Chapter 3
Case Study: Mittal Acquires Arcelor in a Battle of Global Titans
1. Identify the takeover tactics employed by Mittal. Explain why each was used.
Answer:
1. Mittal initiated a friendly takeover by initiating behind the scenes negotiations with
Guy Dolle, CEO of Arcelor.
2. Mittal employed a two-tiered cash and stock tender offer to circumvent the Arcelor
board.
3. the second tier of its tender offer on receiving more than one-half of the Arcelor
voting stock. However, the second tier offer would be at a slightly lower price than
offered in the first tier.
4. If Mittal could gain a majority of voting shares it would be able to acquire the
remaining shares through a backend merger.
5. Moreover, Mittal sued to test the legality of Arcelor’s moving its recently acquired
Dofasco operations into a trust to prevent Mittal from selling the operation to help
finance the takeover.
6. Mittal raised its bid from its initial 22 percent premium to the then current Arcelor
share price to what amounted to a 93 percent premium
7. agreeing to eliminate its super-voting stock which had given the Mittal family shares
that had ten times the voting rights of other shareholders.
2. Identify the takeover defenses employed by Arcelor? Explain why each was used.
Answer:
1. Guy Dolle attempted to gain support among local politicians and the press to come
out against the proposed takeover by emphasizing potential job losses and disruption
to local communities.
2. Arcelor also provided its shareholders with an attractive alternative to tendering their
shares to Mittal by announcing an $8.75 billion share buy-back at a price well above
their then current share price.
3. By putting Dofasco in a trust, Arcelor sought to deprive Mittal of a way of defraying
the cost of the takeover by preventing Mittal from selling the asset without the
permission of the trustees who were all Arecelor appointees.
4. Arcelor also sought to put a large portion of its stock into “friendly hands” by
seeking a white knight..
3. Using the information in this case study, discuss the arguments for and against
encouraging hostile corporate takeovers
Answer:
1. Hostile takeovers may be appropriate whenever target management is not working in
the best interests of its shareholders While this is good for the target shareholders, it
works to the detriment of the acquirer’s shareholders.
2. During a merger agreement, all the relevant information is disclosed by the target
company. This helps the bidder or acquirer in making viable decisions that will prove
beneficial. In case of a hostile takeover, he has to rely on outside information which can
prove wrong.
3. The acquirer can find out about certain hidden liabilities and debts which can prove
detrimental for him.
4. Sometimes the hostile company can lose some prominent key players because of
hostility and can change the working dynamics. It can prove costly in the immediate
scenario.
4. Was Arcelor’s board and management acting to protect their own positions (i.e.,
the management entrenchment hypothesis) or in the best interests of the
shareholders (i.e., the shareholder interests hypothesis)? Explain your answer.
Answer: While it seems on the surface that Arcelor’s management was acting to
entrench themselves, the end result was an eye-popping 93 percent premium paid by
Mittal over Arcelor’s share price when the takeover began. Consequently, it is difficult
to argue that the end result was not in the best interests of Arcelor’s shareholders.
5. In an attempt to counter Mittal’s hostile tender offer, Arcelor offered to increase
its dividend and to buy back shares from current shareholders. In doing so, it
was hoping to discourage Arcelor shareholders from tendering their shares to
Mittal. Explain how you as an Arecelor shareholder would decide whether to
tender your shares to Mittal or to support Arcelor’s management.
Answer: Arcelor shareholders tendering their shares to Mittal would receive a
combination of Mittal stock and cash. While the cash portion of the purchase price is
known, the value of the Mittal stock would depend on assumptions about the growth
prospects of the Mittal stock compared to the price they would receive in cash for
tendering their shares to Arcelor. Note that the cash price of the Arecelor proposal was
above the price of Arcelor stock at that time. Whether the increase in the dividend would
materially impact the future value of the stock often is unclear. Finally, exchanging
Arecelor stock for Mittal stock would likely have more favorable tax consequences than
selling your shares for cash. Therefore, those shareholders that felt the appreciation
potential of Mittal’s stock exceeded that of Arecelor’s shares would probably accept the
hostile tender offer.
