ArcelorMittal (NYSE:MT) has received clearance from the European Commission for its proposed acquisition of ATIC Services Group. France-based ATIC provides seaport terminal services for iron ore and coal imports in some areas of the European Union; ArcelorMittal received clearance for the acquisition as the Commission determined that the company wouldn’t be able to enforce anti-competitive measures over the imports of other steel manufacturers in the region.  The move further strengthens the company’s strategy of backward integration, with an aim to optimize profitability and brace for potential price fluctuations. ArcelorMittal, the world’s largest steel manufacturing company, was formed in 2006 by the merger of two steel giants Arcelor and Mittal. The company competes with other international steel manufacturing companies like BaoSteel, POSCO (NYSE:PKX), Nippon Steel, Tata Steel and U.S. Steel (NYSE:X).
Our price estimate for ArcelorMittal is at $22, which is approximately 15 percent ahead of the current market price.
Vertical integration to improve profits
The steel giant has been battling rising input costs for manufacturing and shipping steel amid the European debt crisis. It has added various iron ore and coal deposits to its portfolio, in a move to brace for further commodity cost rises going forward. The approval for the ATIC acquisition now gives the company an opportunity to expand its business into freight services, which it can manage accordingly to suit the production from its various steel mills scattered across Europe.
ArcelorMittal has been moving aggressively to maintain profitability by managing the production levels at its various steel producing units as well as increasing its presence in the raw material business. The integration of freight services also gives it an edge over other competitors like U.S. Steel, which are being weighed down by the debt crisis and a lack of exposure to emerging markets.Notes: