THE ARCELOR MITTAL MERGER

Contents

Steel Industry – An Overview Mittal Steel – An Overview Arcelor – An Overview The Deal The Valuations Post Merger Scenario Conclusion

Steel Industry – An Overiew

Steel is the world’s third largest commodity

World production1.3 bn metric tons in 2007-08

World production1.244 bn metric tons in 2005-06

Average growth rate per annum in 2005-06 was 9% and that over 2000 to 2005 being 6.1%

Steel Industry – An Overiew

World demand for steel has slowed down during the current recession

MITTAL Steel – An Overview

Mittal Steel Company N.V. was formed by the merger of

• LNM holdings & ISPAT International

• International Steel Group Inc.

CEO Lakshmi Mittal’s family owned 88% of the company and its headquarter was in Rotterdam, Netherlands

The company was the world’s largest steel producer by volume and also the largest in turnover and is now a part of ArcelorMittal

The company has led the way in consolidating the world steel industry

1989: Acquisition of Iron & Steel Company of Trinidad & Tobago

1992: Acquisition of Sibalsa 1994: Acquisition of Sidbec-Dosco 1995: Acquisition of Hamburger Stahlwerke > Ispat

International Ltd. and Ispat Shipping formed > Acquisition of Karmet

1997: Ispat International NV goes public 1998: Acquisition of Inland Steel Company 1999: Acquisition of Unimétal 2001: Acquisition of ALFASID > Acquisition of

Sidex

Mittal Steel Growth Timeline

Mittal Steel Growth Timeline

2002: Business assistance agreement signed with Iscor

2003: Acquisition of Nova Hut 2004: Acquisition of Polski Huty Stali > Acquisition

of BH Steel > Acquisition of Macedonian facilities from Balkan Steel > Creation of Mittal Steel and proposed acquisition of International Steel >

2005: Acquisition of a stake in Hunan Valin > ISG Acquisition completed > Mittal Steel Europe created > Mittal Steel makes Fortune 500 list of top companies> MDA with Liberian government > Acquisition of Kryvorizhstal > MoU with State of Jharkhand, India > Acquisition of Stelco subsidiaries > Stake lifted in Mittal Steel Zenica

Suppliers, Subsidiaries and Products Suppliers -

40% of its Iron ore and Coal requirement from Group Companies. World’s largest producer of coke and DRI.

Subsidiaries Mittal Steel Annaba Mittal Steel Zenica Mittal Canada Mittal Steel Ostrava Mittal Steel Gandrange Mittal Steel Hamburg Mittal Steel Hochfeld

Products Longs: Automaive Forgings, Free Machining Bars, Wire rods etc. Flats: Hot and Cold Rolled, Galvanised, Exposed Quality

Automotive, Plates, Pipes and Tubes etc

Arcelor – An Overview

Arcelor was created in February 2002 by combining three steelmaking companies, Aceralia (Spain), Arbed (Luxembourg) and Usinor (France)

World’s second largest steel maker Over 104,000 employees in more than 60

countries (2006). Arcelor generated revenues of 40.6 billion euros

and produced 53.5 million tonnes of crude steel Products: Flat Carbon Steel; Long Carbon Steel;

Stainless Steel; and Steel Solutions and Services

Financial Statements

COMPANY MITTAL ARCELOR

2005 Sales (bil.) $28.10 $38.84

1-Year Sales Growth 27% 8%

2005 Net Income (bil.) $3.37 $4.58

1-Year Net Income Growth

-28% 66%

Employees 175,000 96,000

Mittal’s inclination for merger To become largest company and outplay

competition. To achieve economies of scale. Strong R & D structure of Arcelor. In 2006, world steel demand was strong

in developing countries. Expected steel demand growth was 3-5% per year.

Merger Synergies

Total value of synergies to be realized US$1.6 billion

Key Risks

Contrasting culture of two companies

The Steel Price may slow down

Extent of synergies realized through the Merger

First Bid From Mittal

Mittal made a bid worth €18.6 billion for Arcelor

Exchange four Mittal shares plus €35.25 in cash for every five shares of Arcelor.

