Description
On this brief paper around the borderless ceo.
September 20, 2011
The Borderless CEO
Only last October, The Economist asked rudely, "Lakshmi who?" Five months later, there was Lakshmi Mittal,
chairman and CEO of Mittal Steel Company, arriving at No. 3 on the Forbes magazine list of the world’s
billionaires, pictured next to the pool of his $100 million London mansion, neighbor to Kensington Palace on one
side and the home of the Sultan of Brunei on the other. His net worth was $25 billion, a jump of $18.8 billion in
the previous 12 months based on the acquisition of International Steel Group. And that‘s just the rock star side of
things.
Mittal, eldest son of Mohan
Lal Mittal, who bought a tiny
steel company in Indonesia in
1975, has been buying
companies one after the other
since 1989. His acquisitions
give new meaning to the
concept of a borderless
company. The first company
bought by the then-Ispat Steel
was in Trinidad. The 15 years
that have followed have taken
Mittal’s company to both
Eastern and Western Europe,
North and Central America,
northern and South Africa,
and the Balkans.
What Mittal saw before most
of the rest of the metals
industry was that, when
development hits a poor
country, one of the first things
it needs in large quantities is
steel.
Along the way, he has
become a consummate turn-
around artist and an
accomplished privatizer of
government-owned
companies. He is also one of
the business world’s most
fearless consolidators.
Q: You left India at 25. Was it
necessary, as the Financial
Times claims, for you to leave
to achieve success?
A: My family owned some
land in Indonesia and I
initially went to negotiate the
sale of this land. However, on
arrival I saw what I
considered to be a good
opportunity and built a
greenfield venture that was to
become Ispat Indo. I had not
been specifically planning to
leave India and therefore I
cannot say whether it was
necessary for me to leave to
achieve success. It was simply
an opportunity that presented
itself and one that proved
successful.
That is not to say it was easy.
On the contrary, those early
days involved a huge amount
of hard work. But we were all
young and believed in what
we were trying to achieve. It
was a great time.
Q: You were one of the first
to see that when a Third
World country develops First
World appetites, it needs old-
economy commodities. In that
regard, has being a native of
the Third World been an
advantage?
A: Every economy needs
steel, whether developing or
developed. This is why Mittal
Steel has built up a position in
14 countries on four
continents in both developing
and developed countries.
It is true that growth potential
for steel consumption in
developing countries is going
to be higher, and that is why
we have built up an operating
presence in markets such as
Central and Eastern Europe.
Nowhere is there a better
example of this than in China
which, of course, has been the
catalyst for the revival in the
steel industry’s fortunes.
In terms of my own
background, perhaps to some
extent this has been an
advantage. Certainly my
experiences have led me to be
very culturally diverse and
look for opportunities
wherever they might exist.
Q: In 1998, The Economist
said your stated aims were to
be the largest and the best
managed steel company in the
world. Largest is easy to
quantify. But what constitutes
the best managed?
A: Our aim has never been to
be the world’s largest steel
producer although this is
something that we have
achieved. We have, however,
always believed in
consolidation and
globalization and in the
benefits that such size and
scope will bring.
Rather our aim is to be the
world’s most admired steel
institution. This is far more
than simply being the biggest.
We are striving to achieve
standards of excellence in all
areas of our business—steel
production and processing,
technological development,
functional areas such as sales
and marketing, procurement,
corporate governance and IT
and areas such as human
resources, continuous
improvement and knowledge
integration. It is in striving for
excellence in all areas of our
business that we hope will
combine to ensure we create a
sustainable and profitable
business with significant
value for all key stakeholders
that is admired on a global
basis.
Q: The steel industry is
traditionally slow to change.
How much of your task is
transformation after
an acquisition?
