M&A Strategy:

Lessons Learned from the field

Part 2
Agenda
g

• M&A strategy
– Smart stimuli
– Strategic intent
– Strategic fit
– Value enhacement and protection
• Case: Arcelor Mittal

2
 M&A strategy – seven elements Strategic
St t i
fit

I II III IV V
Vision
Vi i &
Target and M&A
Business Pre-deal Post-deal Steady state
master plan
strategy
Deal
I
Input
t M&A strategy
t t PMI

1 Leadership
7
Who is leader of the M&A strategy and process? Who is control?

2 M&A process management

What are the key success drivers of the M&A strategy and how are How will we avoid
we going to manage them? Risk “premature death”?
Seize the moments? Avoid
3 Business 5 Transaction management typical pitfalls and value
erosion?
What do we want to achieve? What is the right price? What is
Does it make sense? What is the the “engineering”? How do we
game we want to play? How do manage escalating momentum?
we make it work? How do we close? Legal help?

4 Stakeholders
Who do we need to involve, how,
to which extent and when?
6 Finance
How will we fund it? How
much debt/equity?
3
Note: Here we define M&A strategy as the design and structure of
all key aspects before and during the deal - a broader definition Source: icircle
would also encompass the post-merger phase
 Smart
Stimuli

What is your M&A stimuli?

What is driving your decision to buy/merge?

1. Success Î Re-assurance we can lead; be bolder
2. Defeats Î Doubts about competitiveness; what´s missing?
3. Vulnerability Î Holding fragile position, weak to respond/command
4. Overwhelming change Î Unability to keep pace; losing ground
5. Beat/stop competitors Î Feeling the threat
6. Antecipating pain Î Sensing future trouble, obstacles
7. No pipeline Î R&D, products
8. Clients demand Î Protecting franchise
9
9. E
Expansionism
i i Î Growing
G i the
th franchise
f hi
10. Capital markets Î What’s next?
11. Excess cash Î Shopping
12. Vision about the future Î Inspirational, entrepreneurial
13
13. Wealth creation Î Financial
14. Legislation Î Gaining edge over competition

I our stimulus
Is ti l really
ll smart?
t? Legitimate?
L iti t ?

Is M&A the best way to go?

Defines mental model for strategic intent and M&A strategy 4

Source: icircle
 Smart
Stimuli

Who are y
you? What is y
your moment?

What is driving your decision to buy/merge?

Corporate winning
the game Corporate
1
doing fine
2

3 Corporate
p trying
y g
to survive
6 Rulers decide to
play ((*)) ...

“Long
g term” financial • Defines logic for the deal
“Short term” financial • Defines goals, limits
4 (including ethics) and
thresholds for the deal
5
• Defines how the M&A
game will be played
... 5
(*) almost always invisible powerful economic groups/entities behind mega M&A deals
 What is our strategic
g intent? Strategic
intent

Stimilus
Total Value
Creation Transform industry
Potential landscape
Opportunistic
deal

Change the game

Strengthen
g
position

Bad strategy
Survive

Risk

Source: icircle
6
Defines mental model for M&A strategy
 Strategic fit St t i
Strategic
fit

Rationale & Fit

• Does the merger make strategic sense?
• Are there clear business synergies?
– Complementary markets/client base
– Complementary product/service mix
– Complementary technologies & assets
– Complementary skills
• Will we be able to capture them? To which
extent and at what speed?
• Are
A there
th major
j diff
differences iin corporate
t
DNA between the companies?
– Driving force of each
– Ambition and passion
– Innovation and execution
– Ethics
• Will we be able to blend the different DNAs to
create a stronger and more competitive
enterprise?

Source: icircle

7
 Stimulus + Intent + Fit
The backbone of M&A strategy

• What is driving our decision to buy/merge?

Smart Stimuli

• What is our ambition? • Does it make sense?

• What do we want to M&A  • Are synergies real?
achieve? strategy • Will it work?
• Who are we to claim it? • Can we p pull it through?
g
Strategic Intent Strategic Fit

• What is the vision of the new entity?

• What is the business model?
• How dow we intend to create more & new value?
Source: icircle
8
 Value Enhancement + Protection – Key to
PMI success

What will ensure the highest value from the merger?

• Things you need to • Things

g yyou need to do to
d in
do i “d
“day one”” tto in “day one” order to
create non-linear protect/shield existing
value added from the Value PMI Value and future value
deal Enhancement highest
g Protection
value

• Pre-empting with disruptive technologies • Blending the best of each corporate DNA
• Gaining privileged access to untapped • Creating meaningful corporate identity
market segments, unique clients or contracts • Golden handcuffs + retain talent
• Fast combination of brands, licenses, • Cleaning unfunded/over funded pension
patents or intelectual capital to create a plans
p
unique value propostion • Securing renewal of large contracts
• Acceleration of new product/service • Securing existing valuable patents&licenses
development and “killer” products/services • Avoiding & neutralizing liabilities and “time
• Immediate renegotiation of high impact bombs” – HE&S, labor, supplier & client
contracts
t t (large
(l clients/suppliers)
li t / li ) contracts others
contracts,
• Getting rid of bad assets
• Stop loss on bad contracts 9
Source: icircle
Case study

An in-depth
p strategic
g analysis
y about the merger
g

This material has been used as a presentation guide. The terms, expressions, illustrations and figures 
herewith cannot  be fully interpreted without the verbal messages conveyed during the oral presentation.  10
No part of this material can be used/re‐printed withou the formal consent of icircle.
 First impressions & reactions from the deal
G d and
Good dbbad
d

“For the steel industry, it is like “It’s not a full-cash offer. It will
Microsoft buying Apple” never fly”
Michele Applebaum, steel analyst Guy Dollé, CEO of Arcelor
J 27th 2006
Jan Jan 27th 2006

“Mittal must be stopped”

“This is a beautiful deal – a stroke Jean-Claude Juncker – Luxemboug Prime
Minister to Jeannot Krecké, Minister of
of genius”
Economy & Foreign Trade
Tommy Taccone – First River
January 29th, 2006
Jan 28th 2006

“Part of Mittal’s offer consists of

monnaie de singe (funny money)”
“The best way to preserve jobs is Guy Dollé to Radio Europe 1, Paris
to be part of the # 1 company in January 30th, 2006
any industry”
Financial Times - Jan 30th 2006 “Economic patriotism is the
mobilisation of all the participants
- shareholders but also the
Mittal has the kind of hunger that company bosses”
you Europeans will never Dominique de Villepin, French Prime Minister
understand” Jan 31st2006
Friends in India of Alain Davezac, Arcelor
executive - Jan 27th 2006

Source: Cold Steel (2008) – Tim Bouquet & Byron Ousey; public 
statements in the media
11
 Really?
y

“There is premium quality-steel and there is commodity

steel. It’s like perfume, that Arcelor specializes in, and
then there is a sort of eau de cologne, which is Mittal’s
domain”.

