British Steel - Dutch Royal Hoogovens Merger: An Anglo-Dutch Marriage not Working Out?
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Case Details:
Case Code : BSTR144
Case Length : 20 Pages
Period : 1999-2004
Organization : British Steel
Pub Date : 2005
Teaching Note : Available
Countries : UK, Netherlands
Industry : Steel
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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.
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The European Steel Industry
The European steel industry has been undergoing a major restructuring since the 1980s. In 1980, the five largest steel companies in Europe accounted for 30 percent of steel production in the European Union.
In the late 1990s the top five accounted for more than 60 percent.
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To fight recession and overcome the fear of being wiped out, European steel industry went through a number of mergers and acquisitions and soon the market was dominated by a handful of giants, who were much bigger than their American rivals in terms of productivity and market capitalization. The region's steel employment, meanwhile, had shrunk radically from 800,000 workers in 1980 to fewer than 280,000 in 1999. However, overproduction, stagnating demand (Refer to Exhibit I) and falling prices (Refer to Exhibit II) affected the European steel industry adversely. At the start of 1998, one ton of hot-rolled coil steel had sold for $324 in Europe, but as of 2002 manufacturers were hard pressed to get $230 for the same - a price drop of 29%.
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A number of factors, including the Southeast Asian crisis6 in the late 1990s and restrictive trade policies of the US (Refer to Exhibit III for details), impacted the European steel industry negatively.
In 1998, for the first time, the European Union had a negative trade balance in
steel products with the rest of the world.
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This was a direct effect of the economic slump in Asia and a substantial decrease in demand from many countries that had developed significant steel capacity. The situation in Europe was one of too many mills producing too much steel.
Additionally, the big, integrated steel makers faced fierce competition from minimills that used scrap metal in their electric arc furnace to produce more economically.
Moreover, customers started demanding harder bargains and big automobile companies like DaimlerChrysler and General Motors, ensured rock-bottom prices through multi-year steel contracts and future tradings... |
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