A: Mittal Steel has built a
reputation for our ability to
turn around under-performing
steel companies that we have
acquired. When we make
acquisitions, we look for
companies where we believe
we can add value over the
longer term. In some
instances the transformation
has been substantial. Take for
example Karmet in
Kazakhstan bought in 1995
(now Mittal Steel Temirtau)
where production had almost
stopped and salaries hadn’t
been paid for months. Or
Sidex in Romania bought in
2001 (now Mittal Steel
Galati) which had been losing
$1 million per day. Both of
these businesses are now
profitable, viable companies
and we are very proud of the
way in which we have been
able to guarantee their long-
term future.
The amount of transformation
required is dependent on the
acquisition. For example we
have recently completed our
merger with International
Steel Group in the U.S. ISG is
a well established and well
run business and is not a
turnaround situation in the
same way that many of our
acquisitions in emerging
markets have been. However,
we still see considerable
synergies between ISG and
our existing business in the
U.S., Ispat Inland, and will be
working to capture these over
the next two years.
Q: How important is your
management team to the
quick turnarounds you have
achieved?
A: Essential. We have
successfully completed 15
privatizations, and numerous
further acquisitions. The skills
and lessons that we learn from
one deal we take with us to
the next. I think it is fair to
say that we have an unrivaled
track record of turning around
under-performing steel assets.
Although each acquisition is
different and throws up its
own challenges we have tried
and tested turnaround strategy
techniques. The first step in
turnarounds is to send in a
specific commercial team to
identify and address what
needs improving. Each
acquisition is different, but
generally, this includes
injecting essential capital to
get the plant up and running
again, re-establishing supplier
relationships, stopping barter
trade, reducing costs,
increasing efficiency,
exploring new markets and
often regaining lost domestic
market share and, finally,
making significant capital
investments to improve
facilities and product mix.
Simultaneously, the business
also becomes a member of the
world’s most global steel
producer and benefits in
numerous ways from
knowledge sharing—
steelmaking expertise, R&D
know-how, for instance—and
significant economies of scale
in terms of global purchasing
power, access to new sales
and marketing networks.
Q: Do you have a centralized
or decentralized approach to
managing and decision-
making in such global
company?
A: We favor a decentralized
approach. All our operations
are run as independent
business units. I encourage all
our regional CEO’s to think
like me, as entrepreneurs, and
take decisions that they feel
will grow and develop each of
the individual businesses.
This decentralized approach
encourages quick decision-
making, and we have a very
flexible management team
that I believe is motivated by
the responsibilities that they
are given.
The corporate office remains
in touch with the management
teams on a regular basis. We
host weekly conference calls
on a number of issues to
exchange information, and all
corporate officers remain
firmly in touch with what
happens at all operations
globally to ensure a cohesive
implementation of the groups’
strategy.
Q: You were an early adopter
of the mini-mill strategy and
of direct-reduced iron (DRI).
What are the next big
technical and technological
trends in the metals industry?
A: Technology is, of course,
very important to the industry
and we are regularly investing
in it to maintain and improve
the technology we are using.
But in terms of any major
technology change that would
cause a structural change in
the way the industry operates,
we do not see anything on the
horizon.
Q: How much longer do you
expect steel prices to remain
high?
A: We have experienced good
demand growth in the steel
industry in the past couple of
years. We are now
experiencing a slight
softening of prices, but I keep
reminding people to look at
this in the context of the
market historically.
These are still good times for
the steel industry. The
challenge that we now have is
to demonstrate that we can
maintain this current
environment.
Q: Are the days of the buyers’
market in steel gone?
A: I believe that greater
consolidation in our industry
will help to offer a better
balance between the buyers
and the sellers. Continued
growth in demand and higher
input costs will continue to
impact steel prices.
Q: You have bought in good
times and bad but how much
does the current capital
environment influence your
expansion decisions?
A: Our acquisition strategy is
based on acquiring assets that
we believe can add value over
the longer term. In terms of
the capital environment, this
depends on whether you are
using paper to finance the
deal. We were fortunate in the
last downturn that LNM
Holdings was able to fund
acquisitions through cash. In
fact the company doubled in
size during this period, when
many other companies were
going bankrupt. This is one of
the reasons we believe it is
important for steel companies
to retain healthy balance
sheets and not to be too
highly leveraged.
