"WHERE KNOWLEDGE IS WEALTH"

Thursday, March 20, 2008

CORPORATE MERGERS AND TAKE OVERS/CASE STUDY OF LAXMI NIWAS MITTAL

ABSTRACT

The research paper briefly talks about mergers and take overs at the corporate world. The merits of mergers and take overs are highlighted. It has taken the case study of Mr.Laxmi Niwas Mittal, the global steel czar and has focussed the bottlenecks involved in acquisition of a Luxembourg based Arcelor steel company. It highlighted the importance of multi-cultural skills for the global business leaders. It focused at the India’s Competitive Advantages. At the end it has summed up with the strengths of Indian economy and appealed all Indians to stay in India itself because the returns outnumber the investments by being in India.

----

“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”.


INTRODUCTION:


Now days, there is too much talk of Indian companies taking over the companies in abroad. The Tata Steel’s take over of Corus has hit the headlines. It was a very bold initiative by Ratan Tata. There was a talk of paying too much price for the acquisition of Corus by the critics. Over all it has demonstrated and displayed the leadership capabilities of Indian business leaders.

Once upon a time when Lord Swaraj Paul made an attempt to take over an Indian company it was treated a hostile bid. It hit national headlines then. Many global MNCs used to take over Indian companies in the past. During the preliberalisation 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. The Indian economy has looked up and is becoming a robust economy. As a result, the Indian industry changed its stance from being defensive to offensive.

In this context, let us briefly define what is ‘merger’ and ‘take over’. Merger refers to the process of two business units becoming one. On the other hand, take over refers to the process of taking over of one unit by a relatively stronger business unit.


MERITS OF MERGERS AND TAKE OVERS:


Both merger and take over has many merits such as

• Competitive edge in the market. There is synergy in this and one plus one is three, six or just more than that. The raw material can be purchased in bulk quantity thereby reducing the cost of production. When the cost of the product or service is reduced, the company has better chances to have more profits as well as it can compete with others by slashing down the prices. In a nut shell, there is 'economies of scale' and increased ‘economic efficiency’.
• There is increase in market share in the same segment or sector thereby having better brand image and good will for the company.
• Increased benefits to the shareholder value. The benefits so gained are passed on to the shareholders thereby increasing their value.
• There could be tax benefits to the company in few cases.
• Consolidation in the sector wise and it eliminates the unhealthy small time players who are weak and can not survive in the business.
• Many other strategic advantages.

CASE STUDY OF LAXMI NIWAS MITTAL:


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.Xavier’s 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 rod manufacturing 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 called “Take Over Tycoon”.

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 Czar and as crowned as the “Carnegie of Steel”.

In Oct 2004 Mittal acquired International Steel Group of the US for $4.5 billion and became the largest steel producer in the world surpassing the global steel leader Arcelor. It indicates his business acumen, gut and intuition. And the mother of all acquisitions is the attempt to acquire Luxembourg-based Arcelor Steel. 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. In one situation, the chopper in which LN Mittal was traveling towards Paris was force landed by telling them that the chopper entered the restricted area. The captain of the chopper was so upset that he resigned to avoid such pressures. Then again Arcelor tried to negotiate the deal with a Russian Steel giant Severstal who was one of its competitors in order to checkmate Mittal Steel. 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. “In the confrontation between the stream and the rock, the stream always wins not through strength but by perseverance”, quoted H.Jackson Brown, a noted Author.

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 of his passion and perseverance to become number uno steel czar in the world.

MULTI-CULTURAL SKILLS:


The global scenario has changed drastically especially after the liberalization and privatization in India. The rapid growing technology has made the globe smaller. People began understanding, respecting and adopting the cultures of other countries. At the global level it is essential to focus on multicultural skills. The cultural gap amongst all the countries is getting narrowed down. And there are more efforts and avenues to grasp various cultural diversities across the world. Many companies across the world are coming to India and setting up their shops. It demonstrates and displays the strength of the Indian economy.

In the past we have seen global MNCs and now we are witnessing Indian MNCs shopping across the globe and acquiring number of strategically significant companies. In the past Indian companies fell prey to global predators and now there is a U turn where Indian companies have turned out to be predators.

INDIA’S COMPETITIVE ADVANTAGE:


India has much inherent strength as a result the Indian economy is all set to conquer the world. Presently Indian economy is impacted by US economy and whenever there are changes in the American economy the spill over is felt across Asian markets. And in the near future Indian economy will be independent and will be shielded from American economy. Below are the few competitive advantages India has:

• Gateway to international markets in SAARC countries.
• Well developed research and development (R&D) infrastructure.
• Largest resources of untapped natural resources.
• World’s largest democracy.
• Information technology base, in terms of both software and hardware.
• Technical and marketing expertise.
• English as the preferred business language.
• A vibrant capital market with 25 stock exchanges with over 9,000 listed companies.
• The largest supplier of cost-effective technical and non-technical manpower.
• Conducive environment for foreign investments by providing freedom of entry, investments, location, choice of technology and import/exports.
• A well-organized judicial system with a hierarchy of courts.
• Legal protection for intellectual property rights.
• A transparent approach for promoting domestic and foreign investment.
• Declining share of agriculture and allied industries in the GDP. The Economic Survey 2000-01 reveals that the contribution of services sector to the GDP is 40 per cent whereas agriculture and industry contribute 30 per cent.
• Increased investments in the priority and high growth sectors such as software, electronics, food processing, oil and gas, power, electronics and telecommunications, chemicals, electrical equipment, food processing etc.,
• A well organized banking system with a network of 63,000 branches supported by a number of national and state-level financial institutions.
• Offers a large market (middle class population of over 25 to 35 crore with increasing purchasing power).
• Current account convertibility and capital account convertibility for foreign investors.
• Increase in the number of joint ventures or wholly-owned subsidiaries most of the domestic companies consolidated around their area of core competence by typing up with foreign companies to acquire new technologies, management expertise and access to foreign markets.
• Deregulation of interest rates with a greater freedom to banks to assess credit requirements.
• Large and solid infrastructure throughout the country.
• Simplified systems for administration in government departments.
• Special investment and tax incentives for exports and certain sectors such as power, electronics and software.
• Lower tariffs for trade.
• A transparent approach for promoting domestic and foreign investment.
• Significantly large manufacturing capabilities through latest technologies.



CONCLUSION:


The Indian economy is bullish with the GDP growing and inflation is within the healthy limits. Indians need not to go overseas to work. Rather they should work with in India itself so as to make Indian economy more vibrant. There are plenty of opportunities with in India itself. The foreign countries are getting more benefits by making use of Indian talent and expertise. What we get in return is far lesser than what we Indians invest in terms of abilities and capabilities to other countries. It is time Indians realized their inherent strengths and stayed in India itself.

India has the highest percentage of young productive population in the world where as the population of China is ageing. Since there is productive population and strong and huge reservoir of human resources, India is set to become a developed country much before 2020 and will become a Super Power in the world by 2050.

“The dream is not what you see in sleep. Dream is the thing which does not let you sleep”.

References: India’s Competitive Advantage- Source: India Business Opportunities, Investment and Technology Promotion Division (Ministry of External Affairs, Government of India) and Arthur Andersen, June 2000


T H E E N D

1 comment:

SAMAIRA CHANDRA said...

Hi
I was very much helped by the information with this article.
Many thanks at you very fascinating resource.

Bye