Steel Giants Mittal and Arcelor Adopt a Highly Disciplined Approach to Postclosing Integration

Key Points

Successful integration requires clearly defined objectives, a clear implementation schedule, ongoing and candid communication, and involvement by senior management.
Cultural integration often is an ongoing activity.
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The merger of Arcelor and Mittal into ArcelorMittal 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% of global output, the behemoth has 320,000 employees 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, 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.

ArcelorMittal’s top management set three driving objectives before undertaking the postmerger integration effort: achieve rapid integration, manage daily operations effectively, and 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.

The formal phase of the integration effort was to be completed in six months. It was crucial to agree on the role of the management integration team (MIT); the 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 task forces came from the 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.

Considerable effort was spent on 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, ArcelorMittal, was launched in a meeting attended by 500 of the firm’s top managers during the spring of 2007.

External communication was conducted in several ways. Immediately following the 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 ArcelorMittal message to the communities through the press. In March 2007, the new firm held a media day in Brussels. Journalists were invited to go to the different businesses and review the progress themselves.

Within the first three months following the 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.

ArcelorMittal’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.

ArcelorMittal 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 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, 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 2008, the combined firms had realized their goal of annualized cost savings of $1.6 billion, six months earlier than expected.

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. ArcelorMittal management viewed this diversity as an advantage in that it provided an opportunity to learn new ideas.
-Comment on ArcelorMittal management's belief that the cultural diversity within the combined firms was an advantage. Be specific.

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