Q: Would you ever consider
vertically integrating into the
metals distribution business in
North America?
A: Whilst Mittal Steel’s
business model is one of the
most vertically integrated in
the industry in terms of
upstream raw material assets
and downstream finishing
facilities, distribution is not
something that we have
branched into. This, however,
does not mean that we might
not look at opportunities in
the future if they arose.
Q: At this point, the world’s
top steel producers share only
one-fifth of world output. At
what point will you attract the
attention of anti-trust
watchdogs? And what
happens then?
A: We are a long way from
that point. There are
numerous examples in other
industries, such as automotive
and petrochemicals, where
they have four or five global
players with market share
significantly higher than the
current situation in the steel
industry. They aren’t overtly
affected by anti-trust
watchdogs so I see no reason
why the situation should be
any different for the steel
industry. I think we are still a
long way off this even
beginning to become an issue.
Mittal Steel is the world’s
largest producer and we still
only have 6% of total global
production.
Q: What is the advantage of
great size for a steel
manufacturer? Will
consolidation of the industry
continue?
A: With size comes increased
flexibility. We have detailed
knowledge of all global steel
markets and can tailor our
production to meet specific
market needs and patterns,
hence better serving our
customers’ requirements
globally and protecting
ourselves from the cyclicality
of the industry.
There also are the obvious
economy of scale advantages
such as global purchasing and
marketing power. Our
continuous improvement
philosophy and knowledge
management program ensure
that expertise is shared
throughout the group in all
areas of the business.
These are just some of the
advantages of our size and
global position. As I have said
previously, it is about creating
a sustainable steel industry
and consolidation and
globalization is our
underlying strategy to achieve
this aim.
Will consolidation continue? I
think the answer is definitely
yes. Today it is not only
Mittal Steel espousing the
cause for consolidation—
many of the top steel
producers are looking for
their own expansion
opportunities. I would expect
this to continue and believe it
is perfectly feasible that
within a decade we will have
a handful of steel companies
producing between 80 and
100 million tons.
Solid Strategy
by Betsy Massar
The name Mittal Steel probably doesn't mean much to most Americans, but to anyone involved
in American manufacturing, it should. Mittal is, at 70 million tons in capacity, the largest steel
company in the world with 6% of global steel production. In the United States, the company now
includes the assets of household names Bethlehem Steel and LTV, along with Inland, Weirton,
Acme and smaller entities.
Lakshmi N. Mittal, chairman of the Rotterdam-based company, got his start in the steel business
in the mid-1970s in Indonesia, and through clever acquisitions and management efficiencies,
turned Mittal Steel into a market-leading $30 billion business. Mittal and his family, including
Aditya, his 28-year-old son who is president and CFO of Mittal Steel, own 88% of the company,
which has market capitalization of $17 billion.
As of May 2005, Mittal became an agglomeration of LMN holdings (the privately held family
entity), with Eastern European and African properties; Mittal-controlled Ispat, the parent
company of Inland Steel and holder of Mexican, German and Caribbean Assets; and
International Steel Group (ISG), the company formed by Wilbur J. Ross in 2002 comprising the
assets of Bethlehem Steel, LTV, Weirton and Acme. In North America, Mittal Steel now
controls 30 million tons, or 30% of capacity, three times as much as each of the next two
competitors, US Steel and Nucor.
Mittal's successful acquisition strategy has been to purchase nearly bankrupt assets around the
globe and to turn those operations into viable businesses. George T. Haley, professor of
marketing and international business programs at the University of New Haven, and author of
several books on business in emerging markets, says Mittal's success is about more than simply
buying assets cheaply. Haley cites the case of the Mexican government's third largest steel
producer, Sicartsa, which Ispat purchased from the Mexican government in 1992. "Mittal
personally spent six months on the ground there, focusing on what the company could do well
and what they could do profitably," Haley says. Within one year, Ispat Mexicana, or Imexsa, was
making money. By 1998, Imexsa had tripled shipments to more than three million tons,
improved productivity and shifted its product line to higher-value-added goods.
