Thomas White Global Investing
Global Players

Global Players

March 2010

Lakshmi Mittal, Chairman, ArcelorMittal


“ArcelorMittal has grown through acquisitions and will likely continue to do so.”

— Lakshmi Mittal, in the Economic Times, 2010


He is the new age Midas. Anything he touches turns to steel. Indian born Lakshmi Mittal is the Chairman of ArcelorMittal, a firm that has grown under his spell, from its small roots in Indonesia to the largest steelmaker in the world, holding 8% of the global steel output.

Mittal’s steel empire was homegrown. His family moved to Kolkata in eastern India in the early 1960s where his father became a partner in a small steel business. Growing up, the young Mittal would work alongside his father. After graduating with a business and accounting degree, Mittal joined his father in the family steel business as a trainee.

But Lakshimi Mittal’s aspirations were global. Realizing that opportunities in India were limited, he convinced his father in 1975 to branch out and buy a rundown steel mill in Jakarta, Indonesia, and install him as operations head. He named the budding company, Ispat, which means “steel” in Hindi.

In the next ten years, the number crunching Mittal perfected what would become his winning formula- turning around small unprofitable steel mills into money makers. He also honed his strategy to develop lower-cost entry mini-mills, instead of large blast furnace steel works, which were much less flexible to set up. What’s more, Mittal pioneered the use of direct reduced iron or “DRI” to produce steel, a raw material that replaced scrap metal, with cost advantages of up to 50%.

With the Jakarta mill now churning a profit, Mittal’s eye turned to steel mills run by the Trinidad and Tobago government, which were running at a loss of $80 million per year due to poor management. But no sooner had the mills passed into Mittal’s hands, than their profit was doubled within a year. By 1992, Ispat’s revenues totaled $440 million.

After this successful turn, Mittal went shopping in earnest. Expanding on his strategic blueprint of trimming costs while increasing production, he began focusing on acquisitions, modernization and investments. In 1995, Mittal reorganized the company, turning over the Indian operations to his father and brothers, and retaining the international operations to form LNM Group, with Ispat International falling under its umbrella. By now Mittal’s expanding empire included steel mills from Mexico and Canada, to Germany, Ireland and Kazakhstan, in the former Soviet Union.

After sweeping the globe for attractive opportunities, Mittal expanded his footprint to the United States in 1998, but this time breaking his pattern of acquiring loss-making castoffs. The $1.43 billion acquisition of Indiana based Inland Steel was a significant buy that catapulted Mittal among the top ten producers of steel in the world. In 2004, Ispat International merged with LNM to form Mittal Steel. The new company consolidated its presence in the American steel market, acquiring International Steel Group for $4.5 billion. This now made the company, “the world’s premier steel producer and also the largest producer in the North American market,” as Mittal described in BusinessWire.

But it was Arcelor that transformed the Mittal name in international business circles. Luxembourg based Arcelor, once the world’s largest steel producer in turnover terms, melted to Mittal’s bid of $33 billion, and ArcelorMittal was formed in 2006. With the help of his Wharton educated son Aditya Mittal, who pushed for the Arcelor deal and ironed out every crease in the final agreement, Lakshmi Mittal and the Mittal name now resonated in the global steel market.

Today the company is 43% family owned, supplies its products to the automotive, household appliance, construction and packaging industries, among others, and boasts a geographic footprint spanning 60 countries. In 2009, ArcelorMittal’s revenues were $65.1 billion, with the company producing 71.1 million tons of steel, which was in fact 30% lower than in 2008, due to the recession.

Ironically, India has been one of the few markets that eluded Mittal’s steely grasp. But last year, ArcelorMittal, now run by the powerhouse father-son duo, eliminated that chink in its steel chain when it became the co-promoter of Uttam Galva Steels, the largest cold rolled and galvanized steelmaker in Western India. The ‘Steel Maharajah,’ as Mittal is known, originally bought a 5.6% stake in the Indian company in October 2009, and later in February 2010, built his interest up to 34.42% for $92 million.

The 59-year-old steel tycoon, named after Lakshmi, the goddess of wealth in India, was recently ranked fifth richest man in the world by Forbes. As Mittal admits to the Wall Street Journal “Steel has been my strength, and I always wanted to build my steel company, to create the largest global steel company.” And he has succeeded in doing so. By forging together the largest steel company in the world, Mittal’s vaulting ambition has blurred the fine lines that once divided the global steel market, molding it into a single, giant marketplace. For Mittal, who as a young man yearned to venture beyond his own backyard, it has truly become a globalized world.

 

 

 

 

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