Five days ago, ArcelorMittal, the world’s biggest steel maker with a capacity of 118 million tonnes per annum, announced that it had signed a deal with Chinese steel maker, China Oriental, to eventually increase its 28 per cent stake in the company to 73.13 per cent.
ArcelorMittal already owns 29 per cent in another Chinese steel company, Hunan Valin Steel Tube and Wire Company, and another 12 per cent in a joint venture called Baosteel Nippon ArcelorMittal that makes automotive steel sheets. (A few days after the writer met the young Mittal, the company signed a deal in Russia to build its first steel unit in the country.) “We plan to have a capacity of 150-200 million tonnes over the next 10 years,” says Mittal as a matter of fact.
At 31, Mittal is in a position few dream of attaining even in their old age. With $88.6 billion in annual revenues and an industrial presence in 27 countries, ArcelorMittal has a 20 per cent share of the world steel market (excluding China and India).
One big reason why Mittal finds himself in this enviable situation is, of course, the fact that he’s the son of Lakshmi Niwas Mittal, who’s built his mammoth steel empire from scratch in less than four decades. But the other big reason why the young man draws respect beyond his age both within and outside his steel empire is his smarts.
He is the one widely credited with spotting, first, the merger opportunity with Wilbur Ross’s International Steel Group (ISG), which created the world’s largest steel company (with a capacity of 70 million tonnes per annum), and then the Mittal crowning glory: the purchase of rival Arcelor, which made the Mittals the biggest steel manufacturers by far in the world. Today, the gap between them and the #2 player, Nippon Steel, is in excess of 75 MTPA.
Trial by fire
After graduating with a degree in economics from the Wharton School of Business at the University of Pennsylvania, Mittal spent a year at Credit Suisse First Boston as an investment banker. By Mittal’s own admission, it was a year well spent. “The most incredible thing I learnt in investment banking was the work ethic. People usually work 80-90 hours a week there,” says Mittal, who (along with his wife and kids) lives with his parents at the family’s tony Kensington Palace Gardens mansion. In 1997, he joined Mittal Steel and was drafted into various finance and management functions.
Two years later, he was appointed Head of Mergers and Acquisitions (M&A) for Mittal Steel. Although in this job he managed to drive the company into key new markets, his mettle got tested like never before.
No sooner had Mittal taken over as the head of M&A at Mittal Steel than the steel industry crashed. It was a time when Corus (later to be acquired by Tata Steel) was close to bankruptcy and a third of the US steel industry had actually filed for Chapter 11 (bankruptcy). “We were downgraded to one notch above default by credit rating agencies. Clearly, it was the worst time,” recalls Mittal, who likes skiing and water sailing.
As the head of M&A, his job suddenly became a lot more complicated. He not only had to find good deals, but also ensure that Mittal Steel’s survival was not threatened by any ill-planned or ill-executed deal.
An extraordinary league
ArcelorMittal’s close competitors are global and aggressive themselves.
The only good thing it seemed was there were plenty of distressed assets in the market. With most players fighting for survival, few were thinking acquisitions, but Mittal, he says, had a job to do. “There were countless opportunities because everyone who had a steel company wanted to sell it,” he says.
Keen to fish, Mittal came up with a simple acquisition strategy. He looked at every deal assuming that the downturn was going to last forever. “It was on that basis that we had to ask ourselves if these acquisitions could work. If the answer to that was yes, then we just went ahead,” he recalls. Not everyone in the industry was thinking of a buyout or even capacity expansion and Mittal Steel was in fifth gear. “As the industry was recovering, we continued to acquire. Now, we were ahead of the game,” Mittal says. During that period, Mittal Steel bought over companies in Central and Eastern Europe, did the much-talked about ISG deal and also bought Kryvorizstal in Ukraine. “Since Aditya has joined the business, he has helped in driving it to an entirely different level. He is very determined and has an agile mind,” says Mittal Sr., who is the President and CEO of ArcelorMittal.
