Govenrment and Business Environment Case Study

Arcleor: The gem of Luxembourg

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Abstract:

The Luxembourg based Arbed (later it became Arcelor) was the number one steel company in Europe and the third largest in the world. Until 1974, the steel industry was the major contributor to the GDP of Luxembourg and also the major employer. In 2002, Arbed merged with Usinor (Spain) and Aceralia (France) to form Arcelor. By 2005, Arcelor became world’s number one steel company with a global turnover of €32.6 billion. The Luxembourg government was a major shareholder with 5.6% share in Arcelor.

In January 2006, Mittal Steels, world’s number two steel company, offered to buy Arcelor for €18.6 billion. Together Arcelor and Mittal were expected to account for 10% of global steel production and a market capitalization close to $40 billion. Mittal gave an assurance the he would protect European jobs and maintain the new headquarters of the combined Mittal-Arcelor in Luxembourg itself. But Mittal was criticised by Belgium, France and Luxembourg government. India and the EU criticised politicians of these countries for interfering as it was against the spirit of free competition and globalisation. The Luxembourg government was in a dilemma, should it approve the takeover?

The case highlights the importance of a company for the growth and development of a country. The case also explains the effect of a cross border merger on the foreign relations of different countries. The case highlights how the Government, being a shareholder in a company, can affect the company decisions.

Pedagogical Objectives:

• To study the importance of Steel industry in the growth and development of Luxembourg
• To study the political impact on the prospects of the Arcelor
• To study the effect of Arcelor merger on the prospects of the Luxembourg steel industry
• To discuss the role of government and extend of intervention in business and industry.

Keywords : Government and Business Environment Case Study,Arcelor, Luxembourg, Mittal Steel, Arbed, Restructuring, Iron and Steel industry, Hostile bid, Aceralia, Usinor