Guy Dollé, CEO of Arcelor, January 30th

a bad start...
Source: Cold Steel (2008) – Tim Bouquet & Byron Ousey; icircle illustration and comments
12
 Last barricade of the Rhenish capitalism

Anglo-Saxonic Model Rhenish Model (1)

• Market economy • Social market economy

• Shareholders value • Stakeholders value
• Capital market based financing • Capital stability (banks > stock market)
• Flexible labor markets • Fordist production model (high-quality, high-skill, high-wage production)
• Business > National community • Institutional, collective and based on consensus
• Co-determination
• “Social partners”
• “National community" with an ethnic-linguistic foundation

• Emblematic events of the Anglo-Saxonic Model • Emblematic events which eroded the Rhenish Model
– RJR Nabisco leveraged-buyout (LBO) by KKR (1988) – Daimler quoted at NYSE (1993)
– MCI WorldCom (1999) – Vodafone Mannesman (1999) – “predator capitalism”
– AOL-Time Warner ((2000)) – ArcelorMittal ((2006))
Video: Thierry Breton, French Minister
Source: icircle analysis; The Future of Continental Socio-economic Models (1997 ) - Michel Albert; Globalization - risks and opportunities for labor policy in Europe – Hoffman & Hoffman;
(1) The group of countries around the Rhine Valley have several economic and social characteristics that are very similar and that constitute the central model of continental Europe 13
. In the early 90’s, AGF acquires 25% of AMB, a German insurance company. The Commercial Court in Aachen refused to give AGF any voting rights. Michel Albert, at the time
CEO of AGF, crafted this type of judicial decision as typical one of the “Rhenish model”.
 The big picture
Th burden
The b d off Rh
Rhenish
i h capitalism
it li

Total cost of labor in manufacturing

g industry
y – Germanyy = 100
100 The non-wage labor costs alone paid by German industry amounted to the
same as the total labor costs in England
90

80
45
70

60 31 Non-wage labor costs

50
0
28 16 Remuneration
Total labor cost Index
(Germany = 100) 40 26 12
30
55
20 44
39
33 33
26
10

0
Germanyy Japan
p France US Italyy UK

“Jobs for us, social security for you (continental Europeans).“ John Major

Throughout continental Europe, people are deeply attached to the principle of the universality of social
welfare
lf ffor allll

Source: Institut der Deutschen Wirtschaft, IW Trends, IMF, Government Finance Statistics (UK); OECD – Based on 1995 data

 The big picture
St l industry
Steel i d t cycles
l

Chi h
China has iignited
it d a new golden
ld age
1300
1200

1100
1000
Fall of Berlin  China boom
900 Wall
Oil shocks
Crude steel producction 

800
(MM tons/year))

700 China
600 CAGR: 5.0%
1996 +
500 Golden Efficiency
CAGR: 0.2%
CAGR: 6 2%
CAGR: 6.2%
400 1974‐1995
1945‐1973

300
Emerging
200 CAGR: 2.8%
Pre 1945
P 1945
100

1920 1930 1940 1950 1960 1970 1980 1990 2000 2010

Source: Dr Neil J Bristow – Chief Analyst BHP Billiton Carbon Steel Materials – Dec 2006; 2006 onwards added by icircle 15

The big picture
St l industry
Steel i d t running
i outt off capacity
it

World steel capacity utilization (%)
93%

91% 91%
90%
89%
88% 88%
Arcelor Mittal
deal

84% 84%
83%

80%
79% 79%

1996 1998 2000 2002 2004 2006 2008

Source: IISI; Tata Steel estimates

16
The big picture
Steel and economic cycles

Steel consumption and GDP growth – a quasi-perfect correlation

10%

8%
Amplifies
economic
6% cycles

4%

2% is created

0%
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

-2%
consumption 20%
Steel demand. It’s all
investment 80% about investment
-4%

Finish products consumption World GDP

So what for
You’ve got to be ready for good and bad times!
steel makers

Source: IISI – Short Range Outlook, March 2007 and EUROPEAN COMMISSION – Economic Forecasts – Spring 2007; CELSA GROUP at GLOBAL MARKET  17

/ MACROECONOMIC SITUATION 57th IREPAS MEETING; Warsaw, September 2007; Global Steel Consultants
 The big picture
GDP and
d steel
t l

25%
Steel demand declines below 2% to 3% GDP g
growth

20%

15%

10%
Steel demand
growth (%) 5%
Asia
0%
Europe
u ope
2% 4% 6% 8% 10%
-5% N.America

L.America
-10%
10%
GDP growth (%)

So what for If you’re in stagnant economies, you’ve got to

steel makers be in high growth
gro th markets!

Source: Global Steel Consultants – 2006; icircle analysis 18

 Crude steel production growth follows
industrialization cycles

30% NORTH AMERICA

JAPAN Imature

KOREA
Highest growth rates in TAIWAN
NA, Europe, Japan

20% CHINA
INDIA

YoY growth Imature

rate (%) EUROPE
Steel
“hibernation”
10%

Mature

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020

Source: IISI, USGS, Laplace Conseil analysis; icircle analysis

So what for You need share in large, mature steel markets +

steel makers position to grab demand in emerging ones!
19
 The big picture
P i volatility
Price l tilit across regions
i

Steel Price Volatility (HRC)

M thl Std D
Monthly Deviation/mean,
i ti / 18 mth-trailing
th t ili
40% North America

30%
Western Europe
Monthly Std
Deviation/mean
20% mean

China
10%

0%
2000 2001 2002 2003 2004 2005 9.2006

So what
hat for You need to hedge against price volatility
Yo olatilit by
b serving
ser ing
steel makers different markets (regions)
20
Source: CRU, Steel Business Briefing, Laplace Conseil Analysis
Note: HRC = Hot Rolled Coil
 Regional
g consolidation under way...
y

Regional shares of top five players in each region

Europe 15
NAFTA 58,6% 58,9% 61,3%
55,5% 43,3%
47,6%
32,1% 32,1%

China
1995 2000 2005 2006 (*)
34,6% 35,7%
1995 2000 2005 2006 (*)
19,7% 21,6%

1995 2000 2005 2006 (*)

Asia (exc. China)
54,7% 54,7%

46,1% 47,3%
South America
80,1% 80,1%
53 7%
53,7% 57,7%
1995 2000 2005 2006 (*)

1995 2000 2005 2006 (*)

Source: International Iron and Steel Institute; BCG analysis 21

Note: (*) includes Arcelor Mittal and Anshan-Benxi mergers; based in 2005 world steel production
 ...but still a highly
g y fragmented
g industry
y

World shares of top eighty players - 2007

70,0% 69,7%

60,0%

T 80 = 70%
Top
50,0%
Top 6 = 20.3%

Accumulated share of 40,0%

,
world steel production
(% total) 2007
30,0%
27,0% 1990

20,0% 19,7%

10,0%

0,0%
1 10 19 28 37 46 55 64 73
# of steel producers

So what for
Are you going to be a consolidator or...?
steel makers 22
Source: IISI; World Steel production 2007; icircle analysis
 ...pressed
pressed by a more consolidated supplier market