But the largest single acquisition and most celebrated has been the Richfield, Ohio, International
Steel Group. In buying ISG, Mittal diversified its revenue base so that approximately 50% of
sales would be generated in North America.
When the deal was announced last autumn, it looked like Mittal was buying ISG at the peak of
the market. "In October 2004 the price of hot rolled sheet was $780 per ton, up from $300 per
ton at the beginning of the year. That’s a big jump," says Brett Levy, head of high-yield
investments and senior metals analyst at Jefferies & Company. Despite the high prices, Levy
believes Mittal will make a good return on the investment. "Over the past 15 years, the price of
hot-rolled sheet has ranged from $200 to $400 a ton. At $400 producers make a profit, at $200
they lose money," he explains. By May 2005, the price had dropped to $500 per ton, "but that's
still quite profitable, even with higher raw material prices," says Levy.
Timothy Considine, professor of natural resource economics at The Pennsylvania State
University, contends that buying ISG when Mittal did was a savvy move. "ISG management did
a lot of the heavy lifting by streamlining the companies that comprise the combined firm," says
Considine. In an April report published by the American Iron and Steel Institute, Considine
found that by 2004, North American steel companies were much more efficient and profitable
than they had been in the 1990s and early 2000.
Mittal Steel's corporate strategy is to continue expanding by acquisition, especially in growing
markets. In January 2005, the group announced an agreement to take 37.17% of one of China's
largest steelmakers. And management makes no secret of his future strategy: to get even bigger.
Says Chairman and CEO Lakshmi Mittal: "I would like to see the situation develop within the
next decade where the top three players comprise 20% of total global production."
doc_879787760.pdf
On this brief paper around the borderless ceo.
September 20, 2011
The Borderless CEO
Only last October, The Economist asked rudely, "Lakshmi who?" Five months later, there was Lakshmi Mittal,
chairman and CEO of Mittal Steel Company, arriving at No. 3 on the Forbes magazine list of the world’s
billionaires, pictured next to the pool of his $100 million London mansion, neighbor to Kensington Palace on one
side and the home of the Sultan of Brunei on the other. His net worth was $25 billion, a jump of $18.8 billion in
the previous 12 months based on the acquisition of International Steel Group. And that‘s just the rock star side of
things.
Mittal, eldest son of Mohan
Lal Mittal, who bought a tiny
steel company in Indonesia in
1975, has been buying
companies one after the other
since 1989. His acquisitions
give new meaning to the
concept of a borderless
company. The first company
bought by the then-Ispat Steel
was in Trinidad. The 15 years
that have followed have taken
Mittal’s company to both
Eastern and Western Europe,
North and Central America,
northern and South Africa,
and the Balkans.
What Mittal saw before most
of the rest of the metals
industry was that, when
development hits a poor
country, one of the first things
it needs in large quantities is
steel.
Along the way, he has
become a consummate turn-
around artist and an
accomplished privatizer of
government-owned
companies. He is also one of
the business world’s most
fearless consolidators.
Q: You left India at 25. Was it
necessary, as the Financial
Times claims, for you to leave
to achieve success?
A: My family owned some
land in Indonesia and I
initially went to negotiate the
sale of this land. However, on
arrival I saw what I
considered to be a good
opportunity and built a
greenfield venture that was to
become Ispat Indo. I had not
been specifically planning to
leave India and therefore I
cannot say whether it was
necessary for me to leave to
achieve success. It was simply
an opportunity that presented
itself and one that proved
successful.
That is not to say it was easy.
On the contrary, those early
days involved a huge amount
of hard work. But we were all
young and believed in what
we were trying to achieve. It
was a great time.
