourg-based Arcelor

Steel.


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Mittal Steel made a daring $ 33 billion offer to take over its rival Arcelor. It was the boldest offer

by any NRI to be made. There were lots of practical problems involved during acquisition. The

French government went to the extent of protecting their company and adopted various

techniques to prevent the acquisition.

Mr. Mittal pursued up to the hilt. He allayed the apprehensions of the employees and also that of

shareholders of Arcelor and after prolonged battle the company was acquired and the transition

has been made smooth. Ultimately he created 100 million tonne steel company. It was the

toughest job for the Mr. Mittal to get the merger process evened out. Ultimately he succeeded in

his bid and has become the President and CEO for Arcelor Mittal.

It indicates his business:

Acumen,

Gut and

Intuition

The Arcelor-Mittal merger is a HORIZONTAL merger

Horizontal merger take place where two merging companies produce similar products in same

industry like Arcelor and Mittal both are steel manufactures, hence Arcelormittal merger is a

horizontal merger as both the companies were in steel manufacturing .

Now LN Mittal is the only Indian who controls any particular sector i.e. Steel sector in the world.

No other Indian in the earth controls any particular sector but it has been made possible only for

Mr. Mittal because ofhis passion and perseverance to become steel czar in the world.

In the confrontation between the stream and the rock, the stream always wins not

through strength but by perseverance,

H. Jackson Brown


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Advantages Of Arcelor-Mittal Merger

Economies of scale : The main objective of Mittal regarding the merger is to have

economies of scale in the foreign market so that they will be leader in the steel Industry

.As Arcelor was one of the major producer of steel in Europe , thus by the merger Mittalwill enjoy economies of scale and increase order size

A tie-up between the two companies would create a company with $70 billion a year in

revenue and the most global production capacity in the industry

Synergy: The objective Low Cost slab manufacturing in Brazil that can be expanded for

export to Europe and North America. Annual synergies increased by 60% to 1.3bn

(US$1.6bn). Increased revenue and market share: The motive of the Mittal behind the

merger was to increase the market share and become a leader in steel production.

The Combined Strategy Taken By Mittal

Consolidate regional high-end leadership into global customer platform

Achieve industrial excellence through state of the art assets sustained by sound capital

expenditure and best in class R&D.

Realize commercial leadership through strong distribution channels

Capture growth in BRICET countries, utilizing existing leadership in high-end products

in mature economies

Accelerate growth in key emerging markets such as India and China

Achieve cost leadership and operational excellence across product range

Maintain high level of vertical integration to hedge against raw materials price

fluctuations

Focus on people management and social responsibility


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A Win-Win Transaction For All Stakeholders:

1. From Mittal Point Of View

Merger would take consolidation to a new horizon. Successful distribution business in Europe.

Mittal Co. to have leadership position in high end segments in Western Europe with

strong R&D capabilities.

Low Cost slab manufacturing in Brazil that can be expanded for export to Europe and

North America.

Increased free float and liquidity.

2. From Arcelor Point Of View Mittal Company will accomplish Arcelor's stated plan in the most efficient way.

Arcelor becomes a global player.

Operations in high-growth economies with low-cost, profitable assets and local operating

expertise in numerous emerging markets.

Leadership position in high-end segments in North America, with strong R&D

capabilities.

Access to very low cost slab potential in Ukraine to serve West Europe.

Access to raw materials and upstream integration.

It Has Been A Win-Win Transaction For Both Parties

Creating the undisputed leading global steel company

Growth and value creation opportunities maximized through unique global platform

Step change in steel industry consolidation

Significant synergy potential

Financial strength and strategic flexibility reinforced

Leadership in R&D/product development

Significant free float and liquidity


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Re-rating potential

Positive for all stakeholders

Manufacturing And Process Optimization (Us$470m)

Benchmarking and best practice alignment across all operating assets

Optimization of utilization of assets through selected mill product specialization (e.g.,

productivity gains with better sequencing rates, fewer changeovers)

Logistical and mill optimization through transfers of semi-finished products

Purchasing (US$500m)

Scale effects on standardization of procurement contracts

Optimization and efficiencies from maintenance services, subcontracting, spare parts And

Consumables

Logistics savings on optimization of raw material flows

SGA (US$60M)

IT synergies

Reduction in external contracts e.g., consulting services

Duplication in commercial network avoided

The Basic Change Strategies taken by Mittal

Top Management Sets Expectations

Arcelor Mittal top management set three driving objectives before undertaking the post-merger

integration effort. These included the following:


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(1) Achieve rapid integration;

(2) Manage effectively daily operations; and

(3) Accelerate revenue and profit growth.

The third objective was viewed as the primary motivation for the merger. The goal was to

combine what were viewed as entities having highly complementary assets and skills. This goal

was quite different from the way Mittal had grown historically, which was a result of

acquisitions of turnaround targets focused on cost and productivity improvements.