World shares of top five players - 2005

Others 23%
82% Others
JFE
POSCO LKAB

Nippon Steel KUMBA

Arcelor BHP Billington

77% Rio Tinto
Mittal
Vale
18%
Steel
Iron Ore

2%
Others
44%
44% Rio Tinto Others
Anglo Russia
X t t
Xstrata 98% JP Steel Plantech
Elk Valley Danieli
56% BHP SMS DEMAG
VAI

Coal (seaborne) Continuous Casting

Equipments 23
Source: IISI; Barlow Juncker; Prof. Germano de Paula (Sauvage 2005); based on 2005 figures
 ...raw materials p
price increases in the range
g of 200% in
five years

Cost of raw materials (US$/ton – 1/2002 = 100)

600

400
+ 263%

+ 196%
+ 185%
+ 157%

100
Jan 2002 Jan 2007

Scrap
Source: Metal Bulletin/Steel
S /S Business Briefing;ISSI;IBS;
f SS S Gerdau
G Pig iron
Notes: (1) Metalurgical coal: FOB price Australia to China; annual contract Iron ore
(2) Iron ore: FOB Port of Tubarao Vale (Fines Itabira) to Europe
Metalurgical coal
(3) Pig iron: CEI Black sea/Baltic sea 24
(4) Scrap: nx 1 Heavy Melting Rotterdam
 The big picture
Wh
Where is
i th
the iiron ore?
?

85% of iron ore reserves in 12 countries

Example
Steel Fundamentals

3%
17%
2%

11% 4%

3%
8%

3%
2%

23%

14%
1%

So what for
Source: USGS; First River
steel makers You’ve got to secure competitive supply from these countries! 25
 Why
y steel makers should care about real state in Russia?
What’s driving supply & demand?

Increase in real state prices fuels Russian domestic steel consumption...reducing scrap
supply in Europe
Example Russian scrap export
Steel Fundamentals 15,000
'000 tonnes

US: Price of Houses Russia: $/м2 in Moscow 10,000

4.50

4.00 5,000

3.50

0
3.00 2004 2005 2006 2007 2008 2009
Jan.1998=1

2.50 EU scrap import structure

6,000
'000 tonnes
2.00 5,000

1 50
1.50 4,000

Other countries
3,000
1.00
Kazakhstan
2,000
USA
0.50
1 000
1,000 Russia & Ukraine
1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

0
2005 2006
26
Source: Metal Expert Research Group - Outlook of European steel scrap market and CIS influence - 2007
 The big picture
Wh iis producing
Who d i att th
the llowestt costs?
t ?

340:349.4

200 400; 186,8

180

160

140 397; 126,4

288 113
288; 113,4
4
120
382; 112,5
2005 Crude
Steel 100
Production
(tons/year) 80

60 280; 46,3
320; 38,1
355; 32,5 365; 32,7
40

390; 8,7
20

0
260 280 300 320 340 360 380 400

Cash Cost (US$/ton)

Source: World Steel Dynamics; BCG (Beyond the boom – Feb. 2007); icircle analysis (India and adjustments for regional representation) – October 2008 27
Note: Cash cost for India estimated by icircle; China posion out-of-scale to simplify chart visualization (340;349,4); except for China, India and Japan, each poiny XY (flag) represents the region where countries are
located (i.e. Russua = CIS; Brazil = South America; South Africa = Africa&Middle East; Australia=Oceania;US=NAFTA; size of circles +/- proportional to steel production (Y axis)
 The big picture
Wh are th
Why they producing
d i att th
the llowestt costs?
t ?

Electricity costs (€ per mwh) – Q4/2006 Labor cost (€ per hour) - 2004
102 26

21 20 19 18
63 60 56 53 52 49 47
34
5 5
16 3 3 3 2 1

Source: IEA Energy Prices and Taxes Q2 2006

Source: IW

Europe is potentially harder hit than other parts of the world:

• Electricity supply/demand balance in Europe is tight with the decline in North Sea sources;
• An increased dependency on gas imports from Russia;
• Costs associated with climate change and carbon emissions - up to one third of the
increase in the UK wholesale price of electricity since 2004 can be explained by the
inclusion of the price of carbon
28
 ...and
and pressed by powerful customers

World shares of top five automakers - 2005

14%
GM
Toyota
42% 14%
Ford
Renault/Nissan
VW
12%
Others
8% 10%

So what for You’ve got to be big to secure a balanced

steel makers client/supplier relationship
29
Source: CSM Worldwide
 The big picture
Wh
Where is
i manufacturing
f t i going
i tto?
?

Heavy engineering and vehicle manufacturing is on the move

Example
Steel Fundamentals

China
Brazil

Mexico

Traditional sites

New sites

So what for You’ve got to follow the clients!

steel makers
Source: icircle 30
 The big picture
Wh
Where is
i manufacturing
f t i going
i tto?
?

Automotive, white goods and packaging Î Central & Eastern Europe

Russia

VW Belarus
Poland
Electrolux
Germany
GM
Ford
Whirpool Ukraine
Czech R. Slovakia
Crown Austria
Impress Romenia
Hungary
Van Leer Slovenia
Croatia
Siemens
Bosnia H.
600 km radius
Bulgaria

So what for You’ve got to follow the clients! 31

Source: US Steel - James D.
Lawrence – Sept. 2006
steel makers
“Cleaning”
Cleaning manager...or industry master

“As Mr. Mittal usually went after underperforming assets in

privatizations, or arranged friendly takeovers, he was
often applauded as a useful outsider invigorating a
decaying industry…”

Th E
The Economist,
i t FFebruary
b 2nd, 2006

It’s all about making

g everyone
y believe what you
y want them to believe
Source: The Economist Feb 2nd, 2006; photo by nikonians.org – illustrative steel mill at Bethlehem (PA)
32
Note: underlined and comment by icircle
 Who could ignore this?

Mittal Steel x Arcelor market shares

5.08% 4.84%
4 34%
4.34%

0.05%

1989 2001 2004

33
Source: icircle analysis; IISI; companies annual reports
Mitt l - paying
Mittal i “cheap”
“ h ” for
f promising
i i steel
t l assets
t
Acquisitions - Price paid per annual steel capacity – US$/ton
(
(constant
t t year 2000 US$)
1.100
Dofasco (2005)
1.014

881 Smallest deal

Biggest deal (*)

692 Highly competitive bid against

663 Arcelor in Ukraine (2005)

555
491 479
442
365 385
296 287 281
210
161
134 127
77 77 74
43
10

Source: icircle analysis; companies annual reports; Gerdau

Note: 22 acquisitions made by 8 companies in period 1992-2007; smallest deal (0.2MM tons/year), biggest deal (20.0 MM tons/year); see 34
graph size (tons) x price paid (US$/ton) also in this material; (*) after Arcelor Mittal
The Mittal Arcelor saga

The first encounter

Ancara, Turkey
October, 2005

Arcelor and Mittal were bidders in the auction of 46.3% of Turkish

government shares in Erdemir, a steel company
g p yp producing
g 3.5
MM tons a year for car makers and other industrial clients.

