Baoshan Iron & Steel Co Ltd: Crafting a three-way cross-border, cross-shareholding alliance

Résumé du document

Baosteel is the most modern and profitable steel maker in China. The Chinese giant is, however, in a critical situation: From one side, Baosteel is facing a need for capital to achieve its projects. From the other, the Chinese market became more attractive since China's entry to WTO because China lowered its tariffs and eased import regulations (especially in high-quality products) making the competition harder. This threat is growing considering the transnational announced alliances which would create the two biggest steel making groups. So Baosteel, approached POSCO and NSC for a three-way cross border, cross-shareholding alliance to satisfy its need for capital and thwart the threat of competition by securing its market share, sharing the risks and achieving cost-savings.

Extraits

[...] Are there risks to the shareholders of the company? What? First of all, this alliance will permit to both POSCO and NSC to access to Chinese market witch is very important because of the level of consumption. The Chinese market began more attractive since China's entry to WTO because China lowered its tariffs and eased import regulations. It will able them to be more competitive beyond the Asian market, so they can face European an US steelmakers. For POSCO, having Baosteel as a partner is a sort of insurance because foreign investors (witch represent 49% of total shareholding) appetite for POSCO might decline if Baosteel became listed on a foreign stock market (so they can secure them on making a partnership with Baosteel). [...]

[...] I think a three-way merger will be a very good consolidation and the best way to face the situation of such fragmented market in such circumstances because the alliances announced in Europe and in Asia will result on the two biggest groups. These groups will probably gain in terms of bargaining power witch is one of the most important key factor of success in the steel market. This will make the situation more complex for each Baosteel, POSCO and NSC. The problem is that a three-way merger will face the same problem as the three-way alliance faced. This obstacle consists on the fact that Baosteel is not listed in any foreign stock exchange except on the Shanghai Stock Exchange. [...]

[...] And last but not least, this alliance will also be the best way to fulfil the local demand and the answer to its breach in terms of high-grade raw materials What are the possible alternatives to this cross-shareholding alliance that Baosteel should have considered? Evaluate each alternative in terms of its pros and cons. Baosteel should have considered two other alternatives to this cross- shareholding alliance: A Joint Venture and an R&D alliance. Let's try to compare these two possibilities. [...]

[...] Baoshan Iron & Steel Co., Ltd.: Crafting a three-way Cross-Border, Cross-Shareholding Alliance 1. What is the strategic position of Baosteel? What are its motives for negotiating a three-way cross-border, cross-shareholding agreement? Baosteel is the most modern and profitable steel maker in China. The Chinese giant is, however, in a critical situation: From one hand, Baosteel is facing a need of capital to achieve its projects. From the other hand, the Chinese market began more attractive since China's entry to WTO because China lowered its tariffs and eased import regulations (especially in high- quality products) making the competition harder and harder. [...]

[...] Will they continue their cooperation or will they become competitors again. This kind of relationships of being partners and competitors at the same time can unlock to a very conflicted situation. There are also risks to the shareholders of the company witch consists on the fact that from the shareholders point of view the risks are bigger with a three companies alliance than in one company. They have to face the risks of three companies, three managements and of three markets. [...]