Bloomberg Markets
TK Month 2005
‚When Wilbur Ross, creator of North America’s second-largest steelmaker, got a request last August to meet with Lakshmi Mittal, who owned a single U.S. steel plant, he thought Mittal might want to trade an asset or start a joint venture. Instead, Ross wound up selling his International
Steel Group Inc. to the Indian-born entrepreneur for $4 billion in cash and stock.
“The true scope and financial condition of what Mittal
had built was mind-boggling,” says Ross, 67, whose 19th-floor Manhattan office looks out onto the Citicorp building. In addition to the U.S. plant, held by Mittal’s publicly traded Ispat International NV, the entrepreneur owned plants in 14 countries—more than half of them investments he’d made through his private company, LNM Holdings NV. The merger of Mittal’s two companies and Ross’s Richfield, Ohio–based ISG created the world’s largest steelmaker, Mittal Steel Co.
Betting big on steel has made Lakshmi Mittal and his relatives very rich. The family’s 88 percent stake in Mittal Steel, whose shares trade on the Amsterdam and New York stock exchanges, was valued at $16.3 billion as of May 10. Ross—who’s won fame for turning around ailing companies
and cashing out as they hit their peak—owns 4 million shares valued at $105 million, less than 1 percent of the company’s
shares.
Other investors worry that Mittal, 55, is expanding in the U.S. market at just the wrong time. Shares of Mittal
Steel traded at $26 on May 10—a 33 percent decline since the start of the year that shaved $8 billion off Mittal’s
net worth. Benchmark steel prices in Europe had fallen
10 percent to $535 a ton on May 10 from their peak of
By Simon Clark and Matthew Craze
Man of
STEEL
July 2005
COVER STORY
Billionaire Lakshmi Mittal has created the world’s No. 1 steelmaker by snapping
up ailing plants in far-flung places and turning them around. Now, he’s betting big on the U.S., even as steel prices tumble.
Bloomberg Markets
July 2005
COVER STORY: MITTAL
$592 on Oct. 13. Iron ore costs are soaring, and China has started to export steel. Thomas Perkins, a partner at Perkins
Wolf McDonnell & Co. and co-manager of the Janus Mid Cap Value Fund, says he sold his International Steel shares before the takeover was completed in April of this year. “We really didn’t know Mittal, and the steel cycle has probably peaked,” Perkins, 60, says.
Shares of the world’s 52 biggest steelmakers plunged an average
of 15 percent from March 1 to May 10 on fears that consumption
may slow in China, which accounted for almost a third of world demand last year. Mittal Steel announced it would cut production by an undisclosed amount in the second quarter because of falling steel prices, adding that higher energy and iron ore costs would shave $25–$30 from its profit for every ton of steel produced. In 2004, Mittal’s plants in North and South America earned $87 of operating profit per ton, while his mills in Africa and Kazakhstan
averaged $202 a ton.
“It’s disappointing,” Mittal says of the share price, in an interview at his London headquarters overlooking leafy Berkeley Square. “Other steel companies
have settled investors, and they take a long-term view. We have a greater story to say in terms of our results and our performance, so we hope the share price settles down.” Mittal’s few outside shareholders say they hope he’ll increase the amount of stock that’s publicly traded
from 12 percent currently. “I’m impressed by the story of the man behind the company, but I hope he will increase the float and attract large pension funds as shareholders,” says Max Kruysse, 74, of The Hague, who owns 400 shares.
Steel’s history of volatility is weighing on Mittal. Moody’s Investors Service cited the industry’s cyclical nature on Feb. 1 in giving Mittal Steel a rating of Ba1, one level below investment
grade and up six levels from Caa1 since the merger of Ispat International and LNM was announced in October.
Standard & Poor’s rates the company BBB+, three levels above junk. “We are in a downturn, but we’re not sure if it is a good downturn where steel prices won’t collapse,” says Julien Onillon, 34, who used to be the only equity analyst to cover Mittal Steel. On May 5, Mittal Steel said it had hired Onillon from HSBC Holdings Plc as its head of investor relations.
The uncertainty follows a year in which little went wrong in Mittal’s world. In 2004, Mittal Steel’s profit almost quadrupled
to $4.7 billion on sales of $22.2 billion. Steel prices doubled
as China and India demanded more of the metal to make cars, washing machines and buildings. Shares of Ispat International,
which was renamed Mittal Steel on Dec. 17 when it merged with LNM, rose 430 percent to $38.70 in 2004.
For Mittal personally, 2004 was a year of milestones. The Mittal Steel chief executive officer took a cash dividend of $2 billion from Netherlands Antilles–based LNM—named after Lakshmi Niwas Mittal—before it merged with Ispat International.
Mittal bought a new home—a 57.1 million pound ($105.7 million), 12-bedroom mansion with a swimming pool in a marble basement, according to the U.K. Land Registry.
Located in London’s Kensington Palace Gardens, the home was formerly owned by Formula One Management Ltd. CEO Bernie Ecclestone. In June, Mittal’s daughter Vanisha,
24, a director of Mittal Steel, married Amit Bhatia, 25, a hedge fund manager at Dawnay Day Group in London. The five-day celebrations in Paris for more than a thousand guests included a performance by pop singer Kylie Minogue and a ring ceremony and dinner at the Palace of Versailles. Two steel company employees, Paul Weigh and Nicola Davidson,
were seconded to write a daily newsletter for guests. “It was all hands on deck for the wedding,” says Weigh, a Mittal Steel spokesman. Mittal says his company was appropriately compensated
for borrowing the employees.
Mittal, who built his first international
steel mill on Indonesian rice paddies in 1976, says he can keep the good times rolling by applying the lessons
he’s learned in Asia, Central America
and Eastern Europe to the U.S. And he says there’s still plenty of room for consolidation in the industry, in which Mittal and the No. 2 steelmaker, Luxembourg-
based Arcelor SA, hold less than a 12 percent market share between them. He says the company may increase its production capacity to 100 million tons within five years, through acquisitions, from 70 million currently.
“When I started, no one even wanted to do this business,” says Mittal, extending his arms with his hands outstretched, revealing
a large blue gemstone set in a gold ring on his right middle
finger. “Suddenly, the whole industry has woken up, and they see that they should be global, they should look at opportunities
worldwide, they should look at underperforming assets.”
That’s translated into more competition for Mittal, who was the only bidder in 1992 for a plant in Mexico, in 1995 for a plant in the Central Asian state of Kazakhstan and in 2001 for a communist-built steel mill in eastern Romania. This year, Mittal, Arcelor and Corus Group Plc, the U.K.’s biggest steelmaker, have all said they’re interested in bidding
for the Turkish government’s 52 percent stake in Ereg˘li Demir & Çelik Fabrikalari TAS, the country’s biggest steelmaker.