Oyak, a local steel company, won the auction with US$ 2.77 billion

The Second encounter

Kiev, Ukraine
October, 2005
October

Arcelor and Mittal were bidders in the privatization auction of

Kryvorizstal, Ukraine flagship steel mill.

Mittal won the auction with US$ 4.84 billion – if Arcelor wasn’t a bidder, Mittal
would had paid US$ 1.0 billon less

Source: Cold Steel (2008) – Tim Bouquet & Byron Ousey; icircle comments

Source: Cold Steel (2008)  Tim Bouquet & Byron Ousey; icircle comments

35
 Th message
The Th response
The

Ohio, USA Hamilton, Canada

April, 2005 May, 2005

Mittal acquires ISG with US$ 4.5 billion. Now, with Ispat, Arcelor and Nucor offered Dofasco , the jewel of the
LNM and ISG, Mittal Steel becomes the # 1 steel crown of Canadian steel industry, and key supplier to US
producer in the world, 60 mm tons/year – 10 mm tons auto-makers, $C43 dollars a share – promptly refused
more than
th AArcelor.
l b D
by Dofasco.
f

Lakmshmi Mittal received a congratulatory e-mail from Guy Dollé,
Arcelor’s CEO.
“This is not time to contemplate selling our company” (Donald A.
Pether, CEO Dofasco). Then, Dofasco acquired QCM which
provided competitive coal supply to the Hamilton plant – increasing
the value of Dofasco.
Dofasco

Source: Cold Steel (2008) – Tim Bouquet & Byron Ousey
36
The North American battle – the tipping
g point

2 January, 2006

3
April, 2005
January, 2006
1

ISG = International Steel Group, originated from LTV , Bethlehem Steel, Acme, Weirton Steel and Georgetown
37
 A deadly mistake - The Sedgwick syndrome((*))

US Civil War - May, 1864

The rebels "couldn't hit an elephant at this

distance", General Sedgwick assured some men
who were seeking cover from sharpshooters
during the Battle of Spotsylvania. The next
second, a sniper's bullet struck under his left eye,
killing him instantly.

Arrogance can kill. Never underestimate your opponents

(*) Based on “Qual é a tua obra?” (2008), Mario Sergio Cortella, Brazilian philosopher 38
“General Dollé” encounters the enemy
y

Dinner at Mittals’ house, London

Friday, January 13th, 2006 - 6:00pm

“If y
you bid $
$C5.6 billion for Dofasco y
you will g
get it”
Lakshmi Mittal to Guy Dollé, CEO of Arcelor

“Guy, I have something very important to tell you. Our two

companies are both undervalued in the market. We share the
same consolidation goals. We should discuss how we could
work more closely together. Let’s discuss on a friendly basis”
Lakshmi Mittal to Guy Dollé, CEO of Arcelor

“Our companies are not compatible. Arcelor specialises in

high-end steel for the automobile and packging industries,
while
hil you ffocus on on emerging-market
i k t volume
l steel
t l for
f the
th
construction industry”
Guy Dollé, CEO of Arcelor, to Lakshmi Mittal

“So why are you bidding for the same emerging-market volume
steel
t l companiesi iin places
l lik
like Uk
Ukraine?”
i ?”
Mittal’s thought (not expressed)

At this point, Guy Dollé and General Sidgwick have never been
so close in thinking

Source: Cold Steel (2008) – Tim Bouquet & Byron Ousey; icircle comments & analysis 39
 Arcelor –an attractive target
C
Complementary
l t iindustrial
d t i l and
d market
k t ffootprint...
t i t

Pre-merger revenues by region (% total)

Europe 71% 32%

North America 9% 42%
South America 11% 0%
Asia & Africa 9% 26%
40
Source: companies annual reports; icircle analysis; 2005 revenues
Arcelor –an attractive target
A healthier, more productive business...

Productivity and Profitability – 2005

851

33%
571

436

50%
220

130 132
96 81

Sales (US$/ton) EBIT (US$/ton) Cash flow (US$/ton) Labor (ton/employees)

Source: companies annual reports; icircle analysis

Note: 2005 data; 2005 avg exchange rate (euro=US$) = 1.245; tons actually shipped;

41
 Arcelor – an easy pray

Highly liquid... ...and highly

g y unleveraged
g

Arcelor Equity Strucure – 31.12.2005 (pre-merger) Net debt/equity (%) – 31.12.2005

62,0%
Target (desired)
by Arcerlor

4% 50,0%
6%
Freet float
Luxembourg state
Aristrain
Wallonia region
Employees
87%
7,1%

Source: Arcelor and Mittal 2005 Annual Reports; icircle analysis

Note: % voting rights; net debt = total interest bearing liabilities - (cash + cash equivalents)

42
The “Bear
Bear Hug”
Hug

A vulnerable pray takes a walk in the savana...

Mittal was willing to pay a 20% premium for

Arcelor, based on Arcelor’s closing price before the
bid was announced, because most of the offer is in
stock.
stock

Arcelor stockholders would get about three-

quarters of their money in Mittal stock, with the
remainder in cash. In other words, Mittal could buy
An offer to buy the shares  its rival through its own underlying value, while
of the target company for a  stockholders would assume the long-term risk that
Mittal’s
Mittal s share price might perform worse than the
much higher per‐share 
price of an independent Arcelor.
price than the company is 
currently trading 

43
 The p
poison pills
p

• Announce
ou ce higher
g e ddividends
de ds Î s
shareholders
a e o de s

• Release “rosy” earnings forecast Î shareholders

• Co
Communications
u cat o s campaign
ca pa g

• Share buy-back

• So g (1)
Softt parking
pa

• Asset lock-up Î Dofasco (stiching)

• Anti-takeover law Î Luxembourg

• Grey squire (2) Î Romain Zaleski, NLM K (Russia)

• White k i ht (3) Î SeverStal

Whit knight S St l (R
(Russia)
i )

• Golden parachute (4) Î Arcelor top management

(1) Placing a block of shares in hands of dealers or investors suportive of management

(2) Placing a block of voting stock in somewhat friendly hands with minority interest goals; Zaleski was approached by Arcelor and Mittal and had no other interest except to maximize his own
gains (therefore, it was not a white squire); NLMK was first thought as a white knight, but later as it publicly announced its intention to acquire 15% of Arcelor shares, it was ruled out as a white

(3)
knight
A company that competes against the hostile takeover made by the black knight (Mittal) by offering a more attractive deal to shareholders and management 44
(4) €50MM transferred to an escrow account to Bank of New York , Manhattan; might or not be considered a poison pill depending on the importance/value of executives under the plan
The French battle

Ministry of Economy, Finance and Industry, 139 rue de Bercy

Paris - January 30th, 2006, 9:15 am

“Mr. Mittal , it will not surprise you that this morning you
are not the most p popular
p visitor in Paris.
I do not think you respect what we in France call the
grammar of business”. What’s more, I have zero
information to go on. I need your industrial plan. Can
you share it with me?”
French Minister Breton to Lakshmi Mittal

Mittal did not have an industrial plan. As a deal maker, he had the vision
and may the strategy.

