Rising to World's Top Steelmaker
Rising to World's Top Steelmaker
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  • 승인 2007.09.10 15:43
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In the midst of the world economy rapidly globalizing recently, the number of cases where companies choose mergers and acquisitions (M&As) beyond national boundaries is also growing rapidly and noticeably. What this signifies is that the M&A has been emerging as an important strategy for growth while improving one's corporate structure. For instance, Mittal Steel, the well-known number one steelmaker of the world, has enlarged its corporate size as much as 295 times only through M&As and, ironically, even without building a single steel mill during the past 16 years since 1989.

If the company is said to have focused on raising its corporate value by acquiring small and failing companies until the end of the 1990s, it had mainly employed an M&A strategy after the turn of the new millennium to gain oligopolistic profits and at the same time achieve economy of scale in the world market. To cope with the changes in the market structure, Mittal Steel had stepped in to acquire globally competitive companies and, by the end of 2006, became the world's number one steelmaker taking a one-tenth share of the world's steel production. If we examine the background and purpose of Mittal Steel's growth that has been based on M&As we can find the answers to these questions as outlined in the following.

Firstly, the immaculate profit management of the company can be said to have been the driving force behind Mittal Steel's performance in M&As. The excellent financial record of Mittal Steel had contributed to the company's expanding its M&A capital, laying down the basis to acquire large healthy companies. In other words, Mittal Steel's high financial performance had backed up the company's securing of investment funds necessary for conducting large M&As.

Secondly, Mittal Steel's employment of an M&A strategy suitable for changes in the market environment had also contributed to the company's growth. During the initial period, Mittal Steel had focused on acquiring failing companies in emerging markets, capitalizing on the fact that the acquisition price of an ailing company was low and the corporate value rapidly soared when the company was transformed into a company with a surplus. In addition, in the years after 2000, Mittal Steel concentrated its efforts on maximizing the economy of scale by seeking its enlargement and globalization. Recently, the company succeeded in consolidating its stature as a flexible supplier in tune with the supply and demand of the market by actively seeking M&As after examining the price stability and the supply and demand conditions in the world's raw materials market.

Moreover, the strengthening of M&A capability by utilizing experts has become the prime force that had enabled Mittal Steel to successfully carry out global M&As. Strict criteria on the selection of a company to be acquired were set up. These included the transformability of a to-be-acquired company to post a surplus within two years after the acquisition and the nonexistence of unreasonable demands from the labor union.

Mittal Steel's recent acquisition of Arcelor is a typical example of the acquisition led by M&A specialists. Moreover, such a continual attempt for M&As was aimed at wielding longterm market dominance rather than maintaining the number one rank in the industry. In the short term, the company had focused on expanding its scale of business so that it can comfortably engage in negotiations with steel and auto companies that are highly related to the steel industry. Over the long run, the company focused on securing market dominance through the adjustment of production amount.

As in the case of Mittal Steel, any M&A that can produce synergy effects will greatly contribute to consolidating the competitive strengths of related industries and the national economy.

All in all, we have to pay attention to the M&A that is emerging as a core means for sound growth such as corporate value enhancement and business structure improvement. Accordingly, Mittal Steel's strategy for global M&As to cope with changes in market conditions provides plenty of lessons to Korean companies seeking overseas advancement.

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