Q: You were one of the first
to see that when a Third
World country develops First
World appetites, it needs old-
economy commodities. In that
regard, has being a native of
the Third World been an
advantage?
A: Every economy needs
steel, whether developing or
developed. This is why Mittal
Steel has built up a position in
14 countries on four
continents in both developing
and developed countries.
It is true that growth potential
for steel consumption in
developing countries is going
to be higher, and that is why
we have built up an operating
presence in markets such as
Central and Eastern Europe.
Nowhere is there a better
example of this than in China
which, of course, has been the
catalyst for the revival in the
steel industry’s fortunes.
In terms of my own
background, perhaps to some
extent this has been an
advantage. Certainly my
experiences have led me to be
very culturally diverse and
look for opportunities
wherever they might exist.
Q: In 1998, The Economist
said your stated aims were to
be the largest and the best
managed steel company in the
world. Largest is easy to
quantify. But what constitutes
the best managed?
A: Our aim has never been to
be the world’s largest steel
producer although this is
something that we have
achieved. We have, however,
always believed in
consolidation and
globalization and in the
benefits that such size and
scope will bring.
Rather our aim is to be the
world’s most admired steel
institution. This is far more
than simply being the biggest.
We are striving to achieve
standards of excellence in all
areas of our business—steel
production and processing,
technological development,
functional areas such as sales
and marketing, procurement,
corporate governance and IT
and areas such as human
resources, continuous
improvement and knowledge
integration. It is in striving for
excellence in all areas of our
business that we hope will
combine to ensure we create a
sustainable and profitable
business with significant
value for all key stakeholders
that is admired on a global
basis.
Q: The steel industry is
traditionally slow to change.
How much of your task is
transformation after
an acquisition?
A: Mittal Steel has built a
reputation for our ability to
turn around under-performing
steel companies that we have
acquired. When we make
acquisitions, we look for
companies where we believe
we can add value over the
longer term. In some
instances the transformation
has been substantial. Take for
example Karmet in
Kazakhstan bought in 1995
(now Mittal Steel Temirtau)
where production had almost
stopped and salaries hadn’t
been paid for months. Or
Sidex in Romania bought in
2001 (now Mittal Steel
Galati) which had been losing
$1 million per day. Both of
these businesses are now
profitable, viable companies
and we are very proud of the
way in which we have been
able to guarantee their long-
term future.
The amount of transformation
required is dependent on the
acquisition. For example we
have recently completed our
merger with International
Steel Group in the U.S. ISG is
a well established and well
run business and is not a
turnaround situation in the
same way that many of our
acquisitions in emerging
markets have been. However,
we still see considerable
synergies between ISG and
our existing business in the
U.S., Ispat Inland, and will be
working to capture these over
the next two years.
Q: How important is your
management team to the
quick turnarounds you have
achieved?
A: Essential. We have
successfully completed 15
privatizations, and numerous
further acquisitions. The skills
and lessons that we learn from
one deal we take with us to
the next. I think it is fair to
say that we have an unrivaled
track record of turning around
under-performing steel assets.
Although each acquisition is
different and throws up its
own challenges we have tried
and tested turnaround strategy
techniques. The first step in
turnarounds is to send in a
specific commercial team to
identify and address what
needs improving. Each
acquisition is different, but
generally, this includes
injecting essential capital to
get the plant up and running
again, re-establishing supplier
relationships, stopping barter
trade, reducing costs,
increasing efficiency,
exploring new markets and
often regaining lost domestic
market share and, finally,
making significant capital
investments to improve
facilities and product mix.
Simultaneously, the business
also becomes a member of the
world’s most global steel
producer and benefits in
numerous ways from
knowledge sharing—
steelmaking expertise, R&D
know-how, for instance—and
significant economies of scale
in terms of global purchasing
power, access to new sales
and marketing networks.
Q: Do you have a centralized
or decentralized approach to
managing and decision-
making in such global
company?