Perhaps it was that combination of determination and agility of mind that helped the Mittals mount a hostile takeover of Arcelor, and pull it off against stiff resistance from the Arcelor management and some European politicians. Mittal himself is remarkably candid about the hurdles they faced in sealing the deal. Unlike the acquisitions that Mittal Steel had done in Romania or even the US, this was vastly more complicated and far reaching. Indeed, he describes it as a “make it or break it deal”. “This was a global deal that was fundamentally going to alter the global steel industry. If we had not done it, we would have had a major fight in the steel industry where #1 and #2 were fighting,” rationalises Mittal.
So, what made the deal that difficult to execute? “Well, Arcelor was a great company and they defended themselves. We were a great company and we wanted to buy them. It was, therefore, two great companies and two great battles,” says Mittal with a laugh. The world sat up and took notice of the young man after the Arcelor deal. In one stroke, the rules of the game had changed and the smaller players were looking rather vulnerable. The combined capacities of Nippon Steel, POSCO and JFE—the next three largest players—were less than that of ArcelorMittal.
Jitesh Gadhia, Managing Director, ABN AMRO, who was involved in Tata Steel’s buyout of Corus in 2007, thinks Mittal “came of age” during Mittal Steel’s takeover of Arcelor. “He was calm, collected and never lost focus throughout the process. Aditya rightly concentrated on the strategic benefits of the transaction and was highly articulate in presenting Mittal Steel’s case,” says the London-based investment banker.
The next step
When you are just 31 and already help run the biggest steel company in the world, where do you go from here? If you think like Mittal, then farther ahead.
He’s particularly sore about not having entered India and China earlier (in China, foreign ownership in steel companies is limited to 50 per cent). The latter is not just the largest producer of steel but also the largest consumer of the product. In India, too, robust growth and build up of infrastructure has led to a boom in steel consumption.
And ArcelorMittal has been missing in the two hottest markets. “In some sense, (our) biggest mistake was not to enter India earlier. We were just too busy growing the company on a global basis,” says Mittal.
In October 2005 and December 2006, the Mittals signed MoUs with the governments of Jharkhand and Orissa, respectively. Both the plants will have a capacity of 12 million tonnes each per annum.
The investment planned in the two projects: $20 billion. However, the going hasn’t been easy. Acquiring land for the project has proved to be a huge problem, and tying up iron ore supplies has proved difficult as well.
But Mittal has no doubts about his India commitment. “We have got steam coal block allocations and we are making progress in terms of land. The way we see it, our commitment to India is complete and there is no question of going back on that,” he says quite emphatically.
In China, the Mittals are building their presence slowly but surely. In November this year, ArcelorMittal acquired a 28 per cent stake in the China Oriental Group. The agreement allows ArcelorMittal to become the largest shareholder in China Oriental by acquiring another 45 per cent over an agreed period of time.
The Mittal empire
In a research note that followed the announcement, UBS, which has placed a “buy” on the ArcelorMittal stock, says that this exhibits a strong balance sheet, cash flows and ambitions to be an integrated global player with a strong focus on emerging markets. Mittal himself is convinced that China is a great entry for ArcelorMittal. “We are focussed on growing our presence there,” he says.
That’s hardly surprising. The infrastructure buildup in China is showing no signs of slowing down, which means it will remain an important market for years to come. But the question for someone like ArcelorMittal is how to participate in the China story: build/acquire capacities in the local market or feed the market from one of its plants. “The steel industry is going through a golden era right now, with 2008 set to be the fifth year of strong steel prices. However, cycles have not been abolished and the next several years could well present a less benign environment,” thinks ABN AMRO’s Gadhia.
One of the ways ArcelorMittal is trying to spread its risks is by ensuring that it is not overly dependent on one market. “Not a single country that we operate in accounts for more than 8 per cent of our total sales. Today, we have an incredibly strong management team and we are not dependent on one or two people,” says Mittal. His father, not surprisingly, has been the biggest influence on his life. “I learn from him every day,” he quips. The father himself thinks a great deal of the rapport between himself and his son. “We have an excellent working relationship and I believe we are very complementary,” he says with more than a tinge of pride. If you had a son who, in two swift moves, helped changed the trajectory of your family-owned steel company, you’d be proud too.
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