CASE ANALYSIS ON THE RAJA OF STEEL

BY: SAHANA- 09113 AKSHAY-0911349 PARIDHI-0911363 RUCHIKA-0911364 KIRAN-0911371

A) SUMMARY(INTRODUCTION)
This case talks about Lakshmi Mittal who is building the biggest steel company on earth. In this case we come across various mergers and takeovers by Lakshmi Mittal, the most important being a $4.5billion deal to buy International Steel Group(ISG)- a package of 5 once Bankrupt steel companies assembled by U.S This case highlights the various strategies used my Lakshmi Mittal in consolidating distressed mills and reviving plants by various means such as quick capital injections, dispatching emergency teams of managers to stabilize factories, etc.

 It indicates the vision of Lakshmi Mittal we need much larger companies, healthier companies that will bring sustainability in the industry. It reflects Mittals biggest challenges to make the empire work together through his elephant like memory. It indicates his knowledge and entrepreneurial skill of pooling resources and knowledge. Mittal has doubtless seeked ways to expand but it has holes to fill in his portfolio- china (a tough nut to crack).

B) SITUATIONAL ANALYSIS
a)Key facts in the case:
Lakshmi Mittal is building the biggest steel company in the world. Mittal announces a $4.5 billion deal to buy International Steel Group(ISG), a package of 5 once Bankrupt steel companies assembled by U.S. Assuming the transaction is finalized on schedule in early 2005, Mittal will stand at the helm of the worlds no. 1 steel company, annual shipments of 52 million metric tones, some $32 billion in annual sales, and 2004 pro forma profits in excess of $6.8 billion.

 For decades ,steel has been fragmented, financially weak, and plagued by over supply. Suppliers of coal and iron ore and customers such as carmakers were far stronger than steelmakers and dictated terms. Through years, Mittal patiently perfected his techniques of reviving plants by making quick capital injections, dispatching emergency teams of managers to stabilize factories, and exploiting the efficiencies in purchasing and expertise that come with an expanding network of mills. Global market is in favour of Mittal. A doubling of steel prices in the last year due to strong world economy and insatiable demand from China is making Mittal look like a genius.

 Mittal's vision is: we need much larger companies, healthier companies. They will bring stability to the industry. as even after acquiring ISG, Mittal will have just 5% of the 1 billion metric ton world market for steel. Long term viability of Mittals strategy depends on success in the U.S and on the groups ability to thrive in a downturn. Mittal is ready to make his name in the U.S.. Ispat already has a presence stateside through its $1.2 billion acquisition of Inland Steel Co. in 1998. Overnight, the ISG deal catapults Mittal from a bit player to the top of the heap

 Inland suffered 2000-2002 collapse in steel prices, but wit a bigger base Mittal maybe able to wring out more efficiencies as he has done in other parts of the globe. Mittal declined to discuss his plans for !SG in detail, citing the risk of antitrust action. Mittal wants to integrate his eight U.S mills mostly clustered around the Great Lakes to mine regional economies of scale, a similar formula is being applied in eastern Europe as well. By running the facilities as a single unit, he seeks to extract better terms from suppliers of iron ore, coal and electricity. And with the plants, no longer competing with each other for customers.

 Upgrading ISG looks relatively easy to Mittal and his execs. Mittal beat out U.S building Corp. bidding $35` million for a controlling stake in Polksike Huty Stali, a package of four separate companies close to Bankrupt . Mittal applied his time tested method to stabilize the patient plant( 15 strong SWAT team). Mittal always took a close interest in figuring out the optimum mix for plants. Mittal's plants in Poland and the Czech republic turn out relatively low end steel used for construction and highway barriers. To retool them, Mittal will have to spend 100s of millions.

 One of Mittal's biggest challenge was to make the empire work together through his elephant memory. He knew how to pool resources and knowledge. Each Monday. Managers worldwide would have a conference call to discus about the world market and report on performance. Mittal group had advantages like: Locates export markets for production that is in surplus in its home region Controls 4% of its ore supplies and is self-sufficient in coke. Investors will find it easier to put their money alongside Mittal's, whose holdings will be listed on the New York Stock Exchange.

 Stock price has gone up from $7 a year to mere than $36 today. Ispat will acquire control of LNM, and the resulting Mittal Steel Co. will acquire ISG in a 50-50 cash and shares transaction. Mittal has doubtless seeked ways to expand but it has holes to fill in his portfolio- china (a tough nut to crack). In the last steel slump his companies struggled. Mittal figures that consolidation and a focus on profits rather than volume in the industry will head off supply gluts in the next crunch.

b) Fishbone analysis
ISG- a package of 5 bankrupt company Integration of 8 U.S mills

Stake in Polksike Hulty Stali- package of 4 bankrupt companies

Takeovers and mergers b Mittal

Reasons

If transaction is finalized, Mittal will stand at the helm of the worlds No 1 steel company

To mine Great regional economies of scale

To stabilize the plant through time tested method of a 15 strong SWAT team

C) QUESTIONS TO BE ANSWERED

 It was formed when Ispat International N.V. acquired LNM Holdings N.V. (both were already controlled by Lakshmi Mittal) and merged with International Steel GroupInc. In 2004.On 25 June 2006, Mittal Steel decided to merge with Arcelor,with the new company to be called Arcelor Mittal. Soon, he seized on a strategy of serial acquisition, often scooping up underperforming former government outfits in such far-flung places as Kazakhstan. Although the locales have changed over the years, he has stuck to a common formula: Import modern management practices, wring out costs and, where possible, create new efficiencies by taking steps like acquiring nearby coal and iron ore mines. In some locations, like the Czech Republic, he has left the local management team intact. In others, like Romania, he has replaced every member.

