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Background

Mittal Steel

Mittal Steel is the world's largest and most global steel company, with shipments of
49.2 million tons and revenues of over $28.1 billion in 2005. They own steel-making
facilities in 16 countries, spanning four continents. They employ 224,000 people
spanning 49 different nationalities. Their shares are listed on the New York and
Amsterdam stock exchanges.

Mittal Steel has set the pace for the consolidation and globalization of the world
steel industry. They have taken on a range of acquisitions, many of them formerly
public sector-owned companies, and made successes of them. In the process they
have spread best practice and modern production techniques throughout their
plants. Their capital investment programme is unmatched in the industry.

Their 5000 strong customer base, spanning 150 countries, includes household
names in the automotive, engineering and appliance sectors. A force in every
segment of the steel market, Mittal Steel produces a broad range of high-quality
finished and semi-finished products for the flat and long products markets.

Mittal Steel is among the most efficient steel producers in the world. They
encompass all aspects of modern steelmaking, combining both integrated and mini-
mill facilities and producing much of the iron ore and coking coal used in their
furnaces. They are also among the most advanced steel makers, operating a range
of modern technologies. They have pioneered the use of direct reduced iron (DRI)
as a raw material source and are now the world‟s biggest producer of DRI. With two
technical research facilities, their product development teams are ready to meet
the needs of the most demanding customers.
Profile

Mr. Lakshmi N. Mittal is the Chairman and CEO of Mittal Steel Company. He founded
the company in 1976 and has been responsible for the strategic direction and
development of its businesses. Mittal Steel is the only truly global steel producer in
the world with operations on 14 countries, spanning 4 continents. Mr. Mittal‟s ability
to guide the company in its identification, acquisition and turnaround of steel assets
has led to its emergence as one of the world‟s fastest growing steel producers. Mr.
Mittal began his career working in the family‟s steelmaking business in India, and
has over 30 years of experience working in steel and related industries. Over the
years, Mr. Mittal has also championed the development of integrated mini-mills and
the use of Direct Reduced Iron or “DRI” as a scrap substitute for steelmaking and
led the consolidation process of the global steel industry. Other related activities of
Mittal Steel include shipping, power generation and distribution, and mining.

Following the transaction combining Ispat International and LNM Holdings to form
Mittal Steel in December 2004, together with the simultaneous announcement of
the acquisition of International Steel Group in the US to form the world‟s largest
steel producer, Mr. Mittal was awarded Fortune magazines “European Businessman
of the Year 2004”. Previously, he was awarded “Steelmaker of the Year” in 1996 by
New Steel in the USA, and the “Willy Korf Steel Vision Award” in June 1998, for
outstanding vision, entrepreneurship, leadership and success in global steel
development from American Metal Market and PaineWeber‟s World Steel Dynamics.

Mr. Mittal is an active philanthropist and a member of various trusts. Mittal Steel is
a significant contributor to local community and welfare activities for employees in
countries where the Group operates. Mr. Mittal is a member of the Foreign
Investment Council in Kazakhstan, the International Investment Council in South
Africa, the World Economic Forum‟s International Business Council and the
International Iron and Steel Institute‟s Executive Committee. He is a Director of
ICICI Bank Limited and is on the Advisory Board of the Kellogg School of
Management in the U.S.. He was born in Sadulpur in Rajasthan, India on June 15,
1950, and graduated from St. Xavier‟s College in Calcutta where he received a
Bachelor of Commerce degree. He is married to Usha Mittal, and has a son, Aditya
Mittal and a daughter, Vanisha Mittal.
Mittal Steel Growth Timeline

Year Acquired Description

1989 Iron & Steel A modern technologically


Company Of advanced Steel Complex.
Trinidad & Tobago Renamed as Caribbean
Ispat.

1992 Sibalsa Mexico‟s Third Largest


Steel Producer. Renamed
as Ispat
Mexicana.

1994 Sidbec-Dosco Canada‟s number four steel


maker is bought from the
Government of Quebec and
renamed Ispat Sidbec.

1995 Hamburger Stalwerke Germany‟s fourth largest


producer of wire rod,
renowned
for its minimill expertise
and renamed as Ispat
Hamburger
Stahlwerke.