Corus even sponsored an exhibition at London’s Royal Academy of Arts earlier this year entitled “Turks: A Journey of a Thousand Years.” “It shows our commitment to Turkey and its cultural heritage,” says Annanya Sarin, a spokeswoman for Corus. “The Turkish market is one of the strong growth regions of the world.”
‘When I started, no one wanted to do this business,’ Mittal says. ‘Suddenly, the whole industry has woken up.’
Mittal also faces competition from his own brothers, Vinod, 47, and Pramod, 49, who run Kolkata-based Ispat Industries Ltd., India’s third-biggest steelmaker. The family
split up its business in 1994, with Lakshmi taking the international assets while his younger siblings kept the Indian
steel interests. This year, though, Vinod and Pramod began buying assets in Lakshmi’s backyard. In May, they agreed to buy control of a Turkish plant, and in April they bought the biggest steel plant in Bulgaria, which borders Romania,
where Lakshmi now owns four plants.
Ovidiu Musetescu, who was Romania’s privatization minister
when Mittal bought the country’s biggest steel plant in 2001, says he doesn’t think the younger brothers will be much of a challenge. “I don’t think two Leonardo da Vincis are born into the same family at the same time,” says Musetescu, 49, sipping a Campari orange in the restaurant of Bucharest’s Hilton hotel. “Lakshmi aims at targets others are afraid even to think about.”
Mittal also says he’s hunting for more iron and coal mines in India, Ukraine and other countries to boost his supply of raw materials, whose prices are rising. Annual iron ore contract
prices rose 71.5 percent in April, and prices of coking coal, which is mixed with iron to make steel, more than doubled. In 2004, Mittal produced 43 percent of its iron ore and 52 percent of its coal from mines in Algeria, Bosnia, Kazakhstan,
Mexico and the U.S.
Mittal Steel’s track record of acquiring, turning around and integrating plants into a global network will give the company an advantage in competing for new assets, says Aditya Mittal, Lakshmi’s 29-year-old son, who’s president of Mittal Steel. “Turnaround is a science in the organization today,” says the company’s Wharton-educated heir apparent, who joined his father’s
business in 1997 after working six months as an investment
banker at Credit Suisse First Boston.
The International Steel takeover marked a change for Mittal,
who until then had made most of his money from Eastern Europe and Kazakhstan, where costs are lower and regulations
less stringent. Now, the U.S. accounts for 37 percent of production capacity, with Eastern Europe making up 27 percent.
Mittal Steel’s plants in the rest of the Americas make up 10 percent, South Africa and Algeria represent 13 percent, Kazakhstan
contributes 8 percent and Western Europe accounts for 5 percent. “We want to have a stronger presence in the countries where we have businesses,” Lakshmi Mittal says. “At the same time, we are also looking at opportunities in the growing markets like China and India.”
Wringing higher profits out of the U.S. won’t be easy, says Imtiaz Ali, senior metals analyst at Metal Bulletin Research in London. “The U.S. has much stricter environmental rules, tighter labor laws and higher energy costs,” Ali says. When Mittal bought the Kazakh plant, he was exempted from compliance with changes in some environmental laws for a decade, according
to the merger document between LNM and Ispat International.
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July 2005
Mittal has stumbled before. He bought a plant in Ireland in 1996 that he shut in 2001 because it failed to make a profit. Closing the plant—which Mittal bought for 1 Irish punt—cost Ispat International $17 million.
Mittal says he’ll be able to lower costs at International Steel, which Wilbur Ross created from the assets of five bankrupt companies. In a conference call on April 26, Louis Schorsh, head of Mittal Steel USA, said the takeover would generate savings
of more than $200 million a year as Mittal purchases parts and raw materials globally.
Labor unions have pledged their cooperation, too. Ross says he wouldn’t have been able to sell International Steel without the approval of the United Steelworkers of America union, which represents 17,500 of Mittal’s workers. “We recognize that the steel industry is consolidating, and Mittal has made a commitment to continue or expand North American steelmaking
capacity,” says Leo Gerard, 58, president of the Pittsburgh-
based union. “He’s personally given me his assurance that he will be open and honest and constructive.” Gerard says the union will use collective agreements to resist job cuts.
In February, Mittal told a meeting of analysts and investors
in Chicago he planned to shed as many as 40,000 of his 160,000 worldwide employees by 2010. Most of those jobs are likely to be lost in Eastern Europe and Kazakhstan, Metal Bulletin Research’s Ali says. The workforce at Romania’s Galat¸i plant has fallen to 18,000 from 28,000 since Mittal took over in 2001. Narendra Chaudhary, who ran the Romanian
plant until May, says the target is to cut 5,000 more jobs at Galat¸i by the end of 2008.
International Steel’s plants will also join Mittal Steel’s so-called knowledge management program, which knits together
the company’s managers on four continents through weekly conference calls and regular in-person meetings held around the world. “Managers discuss how to improve operating
drivers like yields, energy consumption and alloy consumption, and plants are benchmarked against each other,” says Bill Scotting, 46, the London-based former McKinsey & Co. consultant who runs the program.
In 2002, workers at Mittal’s Inland plant on Lake Michigan’s
Indiana shore were figuring out how to delay closure
of the Western Hemisphere’s biggest blast furnace, which was due for an overhaul. They turned to Paraschiv Nedelcu, director
of furnaces at the Romanian steel plant. He explained how to trigger a chemical process in the molten contents of the furnace
to protect the inner walls. “The difference between us and the Americans is that they rely more on automation than on their own heads,” Nedelcu, 56, says as he stands in front of a furnace that spews sparks and molten metal. “This is a blast furnace school.”
Madhu Ramade, Inland’s head of ironmaking
at the time, says he was glad for the advice. “When you see those hearth temperatures climb, you can’t sleep through the night,” he says. Ramade, 51, says he has advised plants in Romania and elsewhere on boosting productivity. “It’s basically one company,” he says.
Such cooperation enhances Mittal Steel’s value, says Anshu Jain, 42, the Indian-born head of global markets at Deutsche Bank AG, which advises and lends to the company. “Lakshmi’s achievement is unique,” says Jain, who’s based in London. “He has forged a dynamic, creative business model in the midst of what was long perceived as a settled smokestack industry. The story deserves to be better understood and appreciated.”
Mittal oversees his company with the help of about 35 employees, many of them drawn from his native India, in a modern office building two doors down from an Indian restaurant
and three doors down from a Rolls-Royce outlet in London’s Mayfair district. The company’s legal headquarters,
in a Rotterdam skyscraper, employs about 80 people on three floors. “They manage multiple markets without creating
a huge bureaucracy,” Ross says. “That’s their single-most-important management achievement.” When Mircea Scintei, a Romanian trade union leader, traveled to London in 2002 to negotiate wages, he was disappointed by what he found. “I thought they would have the whole building,” says Scintei, 37. Rival steelmaker Arcelor, by contrast, is based in a château in Luxembourg, where 200 people work.