“Mittal
Mittal heads up a group of less than average
companies. He took over ISG, itself a conglomerate of
failed companies that needed major investments. The
only reason Mittal wanted Arcelor was to strip out billions
of its value to prop up his failing rust-bucket plants in
Eastern Europe”

Guy Dollé, at press conference at Hilton Arc de Triomphe, same day, Paris’

At this point, Mittal knew that the deal was going to be very political and it
would not stop at France
France.

Source: Cold Steel (2008) – Tim Bouquet & Byron Ousey; icircle comments 45
“Activist
Activist shareholders”
shareholders

“We estimate that we have talked to the shareholders,

who account for 40% of the free float of Arcelor,
excluding the Luxembourg government and other
He said: groups with large shares that are relatively fixed and
account for about 10% of the total. We’ve generally
encountered enthusiastic support”
support
Lakshmi Mittal
Interview to Peter Marsh, Financial Times, Feb 20, 2006

H meant:
He t R l
Rulers d id d to
decided t play
l

46
Activist investorv – Atticus Capital

NEW YORK, February 19, 2006

Dear Mr. Dollé:

As one of Arcelor's large shareholders, we were very disappointed by the Board's initial reaction to the tender offer made by Mittal
Steel on January 27th and by your continued refusal to meet with them to discuss their offer for our company.

We believe in the compelling industrial and financial merits of the transaction, which would offer synergies and strategic benefits to
all participants in an industry in need of consolidation. For these reasons, we believe that a transaction with Mittal Steel would be in
the best interests of Arcelor shareholders and stakeholders.

We urge you to objectively consider the merits of a transaction with Mittal Steel and to engage in negotiations in order to maximize
their offer, which stakeholders should then be able to judge on its merits. A recommended deal would be of value to all parties and
could surely lead to an improved offer.

We would like to remind you of the Board of Directors' obligations and fiduciary duty to your shareholders, and we reserve the right
t protect
to t t our interests
i t t through
th h voting
ti att the
th April
A il 28th AGM and/ord/ th
throughh th
the courts.
t

We look forward to hearing back from you so that we might discuss the matter soon.

As background, our firm, Atticus Capital LP, is an investment management firm, with in excess of US$10 billion of assets under
management.
g Atticus invests in g
global securities markets on behalf of its clients. Atticus' managed
g funds and advisory
y clients own
and/or have the right to acquire an aggregate of 8.2 million voting shares, or approximately 1.3% of Arcelor. We also hold
investments in several other major metals and mining companies globally, including 0.5% of Mittal Steel.
Sincerely,

Timothy R. Barakett
Chairman
David Slager
Vice Chairman
47
The illusion

Arcelor Annual General Meeting

Kirchberg, Luxembourg
April 28,
28 2006

“We have weapons to stop Mittal. Today (*), shareholders

have expressed confidence in Arcelor’s business model”
Joseph Kinsch, Arcelor Chairman

(*) 75.7% of 33% of shareholders represented in the meeting voted to keep Kinsch as
Chairman; I love Arcelor badge was used by Arcelor executives during the meeting
48
 Anatomy
y of the deal - escalating
g momentum
12 Arcelor tries
merger with 13
11 SeverStal Mittal acquires
Feb. 16th (Russia) Arcelor
Arcelor announces
High dividends 85% higher
than in 2004

10
5 Dofasco in “stichting”
g
Jan. 13th
Mittal decides to 7 Jan. 24th
acquire Arcelor Arcelor acquires
Dofasco 9
Arcelor lobbies for
4
Deal Mittal acquires
European support against
Mittal offer
momentum Kryvorizstal
8
Jan. 27th
3 Mittal announces
Arcelor and Mittal takeover bid
bid for Erdemir
(Turkey)
6
Jan. 20th
Mittal negotiates Dofasco
2 sale to Thyssen if Mittal
May 27th acquires Arcelor
Arcelor/Nucor try
acquiring Dofasco
1
Mittal acquires ISG

Low
Apr. Oct. Jan. Jun.

2005 2006
49
Source: icircle analysis based on Cold Steel (2008) – Tim Bouquet & Byron Ousey
The harsh reality

Arcelor Headquarters
Av. De la Liberté, Luxembourg
June 26, 2006

“We are pleased to note that Mittal Steel has taken our arguments on board,
increasing its offer and with new industrial model and improved governance”

Joseph Kinsch, Arcelor Chairman,

C explaining shareholders why he was seling the company

50
What a deal
deal...

Arcelor value (in € MM )

Without synergies With synergies

PV of DCF 01.2006 4,636 7,323

NOPLAT 2011 3,593 5,291
Perpetuity 2011 onwards 32,660 48,098
Discount factor 0.6252 0.6252
PV of Perpetuity 01
01.2006
2006 20 420
20,420 30 073
30,073
Arcelor value 01.2006 25,057 37,396
(+) Cash+Market. Securities 4,645 4,645
( ) Interest bearing debt
(-) 5 964
5,964 5 964
5,964
(-) Preferred stock - -
Value of equity 01.2006 23,738 36,077
Shares outstanding 01.2006 639,774,152 639,774,152
Share price (€/share) 37.10 56.39
Price paid by Mittal (€/share) 40.40 40.40
Premium paid by Mittal (€/share) 8.9% -28.4%
Source: icircle analysis – September 2008; based on Arcelor Mittal annual and financial reports and available market data
51
Nite: see appendix for detailed valuation and premises
 Mittal X Arcelor
Si il vision
Similar i i off end
d game, different
diff t route+speed
t d

High

Total Value Transform industry

C ti
Creation landscape
Opportunistic
Potential
strikes 2005

Change the
game

2005

Strengthen
position

Bad strategy

Survive
Low
Low Risk High
52
Source: icircle analysis
Whatelse is there to say?

