Industry Analysis Case Study

Mittal’s New Move: Capacity Expansion or Vertical Integration

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Abstract:
In October 2005, Mittal Steel, the world’s largest steel company, made a bid for KryvorizhStal Steel, the largest steel company of Ukraine. In the era, when consolidation and acquisition were common practices in the industry, Mittal Steel’s new move would help it to consolidate its presence more aggressively. The acquisition was a key acquisition for Mittal Steel in Central Europe, as it provided the company with a large size low cost platform in a core and fast growing market. It also helped Mittal Steel to exercise control on the large iron ore reserves of the Ukrainian Steel major, which it planned to use in its expansion programme. In the steel industry, due to raw material shortage, the ownership of mines and long-term alliances with the raw material suppliers became a critical success factor for any company. The case study offers a scope for discussing the rationale of the acquisition in the recent global trends, the value chain of the industry and how Mittal Steel plans to leverage it. Students can also discuss how Mittal Steel can leverage the acquisition by strengthening its position in Central and Eastern Europe and areas close to China

Pedagogical Objectives:

• To discuss the trends, patterns of global steel industry and consolidation as a major strategy in fragmented steel industry globally
• To discuss acquisition of KryvorizhStal Steel, the largest steel company of Ukraine by Mittal Steel, potential synergies and problems associated with the acquisition
• To discuss how acquisitions as a growth strategy help companies to consolidate in fragmented steel industry
• To discuss the concept of ‘forward integration’ and ‘backward integration’ in steel industry
• To discuss how alliance with raw material suppliers and ownership of mines help steel companies to have better control over the value chain of the industry
• To discuss value chain of the steel industry and steel making process

Keywords : Mittal Steel; Arcelor; Kryvorizhstal steel; Industry Analysis Case Study; Consolidation; Acquisition; Vertical integration; Forward integration; Raw material; Long term alliance; Business strategy; Gazprom; Direct reduced iron; Electric arc furnace; Oil and exploration; Posco