Mittal, named Lakshmi after the Hindu goddess of wealth, was born in Sadulpur in the desert state of Rajasthan in June 1950, three years after India won its independence from Britain. His father, Mohan Mittal, made money in the 1940s as a trader in Karachi, in what is now Pakistan. After losing money in a mustard oil mill in 1949 because of a flood, Mohan Mittal moved to Kolkata and became a partner in his first steel company, British India Rolling
Mills, in 1951. In 1953, he started
a steel plant in the eastern port city of Visakhapatnam. “My objective was not to produce steel for India but to export,” Mohan Mittal, now 78 and living with his son Pramod in London, says. “I was thinking globally.”
Lakshmi, Mohan’s oldest son, joined his father’s business full time after receiving a bachelor of commerce
degree from St. Xavier’s College in Kolkata in 1969. His initial results were poor. After notching up three years of losses running a Kolkata steel mill, Lakshmi Mittal moved to Indonesia
in 1976 to build a plant on fields acquired by his father. Mohan Mittal says he started the Indonesian venture with the help of Mohan Lohia, now 74, his daughter Seema’s
father-in-law. Seema’s husband, Prakash, now runs his family’s New Delhi–based polyester fiber maker Indo Rama Synthetics (India) Ltd. The family still has operations in Indonesia.
Lakshmi Mittal says he had to interrupt a vacation to Hong Kong and Tokyo at the end of 1975 to persuade his father not to sell the land. Mohan Mittal denies he wanted to sell the land. The plant cost about $15 million, with about two-thirds coming from a group of banks including Bank of India, Mohan Mittal says.
Mittal dedicated himself to the Indonesian plant for 14 years, working as part of the family business headed by his father back in Kolkata. “Until 1989, I did nothing except running my small business, trying to understand and expand and make some money,” Mittal says. In 1989, the Mittals won the contract to manage the Iron & Steel Company of Trinidad
& Tobago in the Caribbean. The Mittals, who knew the plant because it supplied them with iron pellets in Indonesia,
started cutting costs. “The government was paying $20 million a year for 60 Germans to manage the plant,” Mohan Mittal says. “We brought in 60 Indians and paid them $2 million a year.”
In 1992, the company expanded into Mexico with the purchase
of the country’s third-largest steelmaker, Siderurgica del Balsas SA, built at a cost to the Mexican government of $2.2 billion. The Mittals paid $25 million in cash and assumed $195 million of debt owed to the government. In 1994, they mustered enough cash and loans to buy the Trinidad plant for
COVER STORY: MITTAL
Bloomberg Markets
July 2005
‘They manage multiple markets
without creating a huge bureaucracy,’
Wilbur Ross says of Mittal Steel.
COVER STORY: MITTAL
Bloomberg Markets
July 2005
$70 million and then bought Sidbec-Dosco, Canada’s fourth-biggest steelmaker, from the government of Quebec, for $52 million in cash and $134 million in assumed debt.
Up to this point, the father and son were working together, says Johannes Sittard, the one German manager from Trinidad
whom the Mittals didn’t fire in 1989. “The father hired me, but my daily interaction was with Lakshmi,” says Sittard, now 61, who left in 2001 to become CEO of closely held J&W Holding AG, a Zurich-based mining company. “The son was the perfect successor to execute the father’s global vision.”
In 1994, Mittal and his brothers split up the family business.
Mittal; his wife, Usha; and their two children moved to London the following year. Mohan Mittal declines to comment
on the reasons behind the division. “Family is family,” he says. Lakshmi says it would have been too complex to manage the company as one entity. Sittard says Vinod and Pramod may have been averse to the risks of the international expansion.
“For sure, our growth in the beginning was money losing,”
he says. Vinod and Pramod didn’t return calls seeking comment for this story.
In January 1995, Lakshmi Mittal expanded into Western Europe, buying a plant in Hamburg. Later that year, Sittard led Mittal to the biggest gamble of his life. A tip from a Credit
Suisse First Boston banker prompted Sittard to visit Kazakhstan
to view investment opportunities in the landlocked former Soviet republic wedged between China and Russia. A Kazakh official told Sittard that the government was looking for a buyer for a 5.5-million-ton steel plant. Sittard relayed the information to Mittal, who touched down at the airport in the then Kazakh capital of Almaty in the early hours of a late October day.
Mittal had to wait until dawn for a visa. The Karmet plant was in the city of Temirtau, where the population had fallen to 200,000 from 350,000 in the 1980s. “The plant was like a graveyard,” Mittal recalls. “No orders. No technology. It was a nightmare for me.” Yet Mittal saw that the company could immediately
boost production by paying wages to motivate staff and by settling debts. Starved of cash, the plant had created its own currency, called Karmet tenge, after the name of the plant and the Kazakh currency.
Mittal met with then Kazakh Prime Minister Akezhan Kazhegeldin, Sittard says, to say he was interested in buying
the plant. A month later, it was his. Sittard says the speed of Mittal’s decision was crucial. “He had the insight to make the investment and the resources to move quickly,” Sittard says. “He was great to work for because he gave you the freedom
to make decisions and then kept a close watch on your performance.” Mittal won’t say how much he paid for the plant, the only one of his acquisitions since 1989 for which the price hasn’t been made public.
Mittal’s father says he wouldn’t have bought the Kazakh plant. “There was no access to the sea, no market,” Mohan Mittal
says. “If that would have failed, Lakshmi would have failed.”
The Kazakh plant’s main link to the outside world was a barely used railroad, but it led to China, which today is the world’s biggest consumer of steel. The plant was also close to iron ore and coal mines, which Mittal acquired to ensure his supply of raw materials. From 1995 to 2004, Mittal invested
$800 million in the plant to boost production. Steel shipments
from the plant rose to 4.2 million tons in 2004 from 2.5 million tons in 1995.
Chaudhary, 60, who ran the plant until 2001, says that while other foreign investors lobbied the government to improve the rule of law or the number of paved roads, Mittal focused on the plant’s specific needs at meetings of the Foreign Investors’ Council, which were attended by Kazakh President Nursultan
Nazarbayev. “The issue we raised was why scrap metal was being exported to China in an unregulated way,” says Chaudhary,
who’s now the London-based head of operations and maintenance. In 2000, Kazakh customs enforced laws limiting the export of scrap, which is used to make steel. “We swim with the waves,” Chaudhary says.
Mittal’s initial attempt to woo outside investors came in 1997, when he sold shares in Ispat International, which then owned plants in Canada, Germany, Ireland, Mexico and Trinidad. The Kazakhstan mill wasn’t included. The sale of about 22 percent of the company raised $776 million, with more than $300 million going to Mittal. The following year, the company bought Inland Steel Co. for $1.43 billion in cash and assumed debt.