1998 Inland Steel Ispat International buys


Company America‟s fourth largest
steelmaker, Inland Steel
Company and renames it
Ispat Inland.
1999 Unimétal Ispat International buys the
French company, Unimetal
Group, including
Trefileurope and SMR, from
Usinor.

2002 Business assistance LNM Holdings signs a


agreement signed business assistance
with Iscor agreement with the South
African steel producer,
Iscor. LNM subsequently
takes control of Iscor in
June 2004. Ispat
Iscor has now been
renamed
Mittal Steel South Africa.

2003 Nova Hut LNM Holdings signs an


agreement to buy Nova
Hut, the largest steel
producer in the Czech
Republic, from the Czech
government. The
acquisition, at an all-in cost
of $905 million, takes effect
in January 2003 and the
company is renamed Ispat
Nova Hut.
2004 Polski Huty Stali LNM Holdings buys a
controlling holding in
Poland‟s leading steel
producer, Polskie Huty
Stali, and renames it Ispat
Polska Stal (IPS). The
company boasts a capacity
of
over 6.5 million tons a year
but is close to bankruptcy
at the time of acquisition.
BH Steel

LNM Holdings buys


Bosnia‟s BH Steel,
committing itself to the
biggest ever investment in
Macedonian facilities Bosnia by a foreign
from Balkan Steel company.

LNM adds to its


downstream activities in
the Balkans with
the acquisition of hot and
Creation Of Mittal cold rolling mills in Skopje,
Steel and Proposed Macedonia. The two mills,
Acquisition Of dormant for two years, are
International Steel. renamed Ispat Skopje.
LNM Holdings and Ispat
International announce
their
merger to form Mittal Steel.
At the same time, Mittal
Steel
announces an agreed
takeover of International
Steel Group of the US in a
cash and shares deal worth
$4.5 billion. Once the
proposed acquisition is
completed, it will
create the world‟s largest
steel maker with a stock
market
worth of around $21 billion
and a combined capacity of
70 million tons of steel a
year. The enlarged Mittal
Steel will span the globe
with around 30 per cent of
its assets in North America,
30 per cent in Europe and
the remaining
40 per cent split between
Asia and Africa. Chairman
Lakshmi Mittal declares his
intention to make the
Group „the lowest cost
steel producer in every
market.‟

2005 Acquisition of stake Mittal Steel announces a


in Hunan Valin share purchase agreement
to acquire 36.67 per cent of
Hunan Valin Steel Tube &
Wire, one of China‟s top
ten steelmakers with
annual capacity of 8.5
million tonnes. The move
marks Mittal Steel‟s entry
into the Chinese steel
ISG Acquisition industry.
Completed

The acquisition of ISG is


completed and the
company is
merged with Mittal Steel‟s
existing US operation, Ispat
Mittal Steel Europe Inland, and subsequently re
Created -named Mittal Steel USA.

Mittal Steel restructures its


European business,
merging
its western European
MDA with Liberian Govt. operations with its central
and eastern European
operations to form one
unified business structure -
Mittal Steel Europe.

Mittal Steel signs a mining


development agreement
with
Acquisition of Kryvorizhstal the Government of Liberia,
giving Mittal Steel access to
about one billion tonnes of
iron ore resources in the
west
of the country.

Kryvorizhstal is acquired for


$4.8 billion following a
public auction in Kiev.
MOU with Jharkhand, India Kryvorizhstal is Ukraine‟s
leading steelmaker with
annual steel production of
7.7 million tonnes and more
than one billion tonnes of
iron ore resources.
Company subsequently
renamed Mittal Steel Kryviy
Acquisition of Stelco Rih.
subsidiaries

Mittal Steel signs a


Memorandum of
Understanding with the
State of Jharkhand, India.
Mittal Steel expects to
invest $9 billion
establishing mining and
steel
making operations in the
state.
Mittal Canada enters into
definitive agreement for
the
acquisition of Norambar
Inc., Stelfil Ltée and
Stelwire Ltd.
from Stelco Inc. Transaction
completed in February
2006 at a cost of C$30
million
Arcelor

Arcelor was created by the merger of Aceralia, Arbed and Usinor, and the
determination of these three European groups to mobilise their technical, industrial,
and commercial synergies in a joint venture to create a global leader with the
ambition of becoming a major player in the steel industry. Officially launched on
February 19, 2001, the merger became effective on February 18, 2002, when the
Arcelor share was listed on several stock exchanges. The choice of the name Arcelor
was announced on December 12, 2001.

