The Mittal Steel-ISG Merger - Creating a Steel Behemoth (Part-A)|Business Strategy|Case Study|Case Studies

The Mittal Steel-ISG Merger - Creating a Steel Behemoth (Part-A)

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Case Details:

Case Code : BSTR147
Case Length : 12 Pages
Period : 2004
Organization : Mittal Steel
Pub Date : 2005
Teaching Note : Available
Countries : UK, USA
Industry : Steel

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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The Proposed Merger

Ispat-LNM and ISG had a markedly similar mode of functioning. Both the Mittal companies and ISG had been built on the remains of other companies that had been in poor shape, and the companies also had a significant presence in the markets in which they operated.

Ispat and LNM had a strong presence in Western Europe, Africa and Asia, while ISG was the leader in the US. Therefore, when the companies announced their decision to merge, analysts felt it was a step in the right direction. The proposed merger was to be conducted in two stages. In the first stage, Ispat acquired LNM for $13.3 billion in stock, creating Mittal Steel...

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The Reactions

Following the news of the merger, ISG stock surged more than 5 percent in a day.

The volume of shares traded also rose to more than 8.3 million from the company's average daily traded volume of 1.2 million. Not only did ISG's price rise, but there was also a considerable gain of about 27 percent in the publicly traded arm of the acquiring firm, Ispat. Commenting on the positive market reaction to the merger, Ross said, "I think that's Wall Street's way of saying that they think it's a good deal for both sides. Often what happens in a deal that involves issuance of stock, the target company goes up but the acquirer goes down, because they think they overpaid. Here that didn't happen."He further added, "It provides our shareholders with an excellent rate of return and the potential for strong future appreciation...

The Outlook for the Steel Industry

Analysts said that the creation of Mittal Steel was the harbinger of global consolidation in the steel industry. Although the industry had experienced consolidation before, this had been at a regional level. However, with the creation of Mittal Steel, competitors would have to look beyond geographic boundaries. Given the size of Mittal Steel, companies like Arcelor and Posco would try to match its scale by entering into mergers of their own...


Exhibit I: Annual Total Raw Steel Production Capacity of the Combined Companies
Exhibit II: Total Annual Production Capacities of Major Steel Companies in Late 2004
Exhibit III: Note on the Global Steel Industry
Exhibit IV: Price Trend in the Steel Industry
Exhibit V: Key Operational Attributes of Mittal Steel
Exhibit VI: The 11 Potential Buyers in the Steel Industry

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