By January 2001, Ispat International’s share price had tumbled to $3 from $27 at the initial public offering as steel prices crashed to 20-year lows on slumping demand. Even though Mittal pledged in Ispat’s prospectus not to make steel acquisitions through his private company, from 2001 he continued
his buying spree through LNM. Mittal says all of the acquisitions were first presented to Ispat’s directors, who rejected
them as too risky.
The first new target was in Romania, which had decided to sell its Sidex SA plant in Galat¸i, near the mouth of the Danube River on the Black Sea. The 40-year-old plant occupied
6 square miles (15.5 square kilometers), accounted for 5 percent of the country’s gross domestic product and was known locally as the “black hole” of the economy because it was losing $1 million a day. At the time, the European price of steel had hit a low of $205 a ton. On March 3, 2001, Musetescu
met with then Prime Minister Adrian Nastase to say there was only one bidder: LNM. “I told him I’d done an
Bloomberg Markets
July 2005
COVER STORY: MITTAL
Internet search to find out who they were, and they’re not France’s Usinor or Turkey’s Erdemir or anyone else I’d heard of,” Musetescu recalls. “The prime minister suggested I visit one of their plants, so I went to Kazakhstan.”
On the strength of what Musetescu and fellow Romanian officials saw of the turnaround in Kazakhstan, the government accepted Mittal’s $60 million bid. In July, U.K. Prime Minister
Tony Blair signed a letter to his Romanian counterpart endorsing the sale to Mittal. The Romanian takeover hit the U.K. headlines because Mittal had donated 125,000 pounds to Blair’s Labour Party in June. Mittal and Musetescu say there was no connection between the donation
and the decision to sell the plant. Blair said in 2001 that he didn’t know about the donation when he signed the letter, which he said was sent on the advice
of British diplomats in Romania. Blair’s officials said at the time that the letter was justified on grounds of national
interest, even though Mittal employs
only 100 people in the U.K. Mittal owned LNM through Richmond Investment
Holdings Ltd., a company based in the British Virgin Islands, where international
companies pay no taxes.
Mittal sent Chaudhary from Kazakhstan
to run the Romanian plant in November 2001. On the 130-mile (209-kilometer) highway from Bucharest
to Galat¸i, cars swerve around Roma Gypsies riding horse-drawn carts. In the fields, farmers use horse-drawn plows. Chaudhary, who worked at state-owned Steel Authority of India Ltd. before joining Mittal, says coming
from India can be an advantage in locations such as Romania.
“The way a man coming from India and a man coming from a developed country looks at these situations is different,”
Chaudhary says in his office, which looks down a dusty avenue to the front gate of the Galat¸i plant, where stray dogs wander among the blast furnaces. “We are used to bad roads and the like.”
The Galat¸i plant—and the whole surrounding district—depended on barter for all of its needs, Chaudhary says. Two weeks before the takeover was completed, he went for a sailing
trip on the Danube. “When we got back to dry land, I said I wanted to pay, but the boat owner said not to worry as he would get paid in steel,” he says.
Mittal won over workers by settling unpaid wages and building
a church next to the plant. Trade union leader Scintei approached
Chaudhary soon after the takeover to complain that workers hadn’t received their rations of milk, which is used to reduce toxins from working at the plant, for nine months. “Chaudhary agreed to give workers the value of the missed milk in cash, about 30 euros each,” Scintei says. “That impressed me.” The average wage at the plant is 300 euros ($379) a month.
Mittal also established new export destinations, using the river to boost shipments to Germany. Since the takeover,
Galat¸i’s sales have more than doubled, to $2.1 billion in 2004, while production has risen 35 percent to 5 million tons, and the amount of energy used to produce a ton of liquid
steel has dropped 18 percent.
After its entry into Romania, LNM acquired and made similar
changes at plants and mines in Algeria, Bosnia, the Czech Republic, Poland, Macedonia and South Africa.
Then in August 2004, Aditya Mittal drew his father’s attention
to International Steel. The Mittals asked Credit Suisse
First Boston, a longtime adviser, to approach Ross. He rebuffed the bank. So the Mittals approached Ross’s adviser,
UBS AG. “At first, Wilbur didn’t have a true appreciation of Mittal’s assets,
but it clicked to him pretty quickly,”
says Dieter Hoeppli, global head of UBS’s steel banking group.
“There were rumors that they were highly leveraged, which proved to be totally
unfounded,” Ross says. “The profitability
of the Eastern European assets was right off the chart.” Following the International Steel acquisition, Mittal Steel has net debt of $2.9 billion, equal to less than six months of operating profit. Mittal declines to say what he’ll do with the $2 billion dividend he took from LNM. His past investments outside
the steel industry include Bollywood
For You, a satellite TV channel based in London and Mumbai that shows Indian films, and his son-in-law’s hedge fund.
Ross says he decided to sell International Steel because it was the best option for the company to keep growing. “We had in mind a map that was very similar to the map Mittal has created,” he says. “More businesses should adopt global models.” Still, Ross managed to get Mittal to pay half of the purchase price in cash, up from an initial offer of 25 percent cash and 75 percent stock. The cash payment to International
Steel shareholders of $2.1 billion equals seven times the $300 million of equity that Ross and his backers invested to create International Steel in 2002.
Mittal says his expansion is far from over. In January, he agreed to pay $314 million for 37 percent of Changsha, China–based Hunan Valin Steel Tube & Wire Co. China’s crude steel production rose 23.8 percent in the first three months of this year, outpacing consumption growth of about 11 percent, according to Goldman Sachs JBWere Pty.
Mittal’s Chinese investment again sets him apart from other industry leaders, who see the country as a threat rather than an opportunity. John Surma, CEO of U.S. Steel Corp., said at a steel conference in Luxembourg in March that China must curb its growth in steel output or it would cause a glut
A Trinidad plant paid 60 German managers
$20 million.
‘We brought in 60 Indians and paid them $2 million,’ Mohan Mittal says.
that would hurt prices around the world. The U.S. currently has tariffs on steel imports from Brazil, Japan and Russia.
Mittal brushes aside the Chinese threat. “I do not believe that China will be a net exporter in a major way,” he says. “We always have to remember that they are dependent on iron ore.”
As Lakshmi Mittal expands into the world’s most-populous nation, Mohan Mittal says he has already seen his dream of building a global steel company realized by his son. “When I bought the land in Indonesia, people said the sun is setting on the steel industry, but I knew that when the sun sets in one place, it rises in another,” he says. It’s advice his son still seems to be following as he confronts another downturn by pushing into new markets.„
SIMON CLARK is a senior writer at Bloomberg News in London. MATTHEW CRAZE covers metals in London. With additional reporting by BOGDAN PREDA in Bucharest.sclark4@bloomberg.netmcraze@bloomberg.net
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TK Month 2005
‚When Wilbur Ross, creator of North America’s second-largest steelmaker, got a request last August to meet with Lakshmi Mittal, who owned a single U.S. steel plant, he thought Mittal might want to trade an asset or start a joint venture. Instead, Ross wound up selling his International
Steel Group Inc. to the Indian-born entrepreneur for $4 billion in cash and stock.
