The Challenges of Integrating Steel Giants Arcelor and Mittal:-

Realizing Projected Financial Returns Due Diligence Data Revalidation: Verify Assumptions
The Impact of Employee Turnover Performance Benchmarking
Acquisition-Related Customer Attrition Integrating Manufacturing Operations
Rapid Integration Does Not Mean Doing Everything at the Same Pace Integrating Information Technology
Viewing Integration as a Process Integrating Finance
Integration Planning Integrating Mechanisms
Postmerger Integration Organization: Put in Place before Closing Robert Porter Lynch suggests six integration mechanisms to apply to
Postmerger Integration Organization: Composition and Responsibilities business alliances:
Institutionalizing the Integration Process (1) Leadership, (2) teamwork and role clarification, (3) control by
Developing Communication Plans: Talking to Key Stakeholders coordination, (4) policies and values, (5) consensus decision
Customers: Under commit and Over deliver making, and (6) resource commitments.

The merger of Arcelor and Mittal into Arcelor Mittal in June 2006 resulted in the creation of the world’s largest steel company. With 2007 revenues of $105 billion and its steel
production accounting for about 10 percent of global output, the behemoth has 320,000employees in 60 countries, and it is a global leader in all its target markets. Arcelor was
a product of three European steel companies (Arbed, Aceralia, and Usinor). Similarly, Mittal resulted from a series of international acquisitions. The two firms’ downstream
(raw material) and upstream (distribution) operations proved to be highly complementary, with Mittal owning much of its iron ore and coal reserves and Arcelor having
extensive distribution and service center operations. Like most mergers, Arcelor-Mittal faced the challenge of integrating management teams; sales, marketing, and product
functions; production facilities; and purchasing operations. Unlike many mergers involving direct competitors, a relatively small portion of cost savings would come from
eliminating duplicate functions and operations. This case study relies upon information provided in an interview with Jerome Ganboulan (formerly of Arcelor) and William A.
Scotting (formerly of Mittal), the two executives charged with directing the postmerger integration effort.1 The focus in the case study is on the formation of the integration
team, the importance of communications, and the realization of anticipated synergies.
Top Management Sets Expectations
Arcelor Mittal’s top management set three driving objectives before undertaking the postmerger integration effort: (1) achieve rapid integration, (2) manage daily operations
effectively, and (3) accelerate revenue and profit growth. The third objective was viewed as the primary motivation for the merger. The goal was to combine what were viewed
as entities having highly complementary assets and skills. This goal was quite different from the way Mittal had grown historically, which was a result of acquisitions of
turnaround targets focused on cost and productivity improvements.
Developing the Integration Team
The formal phase of the integration effort was to be completed in six months. Consequently, it was crucial to agree on the role of the management integration team (MIT); key
aspects of the integration process, such as how decisions would be made; and the roles and responsibilities of team members. Activities were undertaken in parallel rather than
sequentially. Teams consisted of employees from the two firms. People leading taskforces came from the business units. For example, commercial integration issues were
resolved by the commercial business units. The teams were then asked to propose a draft organization to the MIT, including the profiles of the people who were to become
senior managers. Once the senior managers were selected, they were to build their own teams to identify the synergies and create action plans for realizing the synergies.
Teams were formed before the organization was announced and implementation of certain actions began before detailed plans had been developed fully. Progress to plan was
monitored on a weekly basis, enabling the MIT to identify obstacles facing the 25 decentralized task forces and, when necessary, resolve issues.
Developing Communication Plans
Considerable effort was spent in getting line managers involved in the planning process and selling the merger to their respective operating teams. Initial communication efforts
included the launch of a top-management “road show.” The new company also established a website and introduced Web TV. Senior executives reported two- to three-minute
interviews on various topics, giving everyone with access to a personal computer the ability to watch the interviews onscreen. Owing to the employee duress resulting from the
merger, uncertainty was high, as employees with both firms wondered how the merger would affect them. To address employee concerns, managers were given a well-
structured message about the significance of the merger and the direction of the new company. Furthermore, the new brand, Arcelor Mittal, was launched in a meeting attended
by 500 of the firm’s top managers during the spring of 2007. This meeting marked the end of the formal integration process. Finally, all communication of information
disseminated throughout the organization was focused rather than of a general nature. External communication was conducted in several ways. Immediately following closing,
senior managers traveled to all the major cities and sites of operations, talking to local management and employees in these sites. Typically, media interviews were also
conducted around these visits, providing an opportunity to convey the Arcelor Mittal message to the communities through the press. In March 2007, the new firm held a media
day in Brussels, which involved presentations on the status of the merger. Journalists were invited to go to the different businesses and review the progress themselves. Within
the first three months following closing; customers were informed about the advantages of the merger for them, such as enhanced R&D capabilities and wider global coverage.
