1. DO YOU THINK THE BAOSTEEL GROUP SHOULD CONSOLIDATE ALL OF THE GROUP’S ASSETS INTO A SINGLE PUBLICLY-LISTED COMPANY OR REMAIN A TWO-TIERED STRUCTURE?
To be able to argue whether the Baosteel Group should consolidate the entire Group’s assets into a single publicly-listed company or remain a two-tiered structure one first needs to review the underlying situation, Baosteel was faced with.
In order to stay competitive on the increasingly fierce global steel market Baosteel was required to not only advance in technology but also to increase its output. To reach its aggressive targets, Baosteel continued its quest for domestic acquisitions. In 2008 Baosteel set up a new company which was ...view middle of the document...
As the project might not be benefical right from the beginning it would affect the balance sheet of Baoshan and additionally to handle it under the group would be easier than having to respond to the regulations for listed companies.
The second issue which rose upon this project was the growing potential for competition among the Group’s various steel companies. By acquiring these companies Baosteel owns controlling interests in four listed steel companies. As Baosteel is the controlling shareholder in each of these listed companies, Baosteel is required to respect the interests of minority shareholders in each of these entities. Due to the concept of a modern company, listed on a stock exchange, all interests of every single shareholder is important and should be taken into account. But as the different entities are likely to compete with each other it seems to be an impossible task to satisfy the interests of all investors.
A way to solve this dilemma of honoring the opposing interests of the investors of each entity would be to consolidate all of the Group’s steel assets into a single publicly-listed company. The rising question is whether Baosteel should take this consideration into account. Therefore the advantages of both operational forms, the single publicly listed company and the two-tiered structure, shall be analyzed in the following. (see image 1)
By consolidating all the group’s steel assets into a single publicly-listed company Baosteel could remove the problem of competition and realize a potential of synergistic effects. Thereby Baosteel would be able to cater for the needs of all the Shareholders. The different entities wouldn’t compete anymore and thus the performance of the company as a whole would be decisive for the shareholders. Baosteel would no longer be in the dilemma of having to decide in which entity they should invest and thereby meet the needs of these shareholders whereas neglecting the interests of the other subsidiaries’ shareholders. Additionally the Management of the company would be facilitated and Baosteel could adopt international management processes for all the entities. Besides these tremendous advantages Baosteel would be able to allocate the assets more efficiently and reach a better market coverage and an improved utilization of financial and human resources.
Besides the advantages, the consolidation of the group’s assets inherits also a number of problems. As the different subsidiaries due show differences in management, systems and culture it seems to be a tough job to find common grounds to establish a single company. Besides managerial problems the consolidation would also raise issues concerning status and “face”. If the company Bayi for instance would be merged with Baoshan it would have been degraded from being independent to a grandson of the Baosteel Group. As hierarchy is still an important concept deeply enshrined in Chinese culture this might be problematic and have adverse effects on...