“The true scope and financial condition of what Mittal
had built was mind-boggling,” says Ross, 67, whose 19th-floor Manhattan office looks out onto the Citicorp building. In addition to the U.S. plant, held by Mittal’s publicly traded Ispat International NV, the entrepreneur owned plants in 14 countries—more than half of them investments he’d made through his private company, LNM Holdings NV. The merger of Mittal’s two companies and Ross’s Richfield, Ohio–based ISG created the world’s largest steelmaker, Mittal Steel Co.
Betting big on steel has made Lakshmi Mittal and his relatives very rich. The family’s 88 percent stake in Mittal Steel, whose shares trade on the Amsterdam and New York stock exchanges, was valued at $16.3 billion as of May 10. Ross—who’s won fame for turning around ailing companies
and cashing out as they hit their peak—owns 4 million shares valued at $105 million, less than 1 percent of the company’s
shares.
Other investors worry that Mittal, 55, is expanding in the U.S. market at just the wrong time. Shares of Mittal
Steel traded at $26 on May 10—a 33 percent decline since the start of the year that shaved $8 billion off Mittal’s
net worth. Benchmark steel prices in Europe had fallen
10 percent to $535 a ton on May 10 from their peak of
By Simon Clark and Matthew Craze
Man of
STEEL
July 2005
COVER STORY
Billionaire Lakshmi Mittal has created the world’s No. 1 steelmaker by snapping
up ailing plants in far-flung places and turning them around. Now, he’s betting big on the U.S., even as steel prices tumble.
Bloomberg Markets
July 2005
COVER STORY: MITTAL
$592 on Oct. 13. Iron ore costs are soaring, and China has started to export steel. Thomas Perkins, a partner at Perkins
Wolf McDonnell & Co. and co-manager of the Janus Mid Cap Value Fund, says he sold his International Steel shares before the takeover was completed in April of this year. “We really didn’t know Mittal, and the steel cycle has probably peaked,” Perkins, 60, says.
Shares of the world’s 52 biggest steelmakers plunged an average
of 15 percent from March 1 to May 10 on fears that consumption
may slow in China, which accounted for almost a third of world demand last year. Mittal Steel announced it would cut production by an undisclosed amount in the second quarter because of falling steel prices, adding that higher energy and iron ore costs would shave $25–$30 from its profit for every ton of steel produced. In 2004, Mittal’s plants in North and South America earned $87 of operating profit per ton, while his mills in Africa and Kazakhstan
averaged $202 a ton.
“It’s disappointing,” Mittal says of the share price, in an interview at his London headquarters overlooking leafy Berkeley Square. “Other steel companies
have settled investors, and they take a long-term view. We have a greater story to say in terms of our results and our performance, so we hope the share price settles down.” Mittal’s few outside shareholders say they hope he’ll increase the amount of stock that’s publicly traded
from 12 percent currently. “I’m impressed by the story of the man behind the company, but I hope he will increase the float and attract large pension funds as shareholders,” says Max Kruysse, 74, of The Hague, who owns 400 shares.
Steel’s history of volatility is weighing on Mittal. Moody’s Investors Service cited the industry’s cyclical nature on Feb. 1 in giving Mittal Steel a rating of Ba1, one level below investment
grade and up six levels from Caa1 since the merger of Ispat International and LNM was announced in October.
Standard & Poor’s rates the company BBB+, three levels above junk. “We are in a downturn, but we’re not sure if it is a good downturn where steel prices won’t collapse,” says Julien Onillon, 34, who used to be the only equity analyst to cover Mittal Steel. On May 5, Mittal Steel said it had hired Onillon from HSBC Holdings Plc as its head of investor relations.
The uncertainty follows a year in which little went wrong in Mittal’s world. In 2004, Mittal Steel’s profit almost quadrupled
to $4.7 billion on sales of $22.2 billion. Steel prices doubled
as China and India demanded more of the metal to make cars, washing machines and buildings. Shares of Ispat International,
which was renamed Mittal Steel on Dec. 17 when it merged with LNM, rose 430 percent to $38.70 in 2004.
For Mittal personally, 2004 was a year of milestones. The Mittal Steel chief executive officer took a cash dividend of $2 billion from Netherlands Antilles–based LNM—named after Lakshmi Niwas Mittal—before it merged with Ispat International.
Mittal bought a new home—a 57.1 million pound ($105.7 million), 12-bedroom mansion with a swimming pool in a marble basement, according to the U.K. Land Registry.
Located in London’s Kensington Palace Gardens, the home was formerly owned by Formula One Management Ltd. CEO Bernie Ecclestone. In June, Mittal’s daughter Vanisha,
24, a director of Mittal Steel, married Amit Bhatia, 25, a hedge fund manager at Dawnay Day Group in London. The five-day celebrations in Paris for more than a thousand guests included a performance by pop singer Kylie Minogue and a ring ceremony and dinner at the Palace of Versailles. Two steel company employees, Paul Weigh and Nicola Davidson,
were seconded to write a daily newsletter for guests. “It was all hands on deck for the wedding,” says Weigh, a Mittal Steel spokesman. Mittal says his company was appropriately compensated
for borrowing the employees.
Mittal, who built his first international
steel mill on Indonesian rice paddies in 1976, says he can keep the good times rolling by applying the lessons
he’s learned in Asia, Central America
and Eastern Europe to the U.S. And he says there’s still plenty of room for consolidation in the industry, in which Mittal and the No. 2 steelmaker, Luxembourg-
based Arcelor SA, hold less than a 12 percent market share between them. He says the company may increase its production capacity to 100 million tons within five years, through acquisitions, from 70 million currently.
“When I started, no one even wanted to do this business,” says Mittal, extending his arms with his hands outstretched, revealing
a large blue gemstone set in a gold ring on his right middle
finger. “Suddenly, the whole industry has woken up, and they see that they should be global, they should look at opportunities
worldwide, they should look at underperforming assets.”
That’s translated into more competition for Mittal, who was the only bidder in 1992 for a plant in Mexico, in 1995 for a plant in the Central Asian state of Kazakhstan and in 2001 for a communist-built steel mill in eastern Romania. This year, Mittal, Arcelor and Corus Group Plc, the U.K.’s biggest steelmaker, have all said they’re interested in bidding
for the Turkish government’s 52 percent stake in Ereg˘li Demir & Çelik Fabrikalari TAS, the country’s biggest steelmaker.
