'We couldn?t wait because Arcelor is trying to grow in US'
Aditya Mittal has a boyish charm that makes him a good brand ambassador for Mittal Steel. But when it comes to business he fits into his father?s aggressive boots. "The Arcelor investors have no reason to fret," he tells Prerna K Mishra.india Updated: Apr 20, 2006 20:01 IST
What does the Industrial plan for Arcelor look like? It must be running into hundreds of pages given the number of stakeholders you need to satisfy?
It sure is a very detailed document. We are trying to encapsulate the understanding of what both the companies can do together and how we plan to handle issues like employment, research and development, industrial impact of the deal, organisational structure, growth plans, merger integration and all of that. We have stated seeking appointments with the relevant governments and hope to present our plan over a period of next two weeks.
What synergies are you looking at for the combined entity?
We both have individual targets to get to the 100 million tonne capacity in the next few years. But if we get together we can do 150-200 mt between us by 2015. Between us, we could have $70 billion in annual sales and 10 per cent of the steel market. The sheer size would give us more ability to control prices and costs, and above all, we will be on a stronger wicket as far as negotiating with iron-ore and coal suppliers is concerned. We are looking at $1 billion annual synergies with minimum implementation costs. Also, Arcelor has been trying to get into the US market for the last ten years, we give them access to that market. In fact, we had suggested that they did not need to buy Canadian steelmaker Dofasco. For us, Arcelor is strategic for business in Europe.
How much time do you think the Arcelor deal will take to come through, if it does?
After submitting the industrial plan next week, we expect to go to the investors for a yes or no. We expect to submit the offer document to the regulators and subject to how much time they take to approve the document (which is typically between for and six weeks), the offer would become effective. That is why we have looked at a timeline of second quarter 2006 as realistic for the deal to come through.
Do you think the bid could be better timed. Why now?
A couple of years ago, the business compulsions had not reached to a stage where both Mittal and Arcelor were treading on each other’s toes to vie for the same chunk of the market. As a case in point, consider this: we both bid against each other in Ukraine for the Kryvorizhstal facility. While the third highest bidder walked away, we both bid against each other and Mittal ended up paying $3.5 billion, that was $1.3 billion more than what the third players had closed the bid at. Such a scenario cannot be conducive for both of us to grow individually. We have an approval to get into China and they are also in talks to buy 38.14 per cent stake in a Chinese company. There is duplication of effort. And we could not wait any longer because Arcelor is trying to grow in the US and we are increasing our presence in Eastern and Central Europe. With such expansions, the deal could attract anti-trust action in future.
Are the Arcelor investors on your side? Do you see a remotest chance of increasing the bid price to sooth the Arcelor management egos?
The Arcelor investors have no reason to fret. The initial bid valued each Arcelor share at 28.21 euros, a 27 per cent premium to its closing share price before the bid was made. On February 14, the stock closed at 30.12 euros that is 36 per cent premium. We have to understand that since the offer made is 75 per cent stock and 25 per cent cash, as the Mittal stock performs, there will be an increase in the value of the deal. The Arcelor investor has already gained about 1.5 euros due to the share exchange offer from the time we bid. So there is no chance or need for us to increase the bid price.
Are you seriously contemplating shifting headquarters from Rotterdam to Luxumbourge?
We are open to the idea if tax benefits are luring enough. Luxembourg has a tradition of steel making and we would like to participate in that.
How do you manage acquisitions without layoffs? Don’t operational efficiencies suffer in the process?
We have a well laid-out employment plan where a large part retires every year. For instance, there are some 45,000 employees who would be leaving the company in a time-bound manner. We have already identified 10,000 who would be taking voluntary retirement, and there is a clear path for the rest to move out. This system helps us integrate the new work force into the system without affecting operational efficiencies.