The focus during the merger was mainly on the following:

formation of the integration team,

the importance of communication, and

The realization of anticipated synergies during the post-merger period

Developing the Integration Team

The formal phase of the integration effort was to be completed in six months. Consequently, it

was crucial to agree on the role of the management integration team (MIT), key aspects of the

integration process such as how decisions would be made, and the roles and responsibilities of

team members.

Activities were undertaken in parallel rather than sequentially. Teams from the two firms were

identified. The teams were then asked to submit a draft organization to the MIT. The profiles of

the people who would occupy the senior positions were defined and selection committees

established. Once the senior managers were selected, they were to build their own teams to

identify the synergies and to create action plans for realizing the synergies. Teams were formed

before the organization was announced and implementation of certain actions began before

detailed plans had been developed fully. Progress was monitored to plan on a weekly basis,

enabling the MIT to identify obstacles facing the 25 decentralized task forces and, when

necessary, to resolve issues.

The integration team leader was selected based on their demonstrated ability to be collaborative

and process-oriented, enabling them to manage the weekly reviews and to resolve issues as they


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arose. The leader would also have to be sensitive to cultural differences in order to be able to get

people to work together. Finally, the team leader would have to be someone who had the

confidence of the CEO and other top managers.

Developing Communication Plans

Considerable effort was spent in getting line managers involved in the planning process and to

sell the merger to their respective operating teams. Initial communication efforts included the

launch of a top-management road-show. The new company also established a Web site and

introduced Web TV. Senior executives provided two-to-three minute interviews on various

topics giving everyone with access to a personal computer the ability to watch the interviews

onscreen.

Owing to the employee duress resulting from the merger, uncertainty was high as employees

with both firms wondered how the merger would impact them. To address employee concerns,

managers were given a well-structured message about the significance of the merger and the

direction of the new company. Furthermore, the new brand, ArcelorMittal, was launched at a

meeting attended by 500 of the firms top managers during the spring of 2007. This meeting

marked the end of the formal integration process. Finally, all communication of information

disseminated throughout the organization was focused rather than of a general nature.

External communication was conducted in several ways. Immediately following closing, senior

managers traveled to all the major cities and sites of operations (i.e., the road show) talking to

local management and employees at these locations. Typically, media interviews also were

conducted around these visits, providing an opportunity to convey the ArcelorMittal message to

the communities through the press. In March 2007, the new firm held a media day in Brussels,

which involved presentations on the status of the merger. Journalists were invited to go to the

different businesses and review the progress themselves.

Within the first three months following closing, customers were informed about the advantages

of the merger for them, such as enhanced R&D capabilities and wider global coverage. The sales

forces of the two organizations were charged with the task of creating a single face to the

market.


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Achieving Operational and Functional Integration

ArcelorMittal management set a target for annual cost savings of $1.6 billion annually, based on

their experience with earlier acquisitions. The role of the task forces was first to validate this

number from the bottom up and then to tell the MIT how the synergies would be achieved. As

the merger progressed, it was necessary to get the business units to assume ownership of the

process to formulate the initiatives, timetables, and key performance indicators that could be

used to track performance against objectives. In some cases, synergy potential was larger than

anticipated, while smaller in other situations. The expectation was that the synergy could be

realized by mid-2009. The integration objectives were included in the 2007 annual budget plan.

As of the end of 2007, the combined firms were on track to realize their goal with annualized

cost savings running $1.4 billion.

Concluding Formal Integration Activities

The integration was deemed complete when the new organization, the brand, the one face to

the customer requirement, and the synergies were finalized. This occurred within eight months

of the closing. However, integration would continue for some time to achieve cultural

integration. Cultural differences within the two firms are significant. In effect, neither company

was homogeneous from a cultural perspective. Arcelor Mittal management viewed this diversity

as an advantage, since it provided an opportunity to learn new ideas.


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ApplicationOf Theory In Arcelor Mittal Case

Planned ChangeMerger

Steps in Planned Change

Once managers and an organization commit to planned change, they need to create a logical

step-by step approach in order to accomplish the objectives. Planned change requires managers

to follow an eight-step process for successful implementations, which is illustrated in Figure 1.

Figure 1Stages of planned change.


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1. Recognize the need for change. Recognition of the need for change may occur at the top

management level or in peripheral parts of the organization. The change may be due to

either internal or external forces.

Mr.Laxmi Niwas Mittal recognized the change very early only. He wanted to acquire

Arcelor Steel for becoming the largest manufacturing in the steel in the world.

2. Develop the goals of the change. Remember that before any action is taken, it is

necessary to determine why the change is necessary. Both problems and opportunities

must be evaluated. Then it is important to define the needed changes in terms of products,

technology, structure, and culture.

He has prepared and set the goals for acquiring the competing firm. He has set the 3

major goals. They are as follows:

1) Achieve rapid integration;2) Manage effectively daily operations; and3) Accelerate revenue and profit growth.

3. Select a change agent. The change agent is the person who takes leadership responsibility

to implement planned change. The change agent must be alert to things that need

revamping, open to good ideas, and supportive of the implementation of those ideas into

actual practice.

