Usinor, Arbed and Aceralia merger raises employment concerns
The merger of the steel firms, Usinor (France), Arbed (Luxembourg) and Aceralia (Spain) to form Newco was announced in February 2001. The employment effects of the merger will vary from country to country, with trade unions fearing job losses in France and Spain and Belgium's Wallonia region, where the announcement has caused particular concern.
Until recently, company mergers in the steel industry had generally involved firms from the same country. However, following on from the 1999 merger of the UK-owned British Steel and Dutch-owned Hoogovens merger, which gave rise to Corus (UK9908125F), on 19 February 2001 the chief executives of the French-owned Usinor (Francis Mer), the Luxembourg-owned Arbed (Joseph Kinsch) and the Spanish-owned Aceralia (José Ramón Álvarez Rendueles) officially announced their intention to merge the three groups. Arbed already holds 35% of the capital of Aceralia, which in return holds 9.4% of the capital of Arbed.
The new entity, provisionally called Newco, will become the largest steel producer in the world (by a long way) with an annual production of 44.4 million tonnes of crude steel. An era of transnational mergers in the steel industry would appear to be in prospect - other examples include an alliance between Kawasaki Steel (Japan) and AK Steel (USA), and talks between NKK (Japan) and Thyssen Krupp Stahl (Germany). However, Newco, as the largest producer, will represent only around 5% of world steel production, which is a very low percentage in comparison to a number of other industrial and service sectors where the level of global concentration is markedly higher.
The benefits of the merger
At their press conference in February, the three chief executives highlighted a number of benefits justifying the merger.
With regard to the shareholders, these benefits are:
- creation of value linked to reductions in costs and investments;
- optimisation of the portfolio of industrial assets;
- coherence and growth in the product range and in marketing in Europe;
- opportunities for development outside Europe;
- synergies in research and development; and
- greater visibility on financial markets.
In terms of industrial policy, Newco will implement a series of synergies generating appreciable cost reductions: EUR 300 million as of 2003 and EUR 700 million per year as of the end of 2006 (ie cost reductions of EUR 420 million in flat steel, EUR 180 million in purchases and EUR 100 million in stainless steel and general costs). More specifically:
- in flat carbon steel, synergies will be achieved by distributing production among the "upstream" sites (hot production, which involves blast furnaces, electrical steel works and hot rolling mills) and the restructuring of "downstream" sites (cold rolling mills and coating) in order to get closer to customers (in the automobile, building, packaging and domestic appliances sectors); and
- in stainless steels, the organisation of the hot phase will be revised in order to concentrate production in Carlam (Charleroi), while the cold rolling mills will better satisfy customer requirements.
Savings in investments are estimated to amount to more than EUR 350 million for the period 2002-5.
Through the merger, Newco will occupy a position as world leader in flat carbon steels and stainless steel, and the European leader in long steels.
Operation of the merger
The merger operation consists of a triple public exchange of shares, which significantly enhances the value of the Arbed and Aceralia shares. This involves the exchange of:
- seven Aceralia shares for eight Newco shares;
- one Arbed share for 10 Newco shares; and
- one Usinor share for one Newco share.
Usinor will thus hold 56.5% of Newco, compared with 23.4% for Arbed and 20.1% for Aceralia. The Newco board of directors will consist of 15 members (including three trade union representatives), and will be co-chaired by Mr Kinsch and Mr Mer. Newco's registered office will be in Luxembourg. The merger will become effective towards the end of 2001, once the approval of the European Commission has been obtained.
The Newco merger application will in be presented to the Commission, by the three groups jointly, at the end of May 2001 (instead of the end of March), with the delay in particular to allow transfers or divestments to be made by the three partners to avoid a Commission veto on competition grounds (through the abuse of a dominant position). This means that the merger is not devoid of industrial and social consequences.
Consequences of the merger
The impact of the merger will vary according to the country concerned. Essentially, the main effect of the merger will initially be in Belgium (in fact in Wallonia) and to a lesser degree in France. In Luxembourg, an agreement between Arbed management, the trade union organisations and the main shareholder (the Luxembourg state) practically guarantees the preservation of facilities and jobs.
In Spain, the unions fear that there will be restructuring and job losses, but up until now there have been no movements on the industrial relations front. In France too, the unions have displayed anxiety. There are fears of job losses in the north and in Lorraine, and for the Usinor stainless steel production sites there is a risk of production transfers from Creusot and L'Ardoise to Fafer and Carlam.
The situation in Belgium differs from the other countries: the investment plans of Sidmar (Arbed) and the stainless steel capacity expansion of ALZ (Arbed) have been confirmed. On the other hand, it is in Wallonia (at Usinor's Cockerill Sambre operation in Charleroi) where the consequences of the merger are the most immediate: the liquid phase operation (1,500 jobs) is threatened, while there is uncertainty in the stainless steel Fafer-Industeel operation, as its future is linked to investments that were still unconfirmed when the merger was announced on 19 February.