Offer price was at a premium of 27%

Declaration of dividend –

On February 16, Arcelor declared a dividend to convince the shareholders of a positive situation under current management

The Russian Angle –

To thwart the offer from Mittal Steel, Arcelor released a 16.6 billion Euro merger plan with Severstal, a Russian company

Strategy adopted by Arcelor to thwart Mittal bid

An Insight into Severstal deal

$ 16.6 billion euro deal with Severstal- Russian Company

Arcelor will get an 89.6 per cent stake in Severstal and 1.25 billion euros in cash

Control of Severstal's steel and mining assets and Italian steelmaker Lucchini SpA.

In exchange, Mordashov will receive about 32 per cent of the new merged group and the position of non-executive president of the Arcelor board of directors

Strategy adopted by LNM

Increased valuation to 40.40 euros Gathered the support of shareholders Wooed the European governments

namely Luxembourg, France and Spain Obtained the support of trade unions

The Merger

Finalized: 25th June, 2006 ( initiated on 27th January, 2006)

Valued at 26.8 billion euros,($33.5 billion) -44% higher than initial offer of 18.6 billion euros

Mittal to be the largest share holder with 45% stake in the merged entity

Terms Laid Down By Arcelor

New company to be called Arcelor-Mittal, and not Mittal-Arcelor

Majority of board members will be from Arcelor despite Mittal’s high stake

The company will be headquartered in Luxembourg

LN Mittal will be co-chairman along with Arcelor chairman Joseph Kinsch

Merger Process

2 step process First step-Mittal Steel was merged into a ad

hoc subsidiary named ArcelorMittal Second step-ArcelorMittal was merged into

Arcelor, which was renamed ArcelorMittal

Corporate Structure: Arcelor

Calculation of the Indirect Valuation of Arcelor Brasil

Arcelor and Arcelor Brasil Proportionate EBITDA Contribution Analysis

Determination of Arcelor Brasil enterprise value implied by Mittal Steel offer for Arcelor

Calculation of Arcelor Brasil MTO Reference Value per Share

Post Merger

Arcelor + Mittal = ArcelorMittal

Building our Company with the needs of future generations in mind

Market Position By Region

Operations in more than 20 Countries. Annual production capacity of 130 million tonnes Produced over 116 million tonnes of steel. Steel shipments totaled approx. 110 million tonnes Generated revenues of US$ 105.2 billion. Announced 35 more acquisitions. Organic growth of 20 million tonnes. Unique R&D capability in the steel industry

Business Strategy

Merger Synergies: Realized

Financial Performance

Income statement

Arcelor

Mittal steel

Arcelor Mittal

2004 2005 2004 2005 2006 2007

Liquidity Ratio

Current Ratio 1.44 1.77 1.54 2.09 1.60 1.44

Quick Ratio 0.88 1.01 0.72 0.77 0.60 0.60

Efficiency Ratio

Receivable turnover

8.03 8.73 17.7 13.1 10.7 13.2

Inventory turnover 4.44 4.54 6.1 4.3 3.8 4.3

Fixed asset turover 1.97 1.79 4.2 2.4 1.7 1.8

Total assets turnover

0.97 0.97 1.8 1.1 0.8 0.9

Solvency Ratio

Debt/Equity 0.2 0.07 0.42 0.79 0.43 0.40

Interest Coverage Ratio

Industry Comparison

Particular Arcelormittal Industry

Net profit 11.36% 13.3%

ROE 25.4% 21.6%

ROCE 9.7% 12%

P/E 11.6 11.3

Price / BV 1.4 3.5

Dividend Yield 1.9% 2.6%

Total Asset Turnover 0.9 0.9

YoY Revenue Growth

YoY EBITDA Growth

YoY Net Profit Growth

YoY Growth Return On Equity (ROE)

YoY Growth Return On Capital Employed (ROCE)

YoY Growth Earning Per Share(EPS)

Earnings and estimates

Revenues

Stock Market Performance

Why the merger was successful…

Synergy

Brought iron ore ,technology and marketing expertise together

Adept at combining businesses

Growth plan

Growth Plan 2012 calls for a 20% increase in shipments in the next five years.

Production of 131 million tonnes by 2012. Focus on high-growth markets and low-cost

areas. Approximately 75% of the Growth Plan 2012 was already done or approved for a potential

investment of 7 billionUS$ over 6 years.

Conclusion and summary

Largest global player

Smoothen out the price fluctuations

Created a much stronger and more sustainable business

Clear strategy to deliver further growth and value creation

INSIDER TRADING IN M&A

What is insider trading?

