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.