Arbed
Board of Directors
The Initial Bid and the Rejection

January 14: LN Mittal talked to Arcelor CEO Guy Dolle about the possibility of
Mittal Steel acquiring Arcelor. Guy Dolle categorically turns Mittal down.

January 27: Mittal Steel launches a formal takeover bid for $22 billion dollars.

January 29: Arcelor rejected the offer and the French government said it has
"great concerns" about the merger. Arcelor has plants in France.

The market sent Arcelor's Paris-listed shares soaring 29%, to EURO 28.6. Mittal
shares listed in Amsterdam closed up 6.2%, at EURO 27.63. Steel shares around the
world also rose.

Mittal said that Arcelor Chief Executive Guy Dolle wasn't positive about the
approach, but he was confident Arcelor's shareholders will back the bid.

A tie-up between the two companies would create a company with $70 billion a
year in revenue and the most global production capacity in the industry. Arcelor is
primarily a European producer while Mittal is scattered around the globe.

The next largest producers after Mittal and Arcelor are Nippon Steel Corp and Posco.

Mittal would become the leader in providing steel to the automotive industry in
Europe and the U.S., and would lead in the North American Free Trade Area in
appliances and packaging.
Hostility and Racism

There was a lot of hostility by Arcelor‟s Management Board as they felt that Mittal
Steel was resorting to underhanded techniques to merge with them. They dismissed
the idea of a merger with a "company of Indians".

The European Union said it was against racial discrimination and the issue would be
treated only on commercial considerations.

There was a lot of controversy where racist remarks were made against LN Mittal.

The bid stirred up passions amongst politicians, other leaders, and common man.
With the European Commission being accused of protectionism and racism,
Arcelor's CEO, Guy Dolle, offered a laundry list of ills in Mittal Steel because of
which the merger should not take place.

In London, a columnist for The Guardian spoke of how the bid unleashed a new
wave of 'economic patriotism,' adding that Mittal and his family were often
portrayed as aliens -- 'the Indians' -- rather than as global entrepreneurs.
Increasing Offers and Pressure

April 19: Mittal Chairman and Chief Executive Lakshmi Mittal calls Arcelor
Chairman Joseph Kinsch to ask for "friendly discussions'' about revising his proposal
in return for support from management.

April 28: Mittal tells Kinsch he is ready to make "significant corporate governance
changes'' and revise the offer.

May 4: Kinsch says the offer is "wholly inadequate'' and Arcelor has significant
concerns about the real value of Mittal shares.

May 9: Mittal Steel says it is ready to revise the offer and make corporate
governance changes "in the event of a recommended deal.''

May 10: Arcelor Chief Executive Guy Dolle describes as "insufficient'', Mittal's offer
to revise its bid.

May 11: Arcelor says it has filed a lawsuit in the United States against Mittal for
copying a type of steel for the auto industry.

May 12: Both companies announce better-than-expected results, although profits


suffer due to higher costs of raw materials. Arcelor toughens its stance, announcing
plan to spend up to $9.5 billion to buy back almost a quarter of its shares.

May 18: Mittal formally launches its offer.

May 19: Mittal raises its offer by 34 percent, bringing it up to $32.90 billion and
says it would reduce the Mittal family's stake in the company.
Severstal – A New Player
Severstal is a Russian company mainly operating in the steel industry, centered in
the northern city of Cherepovets. As such it is the second largest steel company in
Russia, behind Evraz Group. The company is owned by Alexei Mordashov.

May 26: Arcelor announces a deal with Severstal that will give it a controlling stake
in Russia's steelmaker and $16.4 billion for 32 percent of Arcelor.

June 2: European Union antitrust regulators approve Mittal bid on condition the
new combined steel giant sell off some of its facilities if the bid succeeds.

June 6: The European Commission approved the Mittal-Arcelor merger.

June 9: Arcelor confirms it has held talks with Mittal on the term of its bid.