53
 Before you go shopping...eight things to 1 2 3 4

remember 5 6 7 8

• A clear view that the steel industry is highly fragmented and

consolidation is a business imperative
• An understanding that steel is a “late comer” in globalization and global
players
l will
ill be
b the
th winners...
i
• ...because they will have scale, geographical footprint, will take
advantage of low cost production countries and will better serve
large/global clients
• A deepp understanding g of steel industry y fundamentals and economics
and how they will evolve – how you gain or lose money
– Cyclicality of supply & demand and key drivers
– Steel production is shifting to emerging markets
– The China (*) effect, strategic importance of India
– Importance of securing dominant shares in large/low growth and
smaller/high growth markets
– Impact of iron ore, scrap, DRI, coal, energy, labor, freight,
currencies, access to capital, WACC
– Advantages of backward and forward integrations
– Control
C t l raw materials
t i l and d ttrade
d
– Influence regulatory and political environments – the “unstable”
Balkans, the slow flexibilization of China, Russia&Ukraine, Brazil,
NAFTA, Western Europe

54
Source: icircle analysis (*) Mittal was the first foreign steel producer to take a strategic
stake in a Chinese company
 Before you go shopping...eight things to 1 2 3 4

remember 5 6 7 8

• Big is beautiful – a clear view that there is one clear winning

business model in the steel industry – a large, global, diversified and
integrated
g p
player
y
• Other business models can be competitive but will be restricted in
growth potential – a regional champion or a niche player
• By 2005, Mittal knew that he had only part of the pie and not a
sustainable one – footprint in peripherical markets with low
end/commodity products
– He had to improve his product mix with high end/specialty,
high margin products (specially flat)
– He had to qualify/consolidate to serve the automotive market
• Mittal knew that he was lagging behind and did not have key
capabilities+corporate
biliti t DNA to
t develop
d l a sustainable
t i bl steel
t l
business – especially health, environment, safety, human resources
management, R&D, quality, utilities and maintenance – which were
all Arcelor capabilities
• Mittal set an ambitious and bold agenda
g – to transform the
industry landscape, and Mittal would be the one to lead
consolidation, set the tone and drive the necessary changes

55
Source: icircle analysis
 Before you go shopping...eight things to 1 2 3 4

remember 5 6 7 8

• The Mittal strategy was (and is) based on three elements – integrated
business model, product diversity and geographic reach.
• The global integrated model will allow Mittal to capture market growth in
emerging economies such as Central and Eastern Europe (which are
expected to grow annualy between 4.6% and 6.7%)
• It will also allow Mittal to expand production in low cost countries such
as Brazil, South Africa, Mexico, Ukraine and Kazkhstan, which have low
energy and labor costs and privileged access to raw materials
• The mix of different steel technologies – electric x oxigen – which rely
on different raw materials (scrap x iron ore/pig iron), will also provide an
additional hedge against raw materials price fluctuations and shortages
• The diversified product and client mix (long x short, specialty x
commodity; automotive x construction x packaging x white goods) will
allow a more effective effective hedge against price cyclicality and
volatility
• In addition, price volatility will be further reduced by a higher mix of long
term contracts provided by Arcelor
• Upstream integration strategy (Mittal is more self-sufficient on raw
materials) will be rolled-out to supply Arcelor plants – mining projects in
Liberia, Senegal and Ukraine are under way
• Downstream integration is also a Mittal goal – through the ownership
and management of distribution channels, it will capture more margins,
particularly in the automotive sector which is expanding its outsourcing
platform; captive channels will provide a buffer against falling demand in
a downturn.
56
Source: icircle analysis
 Before you go shopping...eight things to 1 2 3 4

remember 5 6 7 8

• Mittal decided to be a consolidator and to drive the industry to higher levels of

profitability (and multiples) – clearly, it has wealth creation as the main driving
force
• Mittal read all the signs correctly
– The steel industry was mainly a local industry in the process of regional
consolidation it was historically a money loser given its inability to
consolidation,
control/manage cyclicality and volatility
– Clients and suppliers to the steel industry grew larger and unless steel
companies integrate back/forward and grow bigger, they will not be able
to provide attractive returns
– Steel companies
p have been historicallyy led by y more conservative and
technical-driven managers – entrepreneurship was not a trace of the steel
companies
• Mittal has been preparing the ground for his boldest move – when he acquired
ISG no one doubted that he would not stop there – he was telling the market what
he was trying to do, creating positive gravitational weight around him
• Mittal
Mitt l knew
k he
h needed
d d supportt tto succeed d in
i thi
this b
bold
ld move
– Put together a powerful vision for the steel industry, a strong business
case for Arcelor+Mittal, and communicated across the globe
– Addressed and managed stakeholders in Western Europe (country
leaders, parliaments) and inside Arcerlor (executives)
– Worked well minority and influential Arcelor sharedholders
– Leveraged on his relationships with powerful economic groups (see
appendix) which helped remove/reduce resistance against the deal
– Put together a strong, experienced and influential team of experts and
executives – public relations, investment banks, consultants, law firms,
Ross ((ex-Rotschild),) insiders in Arcelor, etc
• Throughout the M&A process (Jan 2005-Jun 2006), Mittal demonstrated
stamina, determination and conviction about his vision of the steel industry and
about the Arcelor Mittal business model 57
Source: icircle analysis
Post-merger
Post merger integration

Interactive session
D li with
Dealing ith PMI challenges
h ll

58
You were elected the leader of the PMI initiative at Arcelor Mittal...

• You have three minutes to address the Board of Arcelor Mittal

1. D
1 Define
fi the
h three
h most critical
i i l PMI challenges
h ll in
i your view
i
2. Explain why the Board should be concerned about them

59
ArcelorMittal - The PMI challenges

The challenge
http://www.youtube.com/watch?v=hK_7Y5777eI&feature=related

Creating identity
http://www.youtube.com/v/10Bbn5k0lhw

Managing global clients (30’’ Æ 3:15’’)

http://www.youtube.com/v/0Lsdo_uKgsQ

Integrating and capturing synergies

http://www.youtube.com/watch?v=aCwcVudfuCo

Aditya Mittal one year after

http://www.youtube.com/watch?v=6RsZVELkmc&feature=related

60
Appendix Part 2

61
 World Crude Steel Production – tons/yr

1.500
1.400 1.344
1.300 Mittal
hostile offer
1 200
1.200
1.100
1.000
900 848
770
800 716
700
600
500
400
300
200
100

80 90 00 05 07

62
Source: icircle analysis
Steel price volatility

63
 O Canada
One C d every year

• It took the world 25 years (1970-95) to add 161 mm metric tons of steel Î 6.5 mmt per year
• It took Mittal 15 years (1990-05) to achieve 116 mm metric tons of steel Î7.7 mm t per year
Î equivalent to adding Canada’s annual steel consumption every year

A steel giant in 15 years  
1200 1142

1000

800 756

Crude Steel 595

Production 600 World
(MM t/yr)
Mittal
400

200 116

0
Year 64
Source: icircle analysis
 Arcelor – an attractive target

Capabilities Positional Assets Relationships Performance Corporate DNA

• Safety, Health and • Stainless steel in Brazil and • Automakers • Strong cash • Technology & production
Risk Management Europe generator

• Human Resources • Environment: 97% of g alliance wtih

• Strategic • Increasing
g earnings
g • Product and q
quality
y
Management production units , 68% of DOFASCO (Canada)
finishing units certified
• Ultra Low Carbon • Global strategic • Responsible citizenship
Oxide Steel Making alliance with Nippon • Health, safety and
Process Steel ((NSC)) environment

• Partnership with • Human resources = capital

UGINE & ALZ (stainless
steel for autos and
h
household
h ld appliances)
li )

65
Arcelor –an
an attractive target

Global Strategic Alliance (*)

The ABC (Arcelor Body
with Nippon Steel Corp.
Concept)
( t 2001)
(est.

