Mittal's $4.5b buy may trigger steel mergers

Mittal's $4.5b buy may trigger steel mergers

Stuart Wallace, Bloomnberg/London

Lakshmi Mittal's US$4.5 billion acquisition of International Steel Group Inc. may prompt a spree of deals as the steel industry consolidates to cut costs.

Indian-born Mittal, 54, started out with a steel mill in Indonesia in 1976. By April of next year, the London-based entrepreneur will have bought Wilbur Ross's ISG to create the world's biggest steelmaker and lead a company with plants in 14 nations. Mittal Steel Co. NV will turn out 40 percent more steel than Luxembourg-based Arcelor SA, currently the largest producer.

"This finally takes consolidation globally," said Lewis Johnson, an analyst at T. Rowe Price in Baltimore, which managed about $207 billion as of June 30, including International Steel shares. "What's next for companies like Arcelor, what will the Russian companies do and is consolidation in the U.S. over? I think it's not. There is much more to come here."

With assets from Algeria to Kazakhstan and from Maryland to Mexico, Mittal's company will sell steel on four continents. Its size will give it greater clout in dealing with the mining companies that supply raw materials and with carmakers and other customers that buy its products. The three biggest steelmakers control about a 10th of the market, while the top three iron-ore producers control three- quarters of theirs.

"The steel industry has been squeezed for years and years by the iron-ore industry," said Peter Fish, managing director of U.K.- based industry consultant MEPS (International) Ltd. "At the other end, it has been squeezed by the auto industry."

Ispat shares rose for a second day, adding 2.20 euros, or 9.3 percent, to 25.95 euros ($33.22) at 9:12 a.m. in Amsterdam. Corus Group Plc shares rose 3.1 percent to 50.5 pence in London. U.S. steelmakers' shares rose yesterday as investors speculated further combinations are likely. Nucor Corp. rose 3.8 percent, U.S. Steel Corp. 6.7 percent and AK Steel 8.2 percent.

Ross, who will be on the board of the enlarged company, said he met Mittal for the first time in August.

"It was love at first sight," Ross said in an interview in New York. "We found that we both thought alike about things. We're both entrepreneurial companies, so we felt there wouldn't be any culture clash."

Ross, through his leveraged buyout firm W.L. Ross & Co., founded International Steel in 2002 by buying the shuttered assets of LTV Corp. out of bankruptcy. Mittal also built his company by buying unprofitable steelmakers.

Mittal was born in the northwest Indian desert state of Rajasthan and grew up in the eastern city of Calcutta. He worked for his father's steel company while earning a degree in commerce from St. Xavier's College.

His brothers are also steelmakers, running India's Ispat Industries Ltd. Ispat means steel in sanskrit.

"It's a matter of pride that my brother now heads the biggest steel company in the world," Pramod Mittal, chairman of Ispat Industries, said in an interview. "This acquisition will help the steel industry consolidate further."

This year, Mittal, who is married with two children, bought a 70 million punds ($129 million) home close to London's Kensington Palace from Bernie Ecclestone, who co-owns the rights to Formula One. Mittal also owns The Summer Palace, his 12-bedroom home in Bishops Avenue, North London, a street commonly known as millionaires' row, where King Fahd of Saudi Arabia and the Sultan of Brunei also have residences.

The five-day wedding of Mittal's daughter in June, which included a private performance by pop star Kylie Minogue and a reception at Versailles, cost 37 million pounds, according to The Times of London. Mittal is the U.K.'s fifth-richest person, with a fortune of 3.5 billion pounds, according to The Sunday Times newspaper.

The U.K. opposition Conservative Party in February 2002 called for a probe into a 125,000-pound donation Mittal had made the year before to the governing Labor Party, which denied any wrongdoing.

Mittal, who practices yoga for about an hour each day, started to expand his LNM Group, the company that controls all his assets, in 1989, when it bought a business in Trinidad.

"I have been propagating that the steel industry should be consolidated for many years," Mittal said in an interview in New York yesterday. "Today, we are the most globalized steel corporation in the world."

Mittal mostly buys unprofitable steel plants and then invests in new facilities, boosts production and improves management. In the 1990s, he made acquisitions in Mexico, Canada, the U.S., Ireland, Germany, France and Kazakhstan.

"Mittal specializes in turning around assets that others had found difficult," said Chris Beauman, a senior adviser at the European Bank for Reconstruction and Development.

Beauman's bank lent Mittal money to buy plants in Kazakhstan and Romania. In 1997, most of the steel assets were placed under the control of Ispat International NV, based in Rotterdam, the Netherlands, and about $775 million worth of the company's shares sold in a public offering. Mittal and his family still retain a 77 percent stake in Ispat International.

Mittal placed some assets, including those in Kazakhstan, under the control of his privately held LNM Holdings NV, which is based in the Dutch Antilles. Since 2001, LNM has added assets in Romania, Algeria, South Africa, the Czech Republic and Poland.

Mittal will combine Ispat International and LNM Holdings before buying International Steel.

In Romania, he bought the state-owned Siddex steel mills with 27,000 employees. Mittal put his own managers in charge and cut the workforce to about 19,000, said Victor Ciutacu, a former adviser to the privatization minister.

"He had a strong hand in running the company. The company was in a poor financial condition," Ciutacu said. "Now things are looking much better and wages have improved."

To cut costs, Mittal uses mini-mills, or small steel mills that are more efficient than traditional blast furnaces. Many of these employ the DRI method, or direct reduced iron, to produce raw steel rather than relying on scrap metal. Ispat is now the world's largest DRI producer.

Mittal Steel will probably add more production capacity over the next several years, particularly in Indian and China, Mittal said. The new company will ship about 57 million metric tons of steel this year, or about 6 percent of the world's total output.

Mittal already had set his sights on becoming the No. 1 steelmaker when he bought the Inland Steel Co. of the U.S. for $1.43 billion in 1998. The acquisition made him the world's fourth-largest producer.