A rcelor-Mittal : A takeover story
8 December 2010
1. Company Background
Mittal Steel Company was one of the world's largest steel producers by volume, and also one of the largest in turnover. CEO Lakshmi Mittal’s family owned 88% of the company. Mittal Steel was based in Rotterdam but, managed from London. It was formed when Ispat International N.V. acquired LNM Holdings N.V. (both were already controlled by Lakshmi Mittal) and merged with International Steel Group Inc. in 2004. On 25 June 2006, Mittal Steel merged with Arcelor. The merger has been successfully approved by shareholders and directors of Arcelor making Mittal the largest steel maker in the world.
Mittal Steel Company was founded by an Indian steel tycoon, Lakshmi Nivas Mittal. L.N. Mittal played an immense role in Mittal Steel Company’s strategy. L.N. Mittal’s quote goes as follows: “Always think outside the box and increase the opportunities that appear wherever they might be”. He did, in fact, utilize all opportunities presented in the steel market and in less that a decade, he has expanded the company from a wire rod manufacturer in Indonesia to the largest steel producer in the world. His success stemmed from his strategy of buying up loss making steel mills and quickly turning them around.
2. International Strategy
The economic boom in China and India has caused a massive increase in the demand for steel in recent years. Between 2000 and 2005, world steel demand increased by 6%. Since 2000, several other Indian and Chinese steel firms have risen to prominence such as Tata Steel (which bought Corus Group in 2007), Shanghai Baosteel Group Corporation and Shagang Group. These groups are direct competitors and potential threat to Mittal. In order to remain the first steel producer on the international market, Mittal has been multiplying mergers and acquisitions since the 1980s. Mittal’s motto is growth through acquisition. This successful horizontal integration is summarized in the following paragraphs.
In 1989, Mittal acquired Iron & Steel Company of Trinidad & Tobago; in 1992, Sibalsa (Mexico); in 1994, Sidbec-Dosco (Canada); in 1995, Hamburger Stahlwerke (Germany); in 1997, Walzdraht Hochfeld GmbH and Stahlwerk Ruhrort (Germany); in 1998, Inland Steel Company (US); in 1999, Unimétal (France); in 2003, the company acquired Nowa Huta (Poland); in 2004, Polskie Huty Stali, BH Steel, Macedonian facilities from Balkan Steel. In October 2005 Mittal Steel acquired a Ukrainian steel manufacturer Kryvorizhstal for $4.8 billion at an auction. This occurred right after an earlier controversial sale of the Enterprise to a consortium including the son-in-law of ex-President Leonid Kuchma. In 2005 Lakshmi Mittal flew into Jharkhand, India to announce a $9 billion investment to build a Greenfield steel plant with 12 million tons per annum production capacity.
As we can see, Mittal’s strategy has been to acquire many established western steel manufacturing plants. The reasoning behind it lies in the fact that these plants have been in crisis since the 1970s; therefore, they could have been purchased at bargain prices and then turned around in efficient facilities. The generated profits could be reinvested in the fast growing markets in India. As a result, this formidable growth created economies of scale and synergies. The geographical expansion also allowed Mittal to adapt to various standards and to sell its products directly in both saturated and non-saturated markets. The steel industry is a capital intensive industry. Thus, there are many advantages related to diversification: transfer of expertise, capabilities and technology from an acquired firm; grouping of related activities into a single operation and reduction of costs; Arcelor-Mittal : A Takeover Story
use of an established firm’s brand name reputation....