Q 1) What are the various strategies used by Lakshmi Mittal to expand his steel industry?

CONSIDERATIONS BEFORE AN ACQUISITION

When Mittal Steel considers an acquisition, it seeks not only low-cost inputs and an expanding market, but also inexpensive labor. But it will bend its criteria if an opportunity looks promising enough. Its purchase of International Steel Group did not seem to fit its requirement for low cost labor; U.S. wages are among the highest in the world. Polskie Huty Stali paid a debt of 1.2bn. In Romania, they had a central computer which would track all of the barter transactions. In Kazakhstan, where it opened a warehouse and found 50,000 bottles of Romanian red wine. They had traded steel for wine. Similar cases in Canada and Mexico.

OPERATIONAL STRATEGY
Mittal acts as a consolidator in the global steel industry, focusing on growth through acquisitions, and has a successful acquisition and integration track record. Operationally, Mittal has a highly diversified asset base, with plants of different types, including both integrated and minimills. Mittal's base capital-expenditure requirements are lower compared with those of peers, because of its lower cost base in emerging markets (for example, Romania and Kazakhstan), where comparable types of work can be performed at a lower cost.

FINANCIAL RISK PROFILE

Acquisitions introduce risks, but the group has a good track record of turning around underperforming steel acquisitions, particularly in less-developed countries, through LNM Holdings, which implemented this strategy since 1995.The advantages of Mittal's strategy of expanding into emerging markets include low cost bases for steel production and capital construction. In most cases, assets the group acquired in emerging markets like Romania or Kazakhstan were low priced, and the plants enjoyed sizable, albeit temporary, tax breaks. The key risks of Mittal's emerging-market expansion strategy include exposure to those countries weak legal and regulatory systems, as well as the integration of new assets into the group structure (for example, establishing appropriate control procedures, achieving operational synergies, and turning around former stateowned and often inefficient plants).

 But Mittal has a track record of successfully integrating and restructuring previously underperforming state-owned assets. Vast geographical diversification also mitigates risk in each particular emerging market, as the group is no longer markedly dependent on any single asset or market. In the medium to long term, the main issue for the group is its success in integrating recently acquired assets and maintaining long-term, stable relationships with the governments of host countries. The Mittal group has a complex structure and has only majority control, but not full control, over some of its cash-generative and cash-rich subsidiaries. For example, Mittal owns only 51% of the South African plant, 70% of the Algerian plants (30% is stateowned), and 76% of the Czech plant.

Q 2) Do u support Mittals strategy of buying non performing plants and reviving them through management expertise?
Yes I agree with Mittals strategy because : He has the needed expertise in terms of advisories on each project that he has adopted . In forming strategic alliances with the companies he ensures a security net is provided in all operations. He understands that the strength of steel companies lie in its consolidation and hence plan out strategies in that manner. When the steel industries were shutting down due to financial crunch Mittals bought over them and over the years he stabilized the plants through quick capital injections and managerial support. He has gained the global expertise required to carry out this function .

 He waited for the opportunistic moment for steel prices to double therefore putting his purchases to good use . He recognizes that there huge savings involved in reviving a plant than the cost incurred in the setting up of a new one from scratch They are using tactics like tilting the product mix, identifying new customers and sharpening their sales . From the HR aspects he uses buyouts and attrition to increase staff strength He uses state of the art technology from places like the Romanian blast furnace technology He is at an advantage as his group own 40 % of the iron ore and is self sufficient in coke He knows how to pull his knowledge and recourses and make the, work together.

Q 3) Site examples of how Mittal found

advantages in the economic disadvantages of other economies .
When global markets fell so did many of the steel manufacturing plants , the cause of which many plants were forced to shut down , for instance He acquired 5 plants in Poland , Czech Republic , over the span of two years , this went on to join a collection of plants that span 4 continents . He also sapped up distressed mills from Trinidad and Kazakhstan He then carefully perfected his techniques of reviving plants through quick capital injections and exploiting efficiency in purchasing a network of mills . Finally when the global market favored Mittal doubling steel prices in the last year thanks to demand from china and due to demand from strong world economies put Mittal's plant at an advantage due to the prior acquiring of cheaper factors of production

Q 4) What was the biggest challenge for Lakshmi Mittal? Was he successful in meeting the challenge?
His key challenge was to make the empire to work together. A key part of meting the challenge is Lakshmi Mittal himself. He was given high marks for determination and elephant like memory by his rivals and his associates. Lakshmi Mittal was able to meet the challenge successfully as he had the entrepreneurial trait of pooling knowledge and resources. Each Monday, managers worldwide would have a conference call to hash over the world market and report on performance. He had sound management ability which helped him to be a successful entrepreneur and meet his challenges for example: If one area was in short of iron ore or coal, supplies would be diverted from elsewhere.

 Mittal also located export market for production that was in surplus in its home region Mittal group controls 40% of its iron ore supplies and is self sufficient in coke. He is a man of words and had the vision to meet his goals.

CONCLUSION
He adopts a low cost big capital commitments strategy and figures that consolidation and focus on profits rather than volume will enable him to pull through in the next supply crunch His strategy is that of- common sense business which to this day remains a fool proof strategy at most business levels