Belgian trade unions have reacted vigorously to the merger. These unions are:
- representing blue-collar workers, Centrale du Métal/Centrale van de Metaalbewerkers and Centrale Chrétienne des Métallurgistes de Belgique/Christelijke Centrale der Metaalbewerkers van België, the metalworkers' unions affiliated to the Belgian General Federation of Labour (Fédération Générale du Travail de Belgique/Algemeen Belgisch Vakverbond, FGTB/ABVV) and the Confederation of Christian Trade Unions (Confédération des Syndicats Chrétiens/Algemeen Christelijk Vakverbond, CSC/ACV) respectively; and
- representing white-collar workers, the FGTB/ABVV-affiliated Belgian Union of White-Collar Staff, Technicians and Managers (Syndicat des Employés, Techniciens et Cadres de Belgique/Bedienden, Technicien Kaders van België, SETCa/BBTK) and the CSC-ACV-affiliated National Federation of White-Collar Workers (Centrale Nationale des Employés/Landelijke Bedienden Centrale, CNE/LBC).
The unions reacted essentially for two reasons: what they saw as the provocative attitude of Mr Mer, the Usinor chief executive, in publicly announcing the merger and its impact without having informed them of it; and the non-respect of commitments given by Usinor for Charleroi during the Cockerill Sambre takeover in October 1998 (BE9812158N) - ie the preservation of the liquid phase until 2006 (the date by which the blast furnace should be reconstructed), substantial investments in Fafer, and the creation of a hydroforming unit in Hainaut.
Several 24-hour strikes, demonstrations and a meeting in mid-March with Mr Mer have only clarified the intentions of Newco: to part with the hot production facilities in Charleroi, which are no longer needed by the group (except that of the electrical steel unit). Previously, when announcing Usinor's excellent consolidated results for 2000 (a profit of EUR 759 million), Mr Mer had emphasised the poor results of Fafer and mentioned its restructuring (with the loss of a hundred jobs).
More generally, in order to arrive at a solution for the blast furnace at Charleroi and to consider the future of steel-making in Wallonia, the Minister of Economics of the Walloon region, Serge Kubla, convened a first "round table on Walloon steel", attended by the regional public authorities and their industrial investment subsidiary, Sogepa, representatives of trade unions and of Usinor and Duferco (an Italian-Swiss group which took majority control - in association with the Walloon regional authorities which hold 25% of the capital - of the Clabecq and La Louvière steel plants, enabling them to avoid closure - BE9707109F and BE9903169N).
The initial meeting led to a second on 27 March, at which working groups announced their first conclusions. These are oriented towards creating a threefold cooperative (Duferco, Usinor-Cockerill Sambre and the Walloon regional authorities) for the acquisition of the blast furnace at Charleroi, the financial conditions of which remain to be settled. The corollary will be that the blast furnace at Duferco-Clabecq (where 450 jobs are threatened) will be closed and there will be transfers of workers to La Louvière and Charleroi. Duferco envisages various steel-related activities on the Clabecq site (an oxycutting unit, scrap stock and site cleaning) to preserve as many jobs as possible there. In addition, Usinor has confirmed the investment in an Argon Oxygen Decarburisation (AOD) system which will improve and increase stainless steel production at Fafer. It can be assumed that an agreement on these various points will be concluded in the near future. It nevertheless remains the case that the creation of Newco will raise questions, in particular regarding the future of steel-making in Wallonia.
The creation of Newco raises a number of concerns in Wallonia:
- the apparently provocative attitude of Mr Mer, the Usinor chief executive, giving the impression of treating the trade unions as a negligible quantity. He seemed to resume normal social dialogue only in the face of movements of discontent;
- Usinor, initially, seemed to give little weight to the agreements it concluded in 1998 with the Walloon region at the time of the Cockerill Sambre takeover (see "Cockerill Sambre under the control of Usinor", Michel Capron, La Revue Nouvelle, November 1998), before partly returning to them;
- the Walloon regional authorities have no weight within Newco at present - at best it could hope to exchange its 25% share in Cockerill Sambre against some 2%-3% of the capital of Newco;
- in order to take over the blast furnace in Charleroi that it is interested in (until 2006, but questions remain thereafter), Duferco is dismantling the Clabecq site where no more than a single rolling mill will remain (with questions as to how long for);
- the Carlam stainless steel centre in Charleroi has apparently been confirmed, but the realisation of promised investments is still awaited;
- the steel industry in Liège has been saved for now thanks to its cold steel production (coated steel and welded blanks). It is, however, probable that Newco (under European pressure in particular) will have to reduce production and thus close (or transfer) downstream facilities. In this case, Cockerill Sambre-Liège could come into competition with Sidmar, and not necessarily to its benefit;
- in order to avoid having to suffer all the initiatives that Newco could take, the trade unions must organise themselves at the European level in order to define common objectives and a common strategy. The fact of the Luxembourg unions going it alone (see above) does not bode well for such a European strategy;
- the environmental question is raised - what has become of the determination of Duferco and Usinor to invest in cleaning up industrial wastelands?
- like all process industries, steel-making will apply technological innovations aimed at rendering the production process more compact and more flexible, thereby enabling the managers of large groups such as Newco (and their large shareholders, in particular the pension funds) to increase profitability to the detriment of employment; and
- finally, in view of the current low level of concentration in the sector, other alliances and mergers on a global level can be expected in the next few months.
(Michel Capron, FOPES-UCL)