Who is an insider?

Arguments for insider trading

Arguments against insider trading

Introduction

CASE STUDY

Many times, Insider Trading is used as a illegal tool by the companies, MBs and brokers to make huge profits.

IFCI Case ---

In January 2007, it has gained 53% on a/c of stake sale to strategic investor and further it rose to 210% in March 2007.

The strategic sale had been called off in December

2007 and this led to shed of prices.

Date Open High Low Close Volume

2-Jan-07 12.60 13.60 12.50 13.45 11,818,678

15-Jan-07 22.24 25.15 22.00 24.65 55,224,685

31-Jan-07 26.50 26.90 25.36 25.56 20,380,514

5-Feb-07 25.00 30.00 25.00 29.65 49,029,050

1-Mar-07 27.70 30.85 25.90 30.45 49,718,523

2-Apr-07 32.80 32.95 30.50 30.80 17,886,955

16-Apr-07 38.70 38.95 37.20 37.40 10,333,539

Share Prices of IFCI Ltd

30-Apr-07 40.65 45.95 40.30 44.80 35,866,951

15-May-07 47.70 48.25 46.90 47.65 8,605,752

1-Jun-07 47.50 48.10 47.00 47.20 4,349,737

15-Jun-07 47.95 49.80 47.50 49.25 14,112,697

29-Jun-07 56.25 56.90 55.50 55.90 12,785,079

2-Jul-07 56.70 60.50 56.55 59.60 20,329,586

Open Offer or Buy back of Shares

If a company acquires 5% or more than 5%, it has to inform SEBI.

In a take over, if a company acquires more than 14.99% of another company, then it has to come up with Open Offer of at least 20% with the public.

Emami-Zandu Case:- Hostile takeover

Insider Trading in Takeovers

Emami acquired Zandu stake from one of the major shareholder and came up with the Open offer.

Mr. Parekh was not interested in giving up his control

Prices of Zandu has gone sky rocketing and rose to approx Rs.25000 per share.

Recently the take over completes and Parekh was compelled to sell his shareholding to Emami and share prices has gone down to level of Rs. 7000/- per share

Insider Trading in Takeovers…contd

Date Open High Low Close Volume

1-Apr-08 6,705.00 6,710.00 6,700.10 6,700.10 6

2-May-08 6,850.05 6,895.00 6,850.00 6,853.65 148

2-Jun-08 8,400.00 9,752.60 8,400.00 9,714.90 12,770

18-Jun-08 14,437.10 14,437.10 13,900.00 14,437.10 11,709

1-Jul-08 14,259.00 14,300.00 13,657.50 13,658.55 1,552

15-Jul-08 19,844.40 20,006.90 18,125.00 18,775.90 4,637

23-Jul-08 23,469.90 23,469.90 22,700.00 23,469.90 2,543

5-Aug-08 16,453.20 17,400.00 16,453.20 16,463.15 1,879

18-Aug-08 15,714.20 15,800.00 14,750.00 14,947.80 383

1-Sep-08 17,401.00 18,203.85 16,870.00 18,203.85 2,420

1-Oct-08 16,101.00 16,101.00 15,254.10 15,254.10 1,667

31-Oct-08 8,195.00 8,698.00 8,194.60 8,316.60 4,045

Share Prices of Zandu Pharma

Movement of Zandu Share Prices

• Rationale: insider trading corrupts the ‘level playing field- Insider cannot trade in shares when in possession of unpublished price

sensitive information

- Trading window closed for employees/ directors 15 days before publication of price sensitive information.

- Directors and designated employees are required to continuously disclose their share holdings.

- Prohibits any company from dealing in the securities of another company while in possession of any unpublished price sensitive information

SEBI Regulations

SEBI may impose a penalty of not Rs 25 Crores or three times the amount of profit made out of insider trading; whichever is higher 

SEBI may initiate criminal prosecution

SEBI may issue orders prohibiting an insider or refraining an insider from dealing in the securities of the company

Penalty/Punishment

•Sound implementation of restrictions

•Difficult to track secondary insiders

•Comprehensive Integrated Market Surveillance

System to track out unusual trading

•Proposed that monetary penalties should be levied

on the company

•Investors should look out for unusual stock price

movements

Conclusion

THANK YOU

Submitted by: Enrollment Id