June 12: Arcelor rejects Mittal revised bid and recommends shareholders accept
deal with Severstal. Arcelor says the revised offer still undervalues the company
and urges shareholders to support the Severstal merger instead, but mandates its
board to explore possible improvements to the Mittal offer at a later date. Mittal
says it won't budge on price, but is prepared to make changes related to corporate
governance.

June 20: In a bid to woo Arcelor, Severstal revised the terms of its merger proposal,
saying that majority owner Mr Alexei Mordashov would settle for 25 per cent of the
new group rather than the initially proposed 32.3 per cent and raised its offer by
about 2 billion.
Agreement to Merger and Final Merger

June 19: Arcelor cancels shareholder meeting on share buyback amid growing
shareholder opposition.

June 21: Market regulators in France, Spain, Luxembourg and Belgium suspend
Arcelor shares, saying they want more clarity on the state of talks with Mittal and
Severstal.

June 24: Talks on between Mittal Steel and Arcelor

June 25: Arcelor's board agrees to sweetened bid from Mittal worth about $32.3
billion.

June 30: Paving the way for a merger between Arcelor and Mittal Steel, an
overwhelming majority of shareholders of the Luxembourg-based firm vote down a
merger proposal from Russia's Severstal.

57.95% per cent of Arcelor shareholders voted against the Severstal offer. In the
process, they accept Mittal Steel's $32.3 billion offer, which was approved by the
Board of Arcelor on June 25 after a five-month long battle.

Arcelor had recommended acceptance of share and cash from Mittal Steel valuing
at about $32.3 billion, which creates a group with 3,20,000 employees producing
about 116 million tonnes of steel annually, accounting for about 10% of the world
market.

Arcelor chairman Joseph Kinsch told shareholders that the long fight with Mittal was
worth it, saying the India-born steel tycoon L N Mittal and the markets had finally
recognised Arcelor's "true value." "We have created in five months more than EURO
12 billion in value," Kinsch said.
Snapshot View of the Merger

Transaction highlights

• Arcelor Mittal: A merger of equals with shared management for successful


integration

– Ownership of 50.5% for Arcelor investors and 49.5% for Mittal Steel investors

• Recommended transformational merger of the world‟s two largest steel


companies with unrivalled global footprint

• The undisputed industry leader

• Creation of company with unprecedented scale and diversification to manage


cyclicality, stabilize earnings and increase shareholder returns

• Annual synergies increased by 60% to €1.3bn (US$1.6bn)

The Combined Vision

• Combination driven by simple and compelling industrial logic, spurring


consolidation in a fragmented industry

• Creation of European-based global champion best positioned to capture new


market opportunities

• New entity will capitalise on strong European heritage and presence, as well
as leading position in North America

• Enjoy unparalleled access to new high-growth markets: Central and Eastern


Europe, Africa, China and Latin America

• Company will be able to service global customers with broad and deep
product offering

• High level of direct access to raw materials making group more profitable and
less cyclical than most of its peers
The Combined Strategy

• Consolidate regional high-end leadership into global customer platform

• Achieve industrial excellence through state of the art assets sustained by


sound capital expenditure and best in class R&D

• Realise commercial leadership through strong distribution channels

• Capture growth in BRICET countries, utilising existing leadership in high-end


products in mature economies

• Accelerate growth in key emerging markets such as India and China

• Achieve cost leadership and operational excellence across product range

• Maintain high level of vertical integration to hedge against raw materials


price fluctuations

• Focus on people management and social responsibility

A Win-win transaction for all stakeholders


From Mittal Point Of View

 Merger would take consolidation to a new horizon.

 Successful distribution business in Europe.

 Mittal Co. to have leadership position in high end segments in Western Europe
with strong R&D capabilities.

 Low Cost slab manufacturing in Brazil that can be expanded for export to Europe
and North America.

 Increased free float and liquidity

From Arcelor Point Of View

• Mittal Company will accomplish Arcelor‟s stated plan in the most efficient
way.
• Arcelor becomes a global player.

• Operations in high-growth economies with low-cost, profitable assets and


local operating expertise in numerous emerging markets.

• Leadership position in high-end segments in North America, with strong R&D


capabilities.

• Access to very low cost slab potential in Ukraine to serve West Europe.

• Access to raw materials and upstream integration.