Corus even sponsored an exhibition at London’s Royal Academy of Arts earlier this year entitled “Turks: A Journey of a Thousand Years.” “It shows our commitment to Turkey and its cultural heritage,” says Annanya Sarin, a spokeswoman for Corus. “The Turkish market is one of the strong growth regions of the world.”
‘When I started, no one wanted to do this business,’ Mittal says. ‘Suddenly, the whole industry has woken up.’
Mittal also faces competition from his own brothers, Vinod, 47, and Pramod, 49, who run Kolkata-based Ispat Industries Ltd., India’s third-biggest steelmaker. The family
split up its business in 1994, with Lakshmi taking the international assets while his younger siblings kept the Indian
steel interests. This year, though, Vinod and Pramod began buying assets in Lakshmi’s backyard. In May, they agreed to buy control of a Turkish plant, and in April they bought the biggest steel plant in Bulgaria, which borders Romania,
where Lakshmi now owns four plants.
Ovidiu Musetescu, who was Romania’s privatization minister
when Mittal bought the country’s biggest steel plant in 2001, says he doesn’t think the younger brothers will be much of a challenge. “I don’t think two Leonardo da Vincis are born into the same family at the same time,” says Musetescu, 49, sipping a Campari orange in the restaurant of Bucharest’s Hilton hotel. “Lakshmi aims at targets others are afraid even to think about.”
Mittal also says he’s hunting for more iron and coal mines in India, Ukraine and other countries to boost his supply of raw materials, whose prices are rising. Annual iron ore contract
prices rose 71.5 percent in April, and prices of coking coal, which is mixed with iron to make steel, more than doubled. In 2004, Mittal produced 43 percent of its iron ore and 52 percent of its coal from mines in Algeria, Bosnia, Kazakhstan,
Mexico and the U.S.
Mittal Steel’s track record of acquiring, turning around and integrating plants into a global network will give the company an advantage in competing for new assets, says Aditya Mittal, Lakshmi’s 29-year-old son, who’s president of Mittal Steel. “Turnaround is a science in the organization today,” says the company’s Wharton-educated heir apparent, who joined his father’s
business in 1997 after working six months as an investment
banker at Credit Suisse First Boston.
The International Steel takeover marked a change for Mittal,
who until then had made most of his money from Eastern Europe and Kazakhstan, where costs are lower and regulations
less stringent. Now, the U.S. accounts for 37 percent of production capacity, with Eastern Europe making up 27 percent.
Mittal Steel’s plants in the rest of the Americas make up 10 percent, South Africa and Algeria represent 13 percent, Kazakhstan
contributes 8 percent and Western Europe accounts for 5 percent. “We want to have a stronger presence in the countries where we have businesses,” Lakshmi Mittal says. “At the same time, we are also looking at opportunities in the growing markets like China and India.”
Wringing higher profits out of the U.S. won’t be easy, says Imtiaz Ali, senior metals analyst at Metal Bulletin Research in London. “The U.S. has much stricter environmental rules, tighter labor laws and higher energy costs,” Ali says. When Mittal bought the Kazakh plant, he was exempted from compliance with changes in some environmental laws for a decade, according
to the merger document between LNM and Ispat International.
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July 2005
Mittal has stumbled before. He bought a plant in Ireland in 1996 that he shut in 2001 because it failed to make a profit. Closing the plant—which Mittal bought for 1 Irish punt—cost Ispat International $17 million.
Mittal says he’ll be able to lower costs at International Steel, which Wilbur Ross created from the assets of five bankrupt companies. In a conference call on April 26, Louis Schorsh, head of Mittal Steel USA, said the takeover would generate savings
of more than $200 million a year as Mittal purchases parts and raw materials globally.
Labor unions have pledged their cooperation, too. Ross says he wouldn’t have been able to sell International Steel without the approval of the United Steelworkers of America union, which represents 17,500 of Mittal’s workers. “We recognize that the steel industry is consolidating, and Mittal has made a commitment to continue or expand North American steelmaking
capacity,” says Leo Gerard, 58, president of the Pittsburgh-
based union. “He’s personally given me his assurance that he will be open and honest and constructive.” Gerard says the union will use collective agreements to resist job cuts.
In February, Mittal told a meeting of analysts and investors
in Chicago he planned to shed as many as 40,000 of his 160,000 worldwide employees by 2010. Most of those jobs are likely to be lost in Eastern Europe and Kazakhstan, Metal Bulletin Research’s Ali says. The workforce at Romania’s Galat¸i plant has fallen to 18,000 from 28,000 since Mittal took over in 2001. Narendra Chaudhary, who ran the Romanian
plant until May, says the target is to cut 5,000 more jobs at Galat¸i by the end of 2008.
International Steel’s plants will also join Mittal Steel’s so-called knowledge management program, which knits together
the company’s managers on four continents through weekly conference calls and regular in-person meetings held around the world. “Managers discuss how to improve operating
drivers like yields, energy consumption and alloy consumption, and plants are benchmarked against each other,” says Bill Scotting, 46, the London-based former McKinsey & Co. consultant who runs the program.
In 2002, workers at Mittal’s Inland plant on Lake Michigan’s
Indiana shore were figuring out how to delay closure
of the Western Hemisphere’s biggest blast furnace, which was due for an overhaul. They turned to Paraschiv Nedelcu, director
of furnaces at the Romanian steel plant. He explained how to trigger a chemical process in the molten contents of the furnace
to protect the inner walls. “The difference between us and the Americans is that they rely more on automation than on their own heads,” Nedelcu, 56, says as he stands in front of a furnace that spews sparks and molten metal. “This is a blast furnace school.”
Madhu Ramade, Inland’s head of ironmaking
at the time, says he was glad for the advice. “When you see those hearth temperatures climb, you can’t sleep through the night,” he says. Ramade, 51, says he has advised plants in Romania and elsewhere on boosting productivity. “It’s basically one company,” he says.
Such cooperation enhances Mittal Steel’s value, says Anshu Jain, 42, the Indian-born head of global markets at Deutsche Bank AG, which advises and lends to the company. “Lakshmi’s achievement is unique,” says Jain, who’s based in London. “He has forged a dynamic, creative business model in the midst of what was long perceived as a settled smokestack industry. The story deserves to be better understood and appreciated.”
Mittal oversees his company with the help of about 35 employees, many of them drawn from his native India, in a modern office building two doors down from an Indian restaurant
and three doors down from a Rolls-Royce outlet in London’s Mayfair district. The company’s legal headquarters,
in a Rotterdam skyscraper, employs about 80 people on three floors. “They manage multiple markets without creating
a huge bureaucracy,” Ross says. “That’s their single-most-important management achievement.” When Mircea Scintei, a Romanian trade union leader, traveled to London in 2002 to negotiate wages, he was disappointed by what he found. “I thought they would have the whole building,” says Scintei, 37. Rival steelmaker Arcelor, by contrast, is based in a château in Luxembourg, where 200 people work.
