Big Steel – Getting Bigger

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Ferrous Metals, M&A Activity

Editor’s Note: This is the first of a two-part series

I was reading an interesting article the other day in that most informative of publications, the Economist, about the rise Lakshmi Mittal. Mittal has become the world’s fifth richest man worth some $37b principally through his 43% stake in the world’s largest steel maker ArcelorMittal. Mittal didn’t exactly start from scratch in building his global empire, daddy got him kick started with a new steel mill in Indonesia in 1975 but even so his rise has been spectacular. It’s more akin to a Silicon Valley business than a mature industry like steel making. Mittal really hit the big time in October 2004 when he purchased the consolidated steel assets of Wilbur L Ross’ International Steel Group for $4.5b and in the process became the largest steel maker in the world. A position enhanced further by the merger with Luxembourg based Arcelor in 2006 (can it only be 2006, it seems longer ago, so commonplace has the merged company’s name become in just 2 years). Typically such a rate of acquisition would be funded by massive debt but with AM’s that has not been the case. You may say $22b is a mountain of debt in anyone’s language but when taken in the context of $105b of sales and $19b of EBITDA profit it’s not excessive. So how has he done it?

Timing is in part the answer. When Wilbur Ross purchased the rusting assets of LTV, Bethlehem Steel and Weirton starting in 2002 it was after the US steel industry had gone through 35 bankruptcies in five years. He paid $2b for those assets, worked his magic reducing costs with the unions and offloading pension liabilities and two years later sold International Steel Group to Mittal doubling his money in the process. Since then the steel industry has been driven by unprecedented demand from China and all steel assets (and profits and cash flow) have been headed north. Even the UK’s sick man Corus has managed to make money during this time.

May be Mittal’s biggest achievement is getting all these disparate once individual and autonomous plants working as a single entity. Not just in the US but in Eastern Europe and later with Arcelor. In his own words part of that was down to the nature of the businesses he bought along the way, both ISG and Arcelor were themselves the product of earlier consolidations in the industry and by the time Mittal came along the plant managers and corporate bosses were used to change. Apparently it didn’t scare them like it so often does with well established mature industries. Even so the rapid re-branding and integration of these different companies deserves study as an example in successful change management as much as it does in entrepreneurial money making.

–Stuart Burns

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