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Theoretical and Applied Economics
No. 3 / 2019 (620), Autumn

Challenging the status quo: Steel producer case study on the enterprise value for M&A

Mădălina Viorica MANU
The Bucharest University of Economic Studies, Romania
Ilie VASILE
The Bucharest University of Economic Studies, Romania

Abstract. The purpose of this paper is to analyze the enterprise value determinants, in order to help the interested parties make correct (investment) decisions by studying industry cases of mergers and acquisitions (M&A). In order to understand and identify value-adding opportunities for the companies, the paper investigates a divestiture within a major international steel group. The research questions refer to the understanding the relation between the enterprise value and market capitalization of the selected companies acting in the steelmaking field, including other factors such as the revenue, EBITDA, EPS or ownership structure. In order to understand how the enterprise value is determined, I have analyzed relevant theories, including Tobin’s Quotient (q) for a company/ aggregate corporations, for the study of the relation between the market value and its replacement value. If used empirically, Tobin’s q helps avoid issues of estimating shareholders’ risk-adjusted required return by the market prices. Besides using the graphical visualization of the share price, I have used the datasets available for several years on the value of several mature steel producing companies, market capitalization and other indicators. The methodology also includes Market Comparable method and own spreadsheet calculations. After analyzing the evolution of the share price for the global steelmaking leader (ArcelorMittal), between 2009 and 2018, I have not identified any growth potential; the market value of ArcelorMittal is a proxy for the market value of its assets.

Keywords: enterprise value; market value; book value; EBITDA; Tobin’s q; capitalization.

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