Mittal, named Lakshmi after the Hindu goddess of wealth, was born in Sadulpur in the desert state of Rajasthan in June 1950, three years after India won its independence from Britain. His father, Mohan Mittal, made money in the 1940s as a trader in Karachi, in what is now Pakistan. After losing money in a mustard oil mill in 1949 because of a flood, Mohan Mittal moved to Kolkata and became a partner in his first steel company, British India Rolling
Mills, in 1951. In 1953, he started
a steel plant in the eastern port city of Visakhapatnam. “My objective was not to produce steel for India but to export,” Mohan Mittal, now 78 and living with his son Pramod in London, says. “I was thinking globally.”
Lakshmi, Mohan’s oldest son, joined his father’s business full time after receiving a bachelor of commerce
degree from St. Xavier’s College in Kolkata in 1969. His initial results were poor. After notching up three years of losses running a Kolkata steel mill, Lakshmi Mittal moved to Indonesia
in 1976 to build a plant on fields acquired by his father. Mohan Mittal says he started the Indonesian venture with the help of Mohan Lohia, now 74, his daughter Seema’s
father-in-law. Seema’s husband, Prakash, now runs his family’s New Delhi–based polyester fiber maker Indo Rama Synthetics (India) Ltd. The family still has operations in Indonesia.
Lakshmi Mittal says he had to interrupt a vacation to Hong Kong and Tokyo at the end of 1975 to persuade his father not to sell the land. Mohan Mittal denies he wanted to sell the land. The plant cost about $15 million, with about two-thirds coming from a group of banks including Bank of India, Mohan Mittal says.
Mittal dedicated himself to the Indonesian plant for 14 years, working as part of the family business headed by his father back in Kolkata. “Until 1989, I did nothing except running my small business, trying to understand and expand and make some money,” Mittal says. In 1989, the Mittals won the contract to manage the Iron & Steel Company of Trinidad
& Tobago in the Caribbean. The Mittals, who knew the plant because it supplied them with iron pellets in Indonesia,
started cutting costs. “The government was paying $20 million a year for 60 Germans to manage the plant,” Mohan Mittal says. “We brought in 60 Indians and paid them $2 million a year.”
In 1992, the company expanded into Mexico with the purchase
of the country’s third-largest steelmaker, Siderurgica del Balsas SA, built at a cost to the Mexican government of $2.2 billion. The Mittals paid $25 million in cash and assumed $195 million of debt owed to the government. In 1994, they mustered enough cash and loans to buy the Trinidad plant for
COVER STORY: MITTAL
Bloomberg Markets
July 2005
‘They manage multiple markets
without creating a huge bureaucracy,’
Wilbur Ross says of Mittal Steel.
COVER STORY: MITTAL
Bloomberg Markets
July 2005
$70 million and then bought Sidbec-Dosco, Canada’s fourth-biggest steelmaker, from the government of Quebec, for $52 million in cash and $134 million in assumed debt.
Up to this point, the father and son were working together, says Johannes Sittard, the one German manager from Trinidad
whom the Mittals didn’t fire in 1989. “The father hired me, but my daily interaction was with Lakshmi,” says Sittard, now 61, who left in 2001 to become CEO of closely held J&W Holding AG, a Zurich-based mining company. “The son was the perfect successor to execute the father’s global vision.”
In 1994, Mittal and his brothers split up the family business.
Mittal; his wife, Usha; and their two children moved to London the following year. Mohan Mittal declines to comment
on the reasons behind the division. “Family is family,” he says. Lakshmi says it would have been too complex to manage the company as one entity. Sittard says Vinod and Pramod may have been averse to the risks of the international expansion.
“For sure, our growth in the beginning was money losing,”
he says. Vinod and Pramod didn’t return calls seeking comment for this story.
In January 1995, Lakshmi Mittal expanded into Western Europe, buying a plant in Hamburg. Later that year, Sittard led Mittal to the biggest gamble of his life. A tip from a Credit
Suisse First Boston banker prompted Sittard to visit Kazakhstan
to view investment opportunities in the landlocked former Soviet republic wedged between China and Russia. A Kazakh official told Sittard that the government was looking for a buyer for a 5.5-million-ton steel plant. Sittard relayed the information to Mittal, who touched down at the airport in the then Kazakh capital of Almaty in the early hours of a late October day.
Mittal had to wait until dawn for a visa. The Karmet plant was in the city of Temirtau, where the population had fallen to 200,000 from 350,000 in the 1980s. “The plant was like a graveyard,” Mittal recalls. “No orders. No technology. It was a nightmare for me.” Yet Mittal saw that the company could immediately
boost production by paying wages to motivate staff and by settling debts. Starved of cash, the plant had created its own currency, called Karmet tenge, after the name of the plant and the Kazakh currency.
Mittal met with then Kazakh Prime Minister Akezhan Kazhegeldin, Sittard says, to say he was interested in buying
the plant. A month later, it was his. Sittard says the speed of Mittal’s decision was crucial. “He had the insight to make the investment and the resources to move quickly,” Sittard says. “He was great to work for because he gave you the freedom
to make decisions and then kept a close watch on your performance.” Mittal won’t say how much he paid for the plant, the only one of his acquisitions since 1989 for which the price hasn’t been made public.
Mittal’s father says he wouldn’t have bought the Kazakh plant. “There was no access to the sea, no market,” Mohan Mittal
says. “If that would have failed, Lakshmi would have failed.”
The Kazakh plant’s main link to the outside world was a barely used railroad, but it led to China, which today is the world’s biggest consumer of steel. The plant was also close to iron ore and coal mines, which Mittal acquired to ensure his supply of raw materials. From 1995 to 2004, Mittal invested
$800 million in the plant to boost production. Steel shipments
from the plant rose to 4.2 million tons in 2004 from 2.5 million tons in 1995.
Chaudhary, 60, who ran the plant until 2001, says that while other foreign investors lobbied the government to improve the rule of law or the number of paved roads, Mittal focused on the plant’s specific needs at meetings of the Foreign Investors’ Council, which were attended by Kazakh President Nursultan
Nazarbayev. “The issue we raised was why scrap metal was being exported to China in an unregulated way,” says Chaudhary,
who’s now the London-based head of operations and maintenance. In 2000, Kazakh customs enforced laws limiting the export of scrap, which is used to make steel. “We swim with the waves,” Chaudhary says.
Mittal’s initial attempt to woo outside investors came in 1997, when he sold shares in Ispat International, which then owned plants in Canada, Germany, Ireland, Mexico and Trinidad. The Kazakhstan mill wasn’t included. The sale of about 22 percent of the company raised $776 million, with more than $300 million going to Mittal. The following year, the company bought Inland Steel Co. for $1.43 billion in cash and assumed debt.