The close relationship between its  One of the principal objectives of the 
resident engineers
resident engineers alliance consists of building up
alliance consists of building up 
and car design centers and its long‐ progressively a worldwide procurement 
term business partnerships network of high‐quality metal sheets for 
enable Arcelor Auto to offer steel  our multinational clients who need 
solutions that successfully
solutions that successfully ‘equivalent’
equivalent  metal sheets in all the regions 
metal sheets in all the regions
combine performance with safety,  where they have production units.
visual appeal and economy

(*) Arcelor and NSC

SC collaborate closely within the fframework off a “global
“ strategic alliance”,
” signed on 22
January 2001 between Usinor and NSC and confirmed between Arcelor and NSC on 22 April 2002

66
 Description of M&A deals – Mittal and others

Source: icircle analysis; companies annual reports; Gerdau

Note: current US$ adjusted for constant US$ (2000) 67
 Segmentation of M&A deals
Small deals Average deals
(< 2
2.0
0 /year) (2 0 < X < 9
(2.0 9.0)
0)

Source: icircle analysis;

y ; companies
p annual reports;
p ; Gerdau
Note: 22 acquisitions made by 8 companies in period 1992-2007; smallest deal (0.2MM tons/year), biggest deal (20.0 MM tons/year); see graph size (tons) x
price paid (US$/ton) also in this material; (*) after Arcelor Mittal

68
St l production
Steel d ti ttechnologies
h l i

69
 Atticus Capital – more than activist investor, a Mittal ally

10 days

Jan 16th, 2006 Jan 27th, 2006

“We
We have been a long‐term believer in the business 
have been a long term believer in the business "We are offering to involve shareholders in 
model of securities exchanges and continue to see  the construction of a European champion, 
increasing global consolidation occurring in this  the undisputed world leader.”
sector," said David Slager, senior portfolio manager 
at Atticus "We
at Atticus.  We would support a friendly merger of 
would support a friendly merger of "This is about two concerns merging to 
equals between Euronext and Deutsche Boerse (1),  become a European champion with global 
which would create a formidable Euro zone  Just 
coincidence? aspirations, nothing more, nothing less." 
champion with the resources and franchise to 
compete for global liquidity and global listings
compete for global liquidity and global listings  k h l
Lakshmi Mittal
January 16, 2006 (10 days before Mittal’s takeover move); 
(1) Atticus was already one of the main shareholders of Deutsche Boerse
70
 Favorable media coverage – especially in the UK

Mittal to target $1bn 
Mitt l bid to
Mittal t forge
f steel
t l giant
i t of savings without closures
f i ith t l
28.01.2006
... January 28th, 2006
But the price of the merger would see the Mittal family's stake in
their business plummet from 88 per cent to just over half. Benefits of Arcelor deal would come from purchasing 
.., it would sell on Dofasco to Thyssen for $4.6bn. The German strength, not job cuts, executive tells Angela Jameson 
t th tj b t ti t ll A l J
company said it would welcome the deal.
…
Tony Taccone, partner in First River, a US consultancy, said: "This is a
beautiful deal - a stroke of genius".
The offer appears to have taken Arcelor by surprise,
surprise even though Mr
Mittal discussed the idea briefly - and informally - with Guy Dollé,
Arcelor's chief executive, at a private dinner in London two weeks
ago.
…he hoped would eventually become a friendly one. "We have a lot of
respect for Arcelor," he said.
...Thierry
Thi B
Breton,
t F
Frenchh fifinance minister,
i i t saidid h
he h
had
d ""concerns"" about
b t
Mittal says bid hostility is easing 
y y g
FEBRUARY 16 2006 
the bid for Arcelor - which is a large employer in France and was formed
in 2001 in a merger involving Usinor, then France's biggest steelmaker. • ‘Politicians have started to understand rationale’ for Arcelor deal 
Mr Mittal said he hoped to meet Mr Breton. • ‘The process is becoming more focused on business discussions

71
 Mittal – managing
g g and creating
g stakeholders in France

Anne Méaux
Mittal Public Relations – Image 7

François H. Pinault Daniel Boutton

Founder of the Artemis
CEO Socieété Générale and former
Jacques Chirac Group and PPRPPR. An old
board member at Arcelor. SG
President of rival of Guy Dollé.
ended up advising Mittal on the deal.
France Became Arcelor Mittal
independent board member
in July 2006

Romain Zaleski
CEO of Tassara Group. Largest individual
shareholder of Arcelor (7.8%). Became Arcelor
Mittal independent board member in October 2006.
Profitted € 1.0
1 0 billion with deal.
deal Resigned from the
board on March, 2008. Thierry Breton
French Miinister
Source: Cold Steel (2008) – Tim Bouquet & Byron Ousey; icircle comments 72
Mittal – managing
g g and creating
g stakeholders in Luxembourg
g

Roland Junck Gonzalo Urquijo Jeanot Krekré

Prince Guillaume
Arcelor Vice-President Arcelor CFO Minister of Economy &
Foreign Trade de
Luxembourg

L
Luxembourg
b
Michel Wurth Joseph Kinsch Luc Frieden Jean-Claude Juncker
Arcelor Vice-President Chairman of Arcelor Minister of Justice; Chairman of Arcelor
Budget

• Luxembourg became headquarters of Arcelor Mittal – besides status and geo-political influence, it secured
corporate taxes of the new enterprise
• Luxembourg made profits of € 400 million with the deal
• Josep
Joseph Kinsch
sc cocontinued
t ued as C
Chairman,
a a ,uuntil
t retirement
et e e t in 2008
008
• Roland Junck became CEO of Arcelor Mittal, later replaced by Lakshmi Mittal
• Prince Guillaume became Arcelor Mittal board member
• Gonzalo Urquilo and Michel Wurth became Executive VPs at Arcelor Mittal 73
 A complex “behind the scenes” – after all, a Rothschild game?

RIT Capital Partners

Lewis B. Kaden Wilbur L. Ross, Jr. Nathaniel Rothschild

Arcelor Mittal Board Member Arcelor Mittal Board Member
Former Director Bethlehem Steel Co-President Atticus Partners
Former Chairman of ISG
Current Vice-Chairman at Citigroup Former MD at Rothschild (1974-2000) Investor
Timothy R. Barakett
Chairman Atticus Partners
Atticus Capital Former Director RIT Capital
Partners
1.3% 0.5% Investor owns
Johannes Sittard
Convertible arbitrage CEO ENRC
Mittal’s # 2 1995-2001
Financed Mittal’s acquisitions – Kryvorizstal and Arcelor Investor
Global Steel
Investor? Mittal
One of the custodians Quantum Fund
The Balkans St. James
The Khazar empire Capital Partners
member Nils O. Taube
NGOs Partner St. James
Advisor at Arcelor acquisition

Founder
Bush family
George
Soros
74
Activist investor with vested interest
Sources: Mark Reuter (makingsteel.com); Jacques Cheminade (EIR); icircle analysis
A complex “behind
behind the scenes”
scenes – after all, a Rothschild game?

fifteen months later...