Financial policy for sustainable shareholder value creation

• Efficient capital structure and return of excess cash to shareholders

• 30% dividend payout ratio over the cycle

• Unparalleled financial flexibility to pursue internal and external growth


opportunities

• Commitment to investment grade credit rating


• Maintain high returns on capital
Conclusion

The largest steel company in the world is created, a company larger than the
next 3 largest steel companies combined. According to the press releases
issued by the companies, “Consolidation creates value in the steel industry”.

Arcelor is the number 1 steel producer in the world by revenue. Mittal is


the number 1 steel producer in the world by shipments.

• Both companies have been leaders in steel industry consolidation

• Consolidation is contributing to increased discipline by producers

• Combination of top two players takes consolidation to a new level

Arcelor is primarily a European player, while Mittal has interests all around
the world. Together, they form

• World‟s number 1 steel company

• Leading positions in 5 major markets

• 61 plants

• 27 countries

• Numerous international partnerships and Joint Ventures

• Opportunity to grow in China and India The new company is number 1 in


North America, South America, Africa, Western Europe, Eastern Europe and
CIS countries. A very vital omission from this list is Asia and more
importantly, LN Mittal‟s home country, India.

Why has LN Mittal not concentrated on India so far? One can speculate
that he was going at it step by step, conquering the world markets one by
one and now, only India is left. Till now, he has shown virtually no interest in
the Indian market.

Recently, he has shown interest in investing large amounts of money


in Jharkhand and Orissa, amounting to about Rs. 40,000 crore. Logically his
next stop would be Asia, as China and India are the fastest growing steel
consumption markets. In 2005, the US witnessed a 15.4% fall in consumption,
and the fall in EU was 11.7%. Total global consumption still managed to rise
5.3%, thanks to a massive 25.9% rise in demand in China and an impressive
7-8% demand in India.
Some analysts say that Mittal had to pay a much higher price than was
actually required to merge with Arcelor. He also did not get the best deal that
he could have, as his controlling stake in the newly formed Arcelor-Mittal is
lower than what was originally aimed for.

Mittal Steel is the world's largest steel producer at 70 million tonnes a


year, almost double the world's second largest producer - Arcelor. October
2005 saw the first battle between the big two- Mittal and Arcelor, both bid for
Ukraine's largest steel mill - Kryvorizhstal in an open televised bid. Mittal beat
Arcelor to the $4.8 billion deal, much more than the $3 billion at what
analysts had valued Kryvorizhstal.

Reports suggest that it was this bidding war with Arcelor that gave L N
Mittal's son Aditya, the CFO of Mittal Steel, the idea of taking over Arcelor. His
reason was that it would eliminate any future messy battles.

Why was the deal so important for LN Mittal? In a snapshot, the Mittal-
Arcelor combine would have an even larger share of the global steel market
and would be able to get a better grip over steel pricing.

Severstal had to be paid legal fees as they had been completely cut
out of the deal. Now Severstal has threatened a legal battle and a fresh bid. If
that happens, the immediate future, at least, will not be glinting enough to
Mittal‟ sadvantage.

It has been a win-win transaction for both parties.

• Creating the undisputed leading global steel company

• Growth and value creation opportunities maximised through unique global


platform

• Step change in steel industry consolidation

• Significant synergy potential

• Financial strength and strategic flexibility reinforced

• Leadership in R&D/product development

• Significant free float and liquidity

• Re-rating potential

• Positive for all stakeholders


In the end, a European company had to finally give in and merge with “a company
of Indians”.

References

http://www.mittalsteel.com/Company/History/
http://www.mittalsteel.com/Company/Profile.htm
http://www.mittalsteel.com/Company/Management/
http://www.mittalsteel.com/News+and+Press/Press+Conferences+and+Pres
entations.htm http://www.arcelor.com/index.php?lang=en&page=77
http://sg.biz.yahoo.com/060127/15/3y9b5.html
http://www.nytimes.com/2006/06/26/business/worldbusiness/26arcelor.html?
ex=1308974400&en=8abefaa34217bd6f&ei=5088&partner=rssnyt&emc=rs
s http://economictimes.indiatimes.com/articleshow/1685717.cms
http://in.rediff.com/money/2006/feb/15msg1.htm