The issue of mergers has been on the agenda for several years. Merger means that two firms merge by agreement and merge their operations.
This action is pursued with different goals. Some companies resort to this strategy in order to finance the case.
Company mergers are considered strategic issues that have a significant impact on the financing of portfolios.
Some groups also pursue the integration of the goal of greater investment and profitability in order to move in the direction of the set goals with an appropriate strategic action.
Of course, companies can consider several other goals of this merger.
Cost increases should be considered as one of the most important results of the merger. This goal is usually easily achieved and is sufficient for most collections.
*** Integration in the field of mining industry
Integration in the field of mining industry, especially the steel industry, is considered to the extent that there are numerous experiences of integration in this industry.
To discuss integration in the mining industry, we spoke with Keyvan Jafari Tehrani, a senior international market expert, and sought his views.
Jafari Tehrani pointed out: Competitiveness should be considered one of the advantages that results from integration.
Of course, this advantage is achieved to different degrees in horizontal and vertical integration. In the meantime, the merger will increase the financial strength of the collections and increase their chances of success.
In addition, it increases the productivity of enterprises exponentially. Read the full text of this conversation below.
*** How do you evaluate mergers in businesses, especially in the steel chain?
Business integration is important in today’s world. Accordingly, the definition of this term and the study of various methods of integration have gained special importance. Some mergers are vertical and some are horizontal.
In vertical integration, a company forms an entire chain. For example, companies such as Golgohar or Chadormelo, which operate iron ore mines, complete their production chain and move on to the final product.
But in a horizontal merger, one company buys part or all of another company’s stock.
Then a new company consisting of the two previous companies is established, which has the names of both previous collections.
So far in the world steel industry, several companies have merged, and it must be acknowledged that there is a considerable history in this regard and in the reasons for the success or failure of the merger in one set.
*** What effect does integration have on the performance of collections? Does it pave the way for their performance and success as much as possible?
Competitiveness should be considered as one of the advantages of merging. Of course, this advantage is achieved in horizontal and vertical integration to different extent, because in vertical integration, a company creates from the beginning to the end of the production chain.
Undoubtedly, this has advantages, but we must not forget that the whole collection from the beginning to the production of the final product is under the umbrella of a single group.
But because in horizontal merging different groups with different stocks are placed next to each other, a set with higher capabilities will be obtained.
As a result of horizontal mergers between companies, their financial strength will increase and their chances of success will increase. An example is ArcelorMittal.
The company, which is the largest steel giant in the world, was created by the merger of two companies, Mittal India and Arcelor, France. As a result of the merger, and especially its horizontal shape, the productivity of the collections will increase exponentially.
*** How do you evaluate the integration of steel companies in different parts of the steel chain? What effect will these mergers have on improving the performance of a steel or mineral complex?
The integration of steel companies into the various links of the metal production chain is considered a positive step overall. As a result of this integration, the activities of producers in different circles will be aligned with each other.
The roller is placed next to the manufacturer of the intermediate steel products and the producer of the intermediate product is placed next to the pellet makers.
In fact, it provides an opportunity for production growth in all circles. Undoubtedly, in such circumstances, the capacity of production complexes will be increased.
In such a situation, the productivity of the collections increases exponentially and they become more agile, because on the one hand both companies find a common target market.
On the other hand, their financial capacity increases.
For example, if a steelmaking unit is merged with a coal production unit, on the one hand, the steel needs are met and its feed is met, and on the other hand, the coal-producing unit easily sells its production product efficiently.
There are several examples of such mergers in the world that facilitate the supply of raw materials for these units.
*** What are the negative consequences of merging businesses?
Despite all the advantages mentioned for the merger, in some cases these mergers are not successful.
This failure is seen in both vertical and horizontal mergers.
For example, it has happened so far that a mining company moves towards completing the production chain, but after a while realizes that it has been more successful in its field of activity;
That is, in complementary activities, this chain does not have a brilliant performance and this failure affects the activity of the whole chain.