A: We favor a decentralized
approach. All our operations
are run as independent
business units. I encourage all
our regional CEO’s to think
like me, as entrepreneurs, and
take decisions that they feel
will grow and develop each of
the individual businesses.
This decentralized approach
encourages quick decision-
making, and we have a very
flexible management team
that I believe is motivated by
the responsibilities that they
are given.
The corporate office remains
in touch with the management
teams on a regular basis. We
host weekly conference calls
on a number of issues to
exchange information, and all
corporate officers remain
firmly in touch with what
happens at all operations
globally to ensure a cohesive
implementation of the groups’
strategy.
Q: You were an early adopter
of the mini-mill strategy and
of direct-reduced iron (DRI).
What are the next big
technical and technological
trends in the metals industry?
A: Technology is, of course,
very important to the industry
and we are regularly investing
in it to maintain and improve
the technology we are using.
But in terms of any major
technology change that would
cause a structural change in
the way the industry operates,
we do not see anything on the
horizon.
Q: How much longer do you
expect steel prices to remain
high?
A: We have experienced good
demand growth in the steel
industry in the past couple of
years. We are now
experiencing a slight
softening of prices, but I keep
reminding people to look at
this in the context of the
market historically.
These are still good times for
the steel industry. The
challenge that we now have is
to demonstrate that we can
maintain this current
environment.
Q: Are the days of the buyers’
market in steel gone?
A: I believe that greater
consolidation in our industry
will help to offer a better
balance between the buyers
and the sellers. Continued
growth in demand and higher
input costs will continue to
impact steel prices.
Q: You have bought in good
times and bad but how much
does the current capital
environment influence your
expansion decisions?
A: Our acquisition strategy is
based on acquiring assets that
we believe can add value over
the longer term. In terms of
the capital environment, this
depends on whether you are
using paper to finance the
deal. We were fortunate in the
last downturn that LNM
Holdings was able to fund
acquisitions through cash. In
fact the company doubled in
size during this period, when
many other companies were
going bankrupt. This is one of
the reasons we believe it is
important for steel companies
to retain healthy balance
sheets and not to be too
highly leveraged.
Q: Would you ever consider
vertically integrating into the
metals distribution business in
North America?
A: Whilst Mittal Steel’s
business model is one of the
most vertically integrated in
the industry in terms of
upstream raw material assets
and downstream finishing
facilities, distribution is not
something that we have
branched into. This, however,
does not mean that we might
not look at opportunities in
the future if they arose.
Q: At this point, the world’s
top steel producers share only
one-fifth of world output. At
what point will you attract the
attention of anti-trust
watchdogs? And what
happens then?
A: We are a long way from
that point. There are
numerous examples in other
industries, such as automotive
and petrochemicals, where
they have four or five global
players with market share
significantly higher than the
current situation in the steel
industry. They aren’t overtly
affected by anti-trust
watchdogs so I see no reason
why the situation should be
any different for the steel
industry. I think we are still a
long way off this even
beginning to become an issue.
Mittal Steel is the world’s
largest producer and we still
only have 6% of total global
production.
Q: What is the advantage of
great size for a steel
manufacturer? Will
consolidation of the industry
continue?
A: With size comes increased
flexibility. We have detailed
knowledge of all global steel
markets and can tailor our
production to meet specific
market needs and patterns,
hence better serving our
customers’ requirements
globally and protecting
ourselves from the cyclicality
of the industry.
There also are the obvious
economy of scale advantages
such as global purchasing and
marketing power. Our
continuous improvement
philosophy and knowledge
management program ensure
that expertise is shared
throughout the group in all
areas of the business.
These are just some of the
advantages of our size and
global position. As I have said
previously, it is about creating
a sustainable steel industry
and consolidation and
globalization is our
underlying strategy to achieve
this aim.
