Friday, August 25, 2006

Are Acquisitions And Mergers Good For Steel Industry?

Ever since the world's second largest steel company Arcelor was taken over by Mittal Steel - already holding the first position, an uneasy calm has descended on the steel industry all over the world. The new production capacity of Mittal Steel-Arcelor will go up to 110 million tonnes – a whopping 10% of the world production.Mr L.N.Mittal has been hogging headlines for not only achieving what was considered almost impossible till recently but also for setting world records in corporate acquisitions. During the last 35 years or so, he has built up a gigantic steel empire starting virtually from scratch. His modus operandi has been to take over sick units at hard-bargained prices and then turn them around. In the process he has turned out to be the world's largest steel manufacturer as well as its third and India's richest person. An exuberant Mittal had only these few words for those following his success story - "Work hard and you will succeed".
Such global acquisitions and mergers have already put several well-established companies on alert. Alarm bells are ringing lest this "L.N.Mittal" phenomenon devours them. The China Iron and Steel Association has urged that smaller companies should make bolder moves to consolidate into larger groups. They are also opposed to any foreigner to own the steel industry - the most basic among all industries.
In India, even when Mittal Steel has no foothold so far, it has already set a cat among pigeons by announcing ambivalently that it would be setting a 12-million tonnes plant in one of the two neighbouring states of Jharkhand or Orissa. Tatas - the most revered corporate house in India and the first to set up the first steel plant about a century ago, had to raise their private ownership as a step to foil such acquisition attempts.
Such acquisitions, however, cause more harm than good. One conclusion emerges inescapably that Mittals will be the ones to call the shots – be it for raw materials sourcing and pricing of finished steel products with 10% of world steel production under their thumb. Monopoly will revisit the steel industry – thanks to globalization, mergers and acquisitions!Besides, each company has got its own culture, nationalism and sense of social responsibility whereas the driving force behind such take-overs are merely profits for the owners and the share holders. Consumers rarely get the best deal in monopolistic markets. If such acquisitions go unchecked, all the stake holders - owners, employees, customers and vendors will ultimately develop cold feet towards relationship as well as a sense of belonging which takes years to build up. But what is globalization minus acquisitions and mergers? You can't have the cake and eat it too!


Heather said...

Nice article, Satish.

Mittal Steel actually has a huge manufacturing plant here. It doesn't add a lot of beauty to the area, but has kept some people working.

Here is an article with more information on Mittal Steel I thought you might find interesting..

Satish said...
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Satish said...
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