For making such a big level of change the company has appointed all the top

management managers to implement this level of change successfully.

4. Diagnose the current climate. In this step, the change agent sets about gathering data

about the climate of the organization in order to help employees prepare for change.Preparing people for change requires direct and forceful feedback about the negatives of

the present situation, as compared to the desired future state, and sensitizing people to the

forces of change that exist in their environment.

Mittal & Co. has diagnosed the overall environment particularly in the steel industry.

Mr. Mittal has waited for the right time to come for this deal.


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5. Select an implementation method. This step requires a decision on the best way to bring

about the change. Managers can make themselves more sensitive to pressures for change

by using networks of people and organizations with different perspectives and views,

visiting other organizations exposed to new ideas, and using external standards of

performance, such as competitor's progress.

Company has implemented this big change through planned process and step by step.

Company has decided to purchase whole company Arcelor to become worlds largest

steel manufacturing firm.

6. Develop a plan. This step involves actually putting together the plan, or the what

information. This phase also determines the when, where, and how of the plan. The plan is

like a road map. It notes specific events and activities that must be timed and integrated to

produce the change. It also delegates responsibility for each of the goals and objectives.

Company has prepared plans how much money should be spent on this acquisition and

how much will be earned after this deal. I n how many years the company will be able to

reach at break-even point.

7. Implement the plan. After all the questions have been answered, the plan is put into

operation. Once a change has begun, initial excitement can dissipate in the face of

everyday problems. Managers can maintain the momentum for change by providing

resources, developing new competencies and skills, reinforcing new behaviors, and

building a support system for those initiating the change.

Company has taken full care while implementing the plan and bringing this change.

8. Follow the plan and evaluate it. During this step, managers must compare the actual

results to the goals established in Step 4. It is important to determine whether the goals

were met; a complete follow-up and evaluation of the results aids this determination.

Change should produce positive results and not be undertaken for its own sake.

Company has implemented the plan and evaluated it through follow up steps like

communication process and integrating team that will look after the after merger


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integration of both the different firms. That will ensure the timely breakeven and

revenue generation for the new company.

Keep in mind that a comprehensive model of planned change includes a set of activities that

managers must engage in to manage the change process effectively. They must recognize the

need for change, motivate change, create a vision, develop political support, manage the

transition, and sustain momentum during the change.

Types Of Process Interventions

Communications planning

Development of a communication plan was the most common task for change management

teams. When ask about communication practices and the frequency of communications, project

teams tended to communicate less frequently than they thought they should have during the

project (see Figure 1).

Figure 1Communication frequency


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Nearly 40% of study participants indicated that weekly communications provided the desired

frequency, with about one-third indicating either several times a week or daily.

Developing Communication Plans

Considerable effort was spent in getting line managers involved in the planning process and to

sell the merger to their respective operating teams. Initial communication efforts included the

launch of a top-management road-show. The new company also established a Web site and

introduced Web TV. Senior executives provided two-to-three minute interviews on various

topics giving everyone with access to a personal computer the ability to watch the interviews

onscreen.

Owing to the employee duress resulting from the merger, uncertainty was high as employees

with both firms wondered how the merger would impact them. To address employee concerns,

managers were given a well-structured message about the significance of the merger and the

direction of the new company. Furthermore, the new brand, ArcelorMittal, was launched at a

meeting attended by 500 of the firms top managers during the spring of 2007. This meeting

marked the end of the formal integration process. Finally, all communication of information

disseminated throughout the organization was focused rather than of a general nature.

External communication was conducted in several ways. Immediately following closing, seniormanagers traveled to all the major cities and sites of operations (i.e., the road show) talking to

local management and employees at these locations. Typically, media interviews also were

conducted around these visits, providing an opportunity to convey the ArcelorMittal message to

the communities through the press. In March 2007, the new firm held a media day in Brussels,

which involved presentations on the status of the merger. Journalists were invited to go to the

different businesses and review the progress themselves.

Within the first three months following closing, customers were informed about the advantagesof the merger for them, such as enhanced R&D capabilities and wider global coverage. The sales

forces of the two organizations were charged with the task of creating a single face to the

market.


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Communication Methods

Who should deliver the message?

The employees supervisor (to deliver messages that directly impact the employee)

CEO/president (to deliver messages about the business drivers and business vision)

Arcelor Mittal engaged more than 500 top management employees in this process of

communication. They tried to inform the details relating to merger and concerning to

the employees.

Important Messages To Communicate

The most important messages to communicate to impacted employees fell into two categories:

1. Messages about the change

The current situation and the rationale for the change

A vision of the organization after the change takes place

The basics of what is changing, how it will change, and when it will change

The expectation that change willhappen and is not a choice

Status updates on the implementation of the change, including success stories

2. Messages about how the change will impact the employee

The impact of the change on the day-to-day activities of the employee (WIIFM Whats

in it for me?)

Implications of the change on job security (Will I have a job?)

Specific behaviors and activities expected from the employee, including support of the

change

Procedures for getting help and assistance during the change

Documents

Final Od Project