Breton takes Rothschild role

By Elsa Conesa
September 10, 2007

Thierry Breton, the former French finance minister displaced after

this spring's presidential election, has been hired by Rothschild &
Cie the investment bank
Cie, bank, as a senior advisor
advisor, the FT's
FT s French sister
paper Les Echos has learnt.
Mr Breton, a senior lecturer in management at Harvard Business
School in Boston, will advise on US and transatlantic deals

75
 A complex “behind
behind the scenes”
scenes – after all, a Rothschild game?

Africa Balkans
01 March 2006
Zimbabwe signs 400 mln usd deal with UAE's Global Steel buys Balkan coal mine
Global Steel Holdings
The government granted a 20-year controlling interest in the Zimbabwe June 2, 2007 The Pramod and Vinod Mittal-led Global
I
Iron andd Steel
St l Company,
C or ZISCO,
ZISCO tot Global
Gl b l IInfrastructures,
f t t an affiliate
ffili t Steel Holdings
Holdings, the international holding company of
of the Indian steel giant Mittal, which has already established itself in Ispat Industries, has acquired Ivangrad thermal coal
mines in Montenegro for an undisclosed sum. The
the South African market.
company plans to invest $1.1 billion to develop the
In one of the biggest foreign direct investments in Zimbabwe in recent mines and set up a power plant in the Balkan
years,, Indian metals giant,
y g ,GGlobal Steel
S Holdings
g (GSH)
(GS ) will inject
j cou ty
country
$400m to rehabilitate Zimbabwe's decrepit iron and steel works (Zisco)
in a makeover that will increase output 17 times
June 27, 2008 Pramod Mittal in talks to sell
Geoff Rothschild: There's definitely, in terms of wanting to invest in Bulgarian mill Kremikovtzi
there's
Zimbabwe, there s definitely international interest. 26 Jan, 2008
That's Geoff Rothschild, director of Government and International
Affairs at the Johannesburg Stock Exchange.
Rothschild: The great entrepreneurs will see things before they
Global Steel Holdings Serbian Unit
happen, not after they happen, and the time is now before a change Magnohrom Halts Operations
in government. Serbian granular and refractory materials producer
Magnohrom owned by UK-based
Magnohrom, UK based Global Steel
Holdings (GSH), has halted production over utility
debts, media reports showed.
Magnohrom is located in Kraljevo, Serbia's
southwestern Raski district. GHS has recently
acquired Montenegro's insolvent Ivangrad lignite
South Africa
mine and plans to set up a 500 MWh thermal power
Johnson Njeke plant near the mine
Former NM Rothschild (SA) director 76
A historical
perspective

77
 A complex “behind
behind the scenes”
scenes – after all, a Rothschild game?

A historical
perspective

Source: The Rotschilds – The Financial Rulers of Nations- John Reeves (1887)

Source: The Rotschilds – The Financial Rulers of Nations- John Reeves (1887)

78
 A complex “behind
behind the scenes”
scenes – after all, a Rothschild game?

A historical
perspective

79
Source: The Rotschilds – The Financial Rulers of Nations- John Reeves (1887)
 A complex “behind
behind the scenes”
scenes – after all, a Rothschild game?

A historical
perspective

80
Source: The Rotschilds – The Financial Rulers of Nations- John Reeves (1887)
 Videos

Thierry Breton, French 
http://www.youtube.com/watch?v=SnZSIA2INmc&feature=related 7:50 Æ 14:42
Minister  Feb. 7, 2006

Guy Dollé explains why 
http://www.eurobusinessmedia.com/interviewWmp.php?id_article=105
Arcelor is better than its 
peers (May 3, 2005)

Guy Dollé explains why  http://www.eurobusinessmedia.com/interviewWmp.php?id_article=142
Arcelor refuses offer

81
Arcelor valuation

In € millions
Valuation variable 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Free‐Cash
Free Cash Flows
Flows € 2.751 € 1.869 € 1.599 € 1.170 € 1.181 € 1.193 € 1.205 € 1.217 € 1.229 € 1.241 € 1.254 € 1.266 € 1.279

Discount factor ‐ ‐ ‐ 0,9492 0,8551 0,7704 0,6940 0,6252

PV of FCF € 1.111 € 1.010 € 919 € 836 € 761
PV of PV without synerigies € 1.170 € 1.261 € 1.673 € 2.485 € 3.297
PV of PV with synergies € 1.170 € 1.078 € 1.289 € 1.724 € 2.061
Sum of PV without 
f
synergies € 4.636
Sum of PV with synergies € 7.323
Synergies  € 80 € 400 € 800 € 800
EBITDA € 4.027 € 4.148 € 4.272 € 4.400 € 4.532
Taxes € 835 € 860 € 886 € 912 € 940
NOPLAT without synergies € 3.192 € 3.288 € 3.386 € 3.488 € 3.593
NOPLAT with synergies € 3.255 € 3.668 € 4.401 € 5.137 € 5.291

WACC: 11%
EBITDA growth:
th 3% py
Tax: 20.7%
Total synergies: € 1.6 billion/year 100% achieved in 2010
Arcelor share of synergies: 50%
Synergies capture: 10% (’08), 50% (‘09), 100% (‘10)
Perpetuity: 2011 onwards

82
Source: icircle analysis; value of synergies announced by Arcelor Mittal; based on Arcelor annual reports 2003, 2004, 2005
Arcelor valuation
Valuation variable  Without Synergies With Synergies

Continuing Value  2011 onwards
Continuing Value 2011 onwards 32 660
32.660  48.098 
48 098
Discount factor 0,6252 0,6252

PV of Continuing Value 20.420  30.073 

Arcelor Value (€ millions) 25.057  37.396 

Cash+Market Sec. (+) 4.645  4.645 

Interest bearing debt (‐) ‐ 5.964  ‐ 5.964 

Preferred stock (‐) ‐ ‐

Value of Equity (€ millions) 23.738  36.077 

Shares Outstanding 639.774.152  639.774.152 

Share Price (€/share) 37,10 56,39
Price paid by Mittal (€/share)
Price paid by Mittal (€/share) 40 4
40,4 40 4
40,4
Premium (%) 8,9% ‐28,4%

Original bid (Jan 27th 2006) 29,07  29,07 

Arcelor Installed Capacity MM tons/year 55,00
Price paid  US$ 40,583
Euros 25,847 

Price per ton US$/ton 737.873 

Euros/ton 469.943 
Euro/US$ (jun '06) 1,27

US$/ton 596.828 
83
Source: icircle analysis; value of synergies announced by Arcelor Mittal; based on Arcelor annual reports 2003, 2004, 2005