The new company is expected to increase the sales of flat products to 15 billion euros. It is also expected that long products would provide 4 billion euros, while 5 billion euros would come from stainless steel. In addition, the company expects to earn 6 billion euros from various trading and distribution services. The new company will have a strong 110,000 workforce.

The merger plan opens up new issues: One, it is being seen as a process of consolidation of the global steel industry that is currently being viewed as too fragmented. The top ten steel makers in the world, after the rounds of mergers in the recent past, control a little over 25 per cent of the global steel production, while the corresponding figure of the automobiles sector is close to 95 per cent. Consolidation of business would reduce competition, improve profitability and help rationalisation of investment and capacity.

Two, such mega mergers, across industries, can be seen as consolidation of the steel industry in the developed world to take on the stiff challenge posed by the new steel makers in the developing countries and to make ground for their own survival.

It is also an attempt to get back to the days when the steel cartels in Europe and Japan determined the world price. Those cartels are broken now and the global market is too large and transparent to allow anyone to enter into any pricing arrangement, which is now seen as anti-law.

Three, an important factor that might have triggered off the recent round of consolidation through mergers and acquisitions is that the steel makers have by now more than realised that the steel crisis will remain a permanent feature in so long as supply is not restrained.

Supply cannot be expected to drop as long as there are new investments and competition for a bigger market share. Therefore, it may make sense for some competing companies to come to terms to pre-empt possible expansion programmes, re-arrange the market to suit them, liquidate inefficient production facilities and throw out the surplus workers.

It is a common knowledge that there is no short cut to solve the problems faced by major steel companies. And, no radical measure is possible within the existing framework due to a variety of financial, social and political problems. It may not be possible for a company to shut some facilities and retrench workers. But, the same can be done easily in the name of restructuring, consolidation or merger under the banner of a new company.

Four, the steel companies are aware that the worldwide excess capacity is being maintained either with the support of steady flow of finances from banks or private investors or by the protective actions of the respective governments. But, as banks become tough and the governments, under obligations to the World Trade Organisation, are forced to reduce the level of protection, the steel companies that have survived so far will be in trouble.

The reduced investor confidence in the industry will not perhaps lead to the larger inflow of funds to this sector. This will make the money market extremely competitive for the steel industry worldwide. Only the good performers and the rich ones will get money for further growth.

A global behemoth would certainly be a better placed one. It is also a fact that the process of business revamping, through mergers and acquisition, may itself be a ground for restructuring the financial assets of the companies, where banks or the governments ultimately, write off some loans, reschedule the same or even reduce their stakes at low compensation. Bad markets are the best time for initiating such moves especially to get the maximum benefits out of it.

For the steel industry in the European Union, consolidation has been on for quite some time now. Only recently, Corus was formed after the merger of British Steel of the UK and Hoogovens of the Netherlands. The combined output of Corus stood at over 21 million tonne in 1999. Earlier, Arbed had grown larger through a series of acquisitions to control over 23 million tonne of crude steel capacity. Usinor has grown to a 23 million tonne capacity company and Thyssen Krupp has become a 17 million tonne plus steel maker.

There have been consolidations in Europe involving stainless steel makers as well as steel technology and equipment manufacturers. Although one of the reasons could be the integration of the cross-nation-economies within the European Union. With the region emerging as a single economic zone, the European steel makers are facing a stiff challenge from companies within and outside the region.

The Japanese consolidation has already forced them rethink on their own business strategies and one option left for them was to work together for a common survival.

Therefore, the consolidation among the major steel makers in Europe has not come as a surprise. They had to come together to reduce competition among themselves so as to face up to the global competition. As a response to this, one may expect hectic activities among the Japanese steel makers. It is unlikely that the same will be seen in the US, where the industry is more dependent on an increasingly protected home market.