The merger of Arcelor and Mittal into ArcelorMittal in June 2006 resulted in the creation of the world’s largest steel company. With 2007 revenue of $105 billion and its steel production accounting for about 10 percent of global output, the behemoth has 320,000 employees in 60 contries, and it is a global leader in all of its target markets.
Arcelor was a product of three European steel companies (Arbed, Aceralia, and Usinor). In contrast, Mittal resulted from a series of international acquisitions. Despite being competitors, the two firms exhibited little overlap in terms of their operations. However, their attributes proved to be highly complementary with Mittal owning much of its raw materials such as iron ore and coal and Arcelor having extensive distribution and service center operations. Like most mergers, ArcelorMittal 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.
Top Management Sets Expectations
ArcelorMittal top management set three driving objectives before undertaking the postmerger integration effort. These included the following: (1) achieve rapid integration; (2) manage effectively daily operations; 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 from the two firms were identified. The teams were then asked to submit a draft organization to the MIT. The profiles of the people who would occupy the senior positions were defined and selection committees established. Once the senior managers were selected, they were to build their own teams to identify the synergies and to 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 was monitored to plan on a weekly basis, enabling the MIT to identify obstacles facing the 25 decentralized task forces and, when necessary, to resolve issues.
The integration team leader was selected based on their demonstrated ability to be collaborative and process-oriented, enabling them to manage the weekly reviews and to resolve issues as they arose. The leader would also have to be sensitive to cultural differences in order to be able to get people to work together. Finally, the team leader would have to be someone who had the confidence of the CEO and other top managers.
Developing Communication Plans
Considerable effort was spent in getting line managers involved in the planning process and to sell the merger to their respective operating teams. Initial communication efforts included the launch of a top-mangement “road-show.” The new company also established a Web site and introduced Web TV. Senior executives provided 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 impact 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, ArcelorMittal, was launched at 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 (i.e., the road show) talking to local management and employees at these locations. Typicallly, media interviews also were conducted around these visits, providing an opportunity to convey the ArcelorMittal 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 folowing 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.
Achieving Operational and Functional Integration
ArcelorMittal management set a target for annual cost savings of $1.6 billion annually, based on their experience with earlier acquisitions. The role of the task forces was first to validate this number from the bottom up and 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, 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. Cultrural differences within the two firms are significant. In effect, neither company was homogeneious from a cultural perspective. ArcelorMittal management viewed this diverity as an advantage, since it provided an opportunity to learn new ideas.
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. See Jan De Mdedt and Michel Van Hoey, “Integrating Steel Giants: An Interview with the Arcelor Mittal Post-Merger Managers,” Mckinsey Quarterly, Februrary, 2008.