Accordingly, the examples of many companies in the world are not moving towards integration and are just trying to show a brilliant record.
The two BHC companies, Billiton and Rio Tinto, are still operating in Australia as two major mining giants and have not entered steelmaking.
Or we can mention the Brazilian iron ore company Vale, which still operates in its specialized field and has not entered the steel industry.
*** Brazil is the eighth largest steel producer in the world
It is necessary to pay attention to the fact that Brazil is one of the world’s leading countries in the steel industry.
It is the eighth largest steel producer in the world, producing about 34 to 35 million tons of Turkish steel.
Although well-known companies such as Gerdau operate in the country’s steel industry, no mergers have taken place so far.
Admittedly, part of the success of the country’s steel and iron ore industry can be attributed to the non-integration and focus of each of these groups on their professional activities.
Horizontal integration can also not lead to the desired result. We almost have unsuccessful examples of this. Sometimes in horizontal mergers, due to the equal shares of companies, there are challenges in managing them.
Accordingly, in horizontal mergers, it is preferable for one company to have a larger share than the other. In fact, these stocks provide the basis for differences in the leadership of the collections.
*** In what way does the integration of the steel industry lead to better results?
Based on experience, it can be said that in vertical integration, sets do not get too big. Maybe a company can make a whole chain from start to finish,
However, the managerial abilities and capacities that affect the collection place limitations.
These limitations also do not allow the growth of a collection by more than one size. But if a steel and mining company is put together in a horizontal merger, their operational capacity will be greatly increased.
However, it should be emphasized that the best type of merger is horizontal merger, in a situation where the two companies have a common field of work.
For example, merge a steel company that manufactures climbing products with another steel company that manufactures intermediate products.
*** What is the experience of integrating steel industries in the world?
As mentioned earlier, ArcelorMittal, the world’s largest steel giant, is a merger of two steel companies.
The series has gone through numerous other integrations that have paved the way for its success in performance.
In 1989, the company acquired Trinidad & Tobago Iron and Steel.
The merger of the steel giant continued rapidly, until in 1992 it bought a stake in Sibalsa in Mexico.
ArcelorMittal continued its merger activities rapidly and in 1994 acquired a stake in Ispat, a Canadian subsidiary.
In 1995, it acquired shares in the Kazakh company Karmet.
In the same year it merged with the German Hamburger Stahlwerke.
*** Horizontal integration process
This process of horizontal integration continued in 1997, when the company acquired Ispat International in New York and Amsterdam.
The integration process by this great steel giant continued in 1999, 2001, 2004, 2005, and 2020.
In addition to steel complexes, the company merged with or acquired, in some way, companies in the iron ore and coal sector.
One of the most important and successful mergers of ArcelorMittal was the acquisition of the bankrupt Indian company Essar as well as the lucrative Japanese company Nippon Steel, as it was able to acquire these two good and powerful steel complexes.
In fact, the company has become a huge steel giant thanks to the mergers.
*** Integration in the steel industry is also implemented in other countries
As the world’s largest producer and consumer of steel, China is also trying to integrate many of its steel units.
In the Chinese city of Handan, for example, it was decided to merge 17 steel units in the region and operate a total of eight steel units in the region by the end of 2020.
This integration process continues. So much so that the goal is to reduce the number of steel units in the city to 2 by 2025.
This means that only 2 large steel units will operate in Handan this year. It seems necessary to pay attention to the fact that integration provides the basis for the growth of production capacity.
Accordingly, the Handan government intends to increase its steel production capacity to 20 million tons of steel in 2025, which will be accompanied by a production growth of more than 30% compared to before the mergers.
Undoubtedly, these horizontal integrations will help the region achieve its steel goals.
In the Chinese city of Shuzhou, there is also a plan to merge steel units. This program indicates the merger of 18 steel units of this city and its transformation into 2 large steel units.
If this plan materializes, Shojo’s steel production capacity is expected to increase by about 30%.
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