The sales forces of the two organizations were charged with the task of creating a single “face” to the market.
Creating a New Organization
Arecelor Mittal’s management viewed the merger as an opportunity to conduct interviews and surveys with employees to gain an understanding of their views about the two
companies. Employees were asked about the combined firm’s strengths and weaknesses and how the new firm should present itself to its various stakeholder groups. This
process resulted in a complete rebranding of the combined firms.
Achieving Operational and Functional Integration
Arcelor Mittal management set a target for annual cost savings of $1.6 billion, based on experience with earlier acquisitions. The role of the task forces was first to validate this
number from the bottom up then to tell the MIT how the synergies would be achieved. As the merger progressed, it was necessary to get the business units to assume
ownership of the process to formulate the initiatives, timetables, and key performance indicators that could be used to track performance against objectives. In some cases, the
synergy potential was larger than anticipated while smaller in other situations. The expectation was that the synergy could be realized by mid-2009. The integration objectives
were included in the 2007 annual budget plan. As of the end of 2007, the combined firms were on track to realize their goal with annualized cost savings running $1.4 billion.
Concluding Formal Integration Activities
The integration was deemed complete when the new organization, the brand, the “one face to the customer” requirement, and the synergies were finalized. This occurred within
eight months of the closing. However, integration would continue for some time to achieve cultural integration. Cultural differences within the two firms are significant. In
effect, neither company was homogeneous from a cultural perspective. Arcelor Mittal management viewed this diversity as an advantage, in that it provided an opportunity to
learn new ideas.
Things to Remember
Postclosing integration is a critical phase of the M&A process. Integration itself can be viewed in terms of a process consisting of six activities: integration planning,
developing communication plans, creating a new organization, developing staffing plans, functional integration, and integrating corporate cultures. Both communication and
cultural integration extend beyond what normally is considered the conclusion of the integration period. Combining companies must be done quickly (i.e., 6–12 months) to
achieve proper staffing levels, eliminate redundant assets, and generate the financial returns expected by shareholders. Delay contributes to employee anxiety and accelerates
the loss of key talent and managers; delay also contributes to the deterioration of employee morale among those that remain. The loss of key talent and managers often is
viewed as the greatest risk associated with the integration phase. Nevertheless, although speed is important to realize cost savings and retain key employees, highly complex
operations must be integrated in a more deliberate and systematic fashion to minimize long-term problems. Successfully integrated M&As are those that demonstrate
leadership by candidly and continuously communicating a clear vision, a set of values, and clear priorities to all employees. Successful integration efforts are those that are well
planned, appoint an integration manager and a team with clearly defined lines of authority, and make the tough decisions early in the process. These decisions include
organizational structure, reporting relationships, spans of control, people selection, roles and responsibilities, and workforce reduction. During integration, the focus should be
on those issues having the greatest near-term impact. Unlike M&As, the integration of business alliances tends to be phased. Resources are contributed at the outset to enable
the formation of the alliance. Subsequent resource contributions are subject to a lengthy negotiation process in which the partners are trying to get the most favorable terms.
Because alliances involve shared control, the integration process requires good working relationships with the other participants. Successful integration also requires leadership
capable of defining a clear sense of direction and well-defined priorities and managers who accomplish their objectives as much by coordinating activities through effective
communication as by unilateral decision making. Like M&As, cross-functional teams are used widely to achieve integration. Finally, the successful integration of business
alliances, as well as M&As, demands that the necessary resources, in terms of the best people, the appropriate skills, and sufficient capital, be committed to the process.