By January 2001, Ispat International’s share price had tumbled to $3 from $27 at the initial public offering as steel prices crashed to 20-year lows on slumping demand. Even though Mittal pledged in Ispat’s prospectus not to make steel acquisitions through his private company, from 2001 he continued
his buying spree through LNM. Mittal says all of the acquisitions were first presented to Ispat’s directors, who rejected
them as too risky.
The first new target was in Romania, which had decided to sell its Sidex SA plant in Galat¸i, near the mouth of the Danube River on the Black Sea. The 40-year-old plant occupied
6 square miles (15.5 square kilometers), accounted for 5 percent of the country’s gross domestic product and was known locally as the “black hole” of the economy because it was losing $1 million a day. At the time, the European price of steel had hit a low of $205 a ton. On March 3, 2001, Musetescu
met with then Prime Minister Adrian Nastase to say there was only one bidder: LNM. “I told him I’d done an
Bloomberg Markets
July 2005
COVER STORY: MITTAL
Internet search to find out who they were, and they’re not France’s Usinor or Turkey’s Erdemir or anyone else I’d heard of,” Musetescu recalls. “The prime minister suggested I visit one of their plants, so I went to Kazakhstan.”
On the strength of what Musetescu and fellow Romanian officials saw of the turnaround in Kazakhstan, the government accepted Mittal’s $60 million bid. In July, U.K. Prime Minister
Tony Blair signed a letter to his Romanian counterpart endorsing the sale to Mittal. The Romanian takeover hit the U.K. headlines because Mittal had donated 125,000 pounds to Blair’s Labour Party in June. Mittal and Musetescu say there was no connection between the donation
and the decision to sell the plant. Blair said in 2001 that he didn’t know about the donation when he signed the letter, which he said was sent on the advice
of British diplomats in Romania. Blair’s officials said at the time that the letter was justified on grounds of national
interest, even though Mittal employs
only 100 people in the U.K. Mittal owned LNM through Richmond Investment
Holdings Ltd., a company based in the British Virgin Islands, where international
companies pay no taxes.
Mittal sent Chaudhary from Kazakhstan
to run the Romanian plant in November 2001. On the 130-mile (209-kilometer) highway from Bucharest
to Galat¸i, cars swerve around Roma Gypsies riding horse-drawn carts. In the fields, farmers use horse-drawn plows. Chaudhary, who worked at state-owned Steel Authority of India Ltd. before joining Mittal, says coming
from India can be an advantage in locations such as Romania.
“The way a man coming from India and a man coming from a developed country looks at these situations is different,”
Chaudhary says in his office, which looks down a dusty avenue to the front gate of the Galat¸i plant, where stray dogs wander among the blast furnaces. “We are used to bad roads and the like.”
The Galat¸i plant—and the whole surrounding district—depended on barter for all of its needs, Chaudhary says. Two weeks before the takeover was completed, he went for a sailing
trip on the Danube. “When we got back to dry land, I said I wanted to pay, but the boat owner said not to worry as he would get paid in steel,” he says.
Mittal won over workers by settling unpaid wages and building
a church next to the plant. Trade union leader Scintei approached
Chaudhary soon after the takeover to complain that workers hadn’t received their rations of milk, which is used to reduce toxins from working at the plant, for nine months. “Chaudhary agreed to give workers the value of the missed milk in cash, about 30 euros each,” Scintei says. “That impressed me.” The average wage at the plant is 300 euros ($379) a month.
Mittal also established new export destinations, using the river to boost shipments to Germany. Since the takeover,
Galat¸i’s sales have more than doubled, to $2.1 billion in 2004, while production has risen 35 percent to 5 million tons, and the amount of energy used to produce a ton of liquid
steel has dropped 18 percent.
After its entry into Romania, LNM acquired and made similar
changes at plants and mines in Algeria, Bosnia, the Czech Republic, Poland, Macedonia and South Africa.
Then in August 2004, Aditya Mittal drew his father’s attention
to International Steel. The Mittals asked Credit Suisse
First Boston, a longtime adviser, to approach Ross. He rebuffed the bank. So the Mittals approached Ross’s adviser,
UBS AG. “At first, Wilbur didn’t have a true appreciation of Mittal’s assets,
but it clicked to him pretty quickly,”
says Dieter Hoeppli, global head of UBS’s steel banking group.
“There were rumors that they were highly leveraged, which proved to be totally
unfounded,” Ross says. “The profitability
of the Eastern European assets was right off the chart.” Following the International Steel acquisition, Mittal Steel has net debt of $2.9 billion, equal to less than six months of operating profit. Mittal declines to say what he’ll do with the $2 billion dividend he took from LNM. His past investments outside
the steel industry include Bollywood
For You, a satellite TV channel based in London and Mumbai that shows Indian films, and his son-in-law’s hedge fund.
Ross says he decided to sell International Steel because it was the best option for the company to keep growing. “We had in mind a map that was very similar to the map Mittal has created,” he says. “More businesses should adopt global models.” Still, Ross managed to get Mittal to pay half of the purchase price in cash, up from an initial offer of 25 percent cash and 75 percent stock. The cash payment to International
Steel shareholders of $2.1 billion equals seven times the $300 million of equity that Ross and his backers invested to create International Steel in 2002.
Mittal says his expansion is far from over. In January, he agreed to pay $314 million for 37 percent of Changsha, China–based Hunan Valin Steel Tube & Wire Co. China’s crude steel production rose 23.8 percent in the first three months of this year, outpacing consumption growth of about 11 percent, according to Goldman Sachs JBWere Pty.
Mittal’s Chinese investment again sets him apart from other industry leaders, who see the country as a threat rather than an opportunity. John Surma, CEO of U.S. Steel Corp., said at a steel conference in Luxembourg in March that China must curb its growth in steel output or it would cause a glut
A Trinidad plant paid 60 German managers
$20 million.
‘We brought in 60 Indians and paid them $2 million,’ Mohan Mittal says.
that would hurt prices around the world. The U.S. currently has tariffs on steel imports from Brazil, Japan and Russia.
Mittal brushes aside the Chinese threat. “I do not believe that China will be a net exporter in a major way,” he says. “We always have to remember that they are dependent on iron ore.”
As Lakshmi Mittal expands into the world’s most-populous nation, Mohan Mittal says he has already seen his dream of building a global steel company realized by his son. “When I bought the land in Indonesia, people said the sun is setting on the steel industry, but I knew that when the sun sets in one place, it rises in another,” he says. It’s advice his son still seems to be following as he confronts another downturn by pushing into new markets.„
SIMON CLARK is a senior writer at Bloomberg News in London. MATTHEW CRAZE covers metals in London. With additional reporting by BOGDAN PREDA in Bucharest.sclark4@bloomberg.netmcraze@bloomberg.net
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