Answer To: Case Study: Board architecture at Arcelor MittalThe merger of steel makers Arcelor and Mittal in...
Soumi answered on Feb 20 2021
CASE STUDY: BOARD ARCHITECTURE AT ARCELOR MITTAL
Executive Summary
In the current academic report, the implication of business mergers have been assessed with special reference to the case study mentioned in Financial Times article, which shows the facts about the merger, taking place between Mittal and Arcelor, both of which are steel manufacturers. The report first introduces the topic in the introduction section, while in the next section the assumed pros and cons and mentioned, which is developed without reading the Financial Times article. In the following section, the significance of institutional investors have been mentioned as well, while in the next section, the pros and cons are discussed after assessing the Financial Times article. Lastly, there is a conclusion provided to highlight the main point of the report.
Table of Contents
Introduction 4
1. Board Structure Assessment for Pros-Con Identification (Before Reading FT Article) 4
2. Significance of an Institutional Investor in Mittal-Arcelor Merger 5
3. Board Structure Assessment for Pros-Con Identification (After Reading FT Article) 6
Conclusion 8
References 9
Introduction
The biggest ethical issues that arise after mergers is the governing body formation, which in most cases are seen to be dominated by the acquisitioning company, while creating confusion and conflict of interest in case merging companies retain equal shares. In order to reduce the functional and regulatory actions mergers are performed under contracts, which restrict the use of arbitrary power by both of the merging sides. However, it is found that much organisational management use unethical practices and exploit the gaps in legislature to dominate after mergers are conducted, which the current academic report tends to discuss with a special reference to the merger between Mittal and Arcelor.
1. Board Structure Assessment for Pros-Con Identification (Before Reading FT Article)
Based on the provided details about the board formed after the two steel manufacturing giants Mittal and Arcelor merged, and transitioned into the biggest steel manufacturer in the world hinted that the merger was beneficial as the resources of both the organisations combined into one, offering better serving potential. It is expected that as both the companies are managed by reputed management bodies, a combination of both will result in refinements only. In terms of the combined profit, it also proved to be very lucrative, earning $15.6 million. The taskforce capacity of the combined taskforce, namely 330,000 is also hinting at better performance and risk taking ability, which would only generate higher profit for merged organisations. As supported by Khurana and Wang (2019), when business organisations merge, their resources, especially human, monetary and strategic, combine to offer refiner quality, wider capacity as well as more efficacies.
In addition to the business benefits, it is also seen that the merger has given Arcelor $35 billion as the price of acquisition by Mittal, which is a fair amount, considering the fact that Arcelor had significant internal issues with its management, where the independent directors do not possess the same business goals, strategies and policies. Although the Mittal Company is merging and taking over Arcelor, it is still keeping space for independent directors to intervene and help in reducing the domination of the Mittal’s management over the Arcelor executives. As affirmed by Reis, Carvalho and Ferreira (2019), allowing the external and independent directors in company board after mergers, help in reducing biased decision making and use of arbitrary power on board members. It is seen that the board has 18 members, among which the number of independent directors is 9, which indicate that half of the board members are expected to perform unbiasedly and make decisions for collaboratively instead of personal options.
Similar to that of the pros, it was found that the board formed post-merger between the two companies had management issues of their own. It is seen that Mittal’s management was criticised for their lack of corporate governance in their organisation and the tendency of retaining family business structure, which in the given context of the merger would be a very big problem as the management styles of both the organisations will collide and create conflict of interest. The attempt of Arcelor to dodge the acquisitioning approach of Mittal also provide hint at the fact that the company has not been willing to merge with Mittal and it was a business choice that resulted in the merger. As opined by Liu et al. (2019), in order to perform a successful merger both the merging sides need to be willing, otherwise the formation of management and board and directors post the mergers create confusion and underperformance...