Will consolidation continue? I
think the answer is definitely
yes. Today it is not only
Mittal Steel espousing the
cause for consolidation—
many of the top steel
producers are looking for
their own expansion
opportunities. I would expect
this to continue and believe it
is perfectly feasible that
within a decade we will have
a handful of steel companies
producing between 80 and
100 million tons.
Solid Strategy
by Betsy Massar
The name Mittal Steel probably doesn't mean much to most Americans, but to anyone involved
in American manufacturing, it should. Mittal is, at 70 million tons in capacity, the largest steel
company in the world with 6% of global steel production. In the United States, the company now
includes the assets of household names Bethlehem Steel and LTV, along with Inland, Weirton,
Acme and smaller entities.
Lakshmi N. Mittal, chairman of the Rotterdam-based company, got his start in the steel business
in the mid-1970s in Indonesia, and through clever acquisitions and management efficiencies,
turned Mittal Steel into a market-leading $30 billion business. Mittal and his family, including
Aditya, his 28-year-old son who is president and CFO of Mittal Steel, own 88% of the company,
which has market capitalization of $17 billion.
As of May 2005, Mittal became an agglomeration of LMN holdings (the privately held family
entity), with Eastern European and African properties; Mittal-controlled Ispat, the parent
company of Inland Steel and holder of Mexican, German and Caribbean Assets; and
International Steel Group (ISG), the company formed by Wilbur J. Ross in 2002 comprising the
assets of Bethlehem Steel, LTV, Weirton and Acme. In North America, Mittal Steel now
controls 30 million tons, or 30% of capacity, three times as much as each of the next two
competitors, US Steel and Nucor.
Mittal's successful acquisition strategy has been to purchase nearly bankrupt assets around the
globe and to turn those operations into viable businesses. George T. Haley, professor of
marketing and international business programs at the University of New Haven, and author of
several books on business in emerging markets, says Mittal's success is about more than simply
buying assets cheaply. Haley cites the case of the Mexican government's third largest steel
producer, Sicartsa, which Ispat purchased from the Mexican government in 1992. "Mittal
personally spent six months on the ground there, focusing on what the company could do well
and what they could do profitably," Haley says. Within one year, Ispat Mexicana, or Imexsa, was
making money. By 1998, Imexsa had tripled shipments to more than three million tons,
improved productivity and shifted its product line to higher-value-added goods.
But the largest single acquisition and most celebrated has been the Richfield, Ohio, International
Steel Group. In buying ISG, Mittal diversified its revenue base so that approximately 50% of
sales would be generated in North America.
When the deal was announced last autumn, it looked like Mittal was buying ISG at the peak of
the market. "In October 2004 the price of hot rolled sheet was $780 per ton, up from $300 per
ton at the beginning of the year. That’s a big jump," says Brett Levy, head of high-yield
investments and senior metals analyst at Jefferies & Company. Despite the high prices, Levy
believes Mittal will make a good return on the investment. "Over the past 15 years, the price of
hot-rolled sheet has ranged from $200 to $400 a ton. At $400 producers make a profit, at $200
they lose money," he explains. By May 2005, the price had dropped to $500 per ton, "but that's
still quite profitable, even with higher raw material prices," says Levy.
Timothy Considine, professor of natural resource economics at The Pennsylvania State
University, contends that buying ISG when Mittal did was a savvy move. "ISG management did
a lot of the heavy lifting by streamlining the companies that comprise the combined firm," says
Considine. In an April report published by the American Iron and Steel Institute, Considine
found that by 2004, North American steel companies were much more efficient and profitable
than they had been in the 1990s and early 2000.
Mittal Steel's corporate strategy is to continue expanding by acquisition, especially in growing
markets. In January 2005, the group announced an agreement to take 37.17% of one of China's
largest steelmakers. And management makes no secret of his future strategy: to get even bigger.
Says Chairman and CEO Lakshmi Mittal: "I would like to see the situation develop within the
next decade where the top three players comprise 20% of total global production."
doc_879787760.pdf