Differences between merger cases of Mittal and Baosteel

It is a done deal that Mittal and Arcelor merged into Arcelor-Mittal, the biggest steel giant in the world with yearly output over 110 million tons and sales revenue Euro 60 billion. Yet, it was a long and difficult process for Mittal to complete such a merger. Fortunately, Mittal was successful in the end. Before this merger, Mittal was already the largest steelmaker in the world and had taken steps to merge with other steelmakers. Baosteel is somewhat similar to Mittal; it is the biggest steelmaker in China. And, Baosteel has also made active efforts to merge with other steel mills in China. But unfortunately, Baosteel has not become a real success in this regard so far while it has signed some strategical cooperation agreements with several big mills and managed to buy in shares of some listed steel corporations in China. In merging actions, both steel giants have faced similar problems. The two most serious of them is local government's disapproval and resistance of the targeted enterprises to the merger. When Mittal announced its plan to merge with Arcelor at the beginning, the president of France publicly said “no” to Mittal, and almost all stockholders of Arcelor decided to take measures against Mittal. Baosteel also faced similar issues. Nevertheless, there are great differences between the cases of the two companies regarding the properties of the problems and their solutions. Probably just these important causes led to different outcomes for the two companies: Local governments' interests Arcelor is formed by consolidation of four steel mills located in four European countries. What the governments of those countries most cared about was the potential unemployment problem and industria impacts that would be caused by Mittal's takeover. In China, in addition to these, local governments of the targeted enterprises care more about local GDP index and tax incomes, which directly affect both local officials' political future and current interests. Local steel mills have a massive contribution in that sense. When local mills are acquired by other domestic steelmakers, local officials lose both of the mills. Arcelor's local governments approved the acquisition at the end of the day, when they got Mittal's guarantee on the issues they cared. But in China, there is no guarantee. Characteristics of the two steelmakers' shareholders: Arcelor is a listed company and its stockholders are widely spread. The most important thing that most stockholders just care about is their returns on investment. Therefore, when Euro 28.38 billion was put forward by Mittal, Arcelor's stockholders felt satisfied and agreed to sell their stocks to Mittal. In China, major shareholders in most of the big steel mills are local governments due to historical reasons. Their priorities are a bit different compared to ordinary stockholders'. Interests of goal enterprises' top managing team Mittal finally decreased its share acquisition from Arcelor to 43 percent from the previously planned 73 percent, and agreed to occupy only 4 of the 7 chairs of the board of directors. Moreover, Mittal agreed with the appointment of the first CEO by Arcelor. All of these concessions satisfied Arcelor's top management team and shareholders. But in China, it is nearly impossible for Baosteel to do so. The top managers of state-owned enterprises are in fact just the employees of the company or the country. In a company, taking a higher position means higher salary and more material benefits. Baosteel's top leaders cannot make free decisions like Mittal's. Therefore, any targeted enterprises' top management team would not want to be taken over. It is known that Baosteel signed strategical cooperation agreement with Magang several months ago. Although this was approved by the central government, Magang's chairman of board refused to attend the signing ceremony. Instead, only the general manager attended and signed the agreement. And, there are some other differences between the merger actions of Mittal and Baosteel such as intense public relations work. Mittal widely and successfully contacted with many big men of all related fields in Europe, especially in France. In fact, such important people contributed great to Mittal's success. Baosteel's public relations work is far lagged behind Mittal's, because there is no drive for Baosteel's leaders to do so. After all, the company is state's property, not company leaders'-not to mention that there are many difficulties waiting ahead. China is a booming market. It is also a market with particularities. To some degree, such particularities have been promoting economy's rapid development, but sometimes they also hold back economy's further development.