• E-mail
• Print
• Comment
• Font Size
• Digg
• del.icio.us
• Discuss article

Mittal Steel Plans 18.6 Billion Bid for Rival Arcelor

Posted on: Sunday, 29 January 2006, 09:00 CST

By Anand Giridharadas

Mittal Steel, the largest global producer with operations from Kazakhstan to Trinidad, said Friday that it would seek to acquire the European steel maker Arcelor, the world's second-largest.

The unsolicited 18.6 billion, or $22.7 billion, bid would be the largest in the history of steel making and symbolizes the ascendancy of multinationals rooted in emerging markets. It places Mittal on the brink of the often-stated company ambition to control 100 million tons of worldwide capacity, about 10 percent of total output. Mittal would become three times heftier in terms of capacity than its nearest rival, Nippon Steel.

On the sidelines of the Arcelor deal, Mittal announced that it would sell Dofasco, a Canadian producer, to Germany's ThyssenKrupp at a price of 68 Canadian dollars, or $59, a share if Mittal succeeds in taking over Arcelor.

The bid is already sparking the concerns of regulators because of its sheer scale. But the two companies, with many of their operations in different markets, may not overlap enough in any particular market to spur serious antitrust worries. Nevertheless, the European Union's antitrust chief, Neelie Kroes, told Bloomberg Television that it was too early to draw any conclusions but that "we should give it a very close eye." Mittal, which describes itself as the most global steel company, has a capacity of 58 million tons, with steal-making facilities in 14 countries and 175,000 employees from 45 nationalities, the company's Web site says.

Arcelor's Web site says it had 30 billion in sales, made shipments of 44 million tons of steel in 2004 and employs 94,000 people in more than 60 countries.

The merged company would have a market capitalization of around $40 billion and annual revenue of $69 billion, Mittal was quoted as telling the Dow Jones news agency.

Aside from potentially making the world's largest steel maker even bigger, the Mittal move symbolizes the rising obsolescence of the nationally rooted steel company, with all its legacy assets, political indebtedness to local constituencies and conservative values.

Based in Rotterdam and London, Mittal is said by analysts to be the first truly rootless steel maker, with operations around the world, including in many markets like Kazakhstan that were originally shunned by others, but that had the sick, rust-coated steel plants that were suited to Mittal's formula of buying ailing companies and turning them into cheap, efficient producers. "It's been an incredibly stable industry up until recent years, and, to some extent, ripe for a fresh approach," said Peter Hickson, the global basic-materials strategist for UBS in London.

That new approach, which includes ruthless improvements in efficiency, could portend massive layoffs or other trimming at Arcelor, which is reckoned to be less lean.

Should the deal go through, it would also have another significance. It would provide further proof of what some economists say is a nascent trend: that companies with roots in emerging markets, and with business innovations nurtured by those markets, are reversing historical trends by exporting those innovations to richer countries.

"Far from being easy targets for exploitation, emerging markets are generating a wave of disruptive product and process innovations that are helping established companies and a new generation of entrepreneurs to achieve new price-performance levels for a range of globally traded goods and services," John Seely Brown, the former chief scientist of Xerox, and John Hagel III, a former McKinsey consultant, wrote in the McKinsey Quarterly management gazette last year. "Eventually, such companies may capture significant market share in Europe and the United States."

In Mittal's case, that appearance arises, at least symbolically, because the company is run by Lakshmi Mittal, the scion of a desert- dwelling merchant clan from the Indian state of Rajasthan.

But it is Mittal's Steel's business model that reflects a new emerging-market challenge to Western companies. Mittal built its business on buying cheap, sick loss-making, sometimes closed or underproducing or simply not profitable relative to their potential steel plants and developing a formula of how to turn them around.

In 1995, for example, Lakshmi Mittal bought a dilapidated steel plant in Kazakhstan that European rivals had written off as being too cumbersome to transform. He saw enormous amounts of fat to cut through to leaner operations and an emerging opportunity to sell to China, at a time when the country's rise was still off the radar screen of international business.

"He bought assets at a time when everyone thought steel assets were going nowhere," Hickson, of UBS, said in an interview last year, before the company announced its plans Friday. Hickson was not permitted to comment on any specific elements of the deal or of the two companies.

"He bought them incredibly cheaply, and through those assets built up a turnaround model that he could apply to a lesser-quality asset. And he ran them cheaply ran them better than anyone else."

Those steel plants are in a roster of countries that reads like a UN Development Program report: Trinidad, Kazakhstan, Algeria, Romania and Indonesia.

Mittal's best managers are emerging-market talent: former employees of bloated public-sector steel companies in India and elsewhere who have years of experience and can be hired for a fraction of a Western wage.

Source: International Herald Tribune

More News in this Category