The master welder strikes: Mittal's merger manoeuvre

'I'm confident Arcelor will participate. They'll see the future's bright'
Click to follow
The Independent Online

As rises go, Lakshmi Mittal's takes some beating. The publicity-shy steel magnate, said to be the UK's richest resident, with a fortune of around £15bn, was once barely known outside the business pages. His family's company - Ispat International, which floated in 1997 - had made a raft of acquisitions over the years but by 2000 was battling against an industry slump and failing to set the stock market alight.

But at the same time, the Indian-born tycoon had been snapping up undervalued or down-at-heel assets around the world through his private vehicle, LNM. In 2004 he merged this with Ispat and America's International Steel in a $4.5bn (£2.5bn) deal. At one stroke he became chairman and chief executive of the world's biggest steel company, Mittal.

And after Friday's announcement that Mittal is seeking to buy Arcelor, the world's number two, in a €16.8bn (£12.7bn) deal, he is set to climb still higher.

The deal comes with its fair share of controversy, although Mr Mittal, 55, is no stranger to such things. A Labour Party donor, he became embroiled in a scandal when it emerged that Tony Blair had endorsed his attempts to buy a Romanian steel mill.

Assuming the Luxembourg-domiciled but French- listed Arcelor recommends the bid - and there is no guarantee it will - the biggest areas of concern will be competition, the authorities and the implications for the steel market.

"Speaking at an event in North America last year, Lakshmi Mittal [said] consolidation of the industry could better manage the inventory overhang in the market at that time," recalls Jane Lodge, UK manufacturing industry leader for accountants Deloitte.

"I'm sure the bid for Arcelor is driven by growth in South America, Russia, India and China. But among UK manufacturers, there must be concern about material price increases and control of steel supply."

As well as a market value of around $40bn, a Mittal-Arcelor tie-up would have annual revenues of $69bn, 320,000 workers, leading positions in a host of countries and regions, and the capability to produce 100 million tons of steel a year - nearly double the amount Mittal currently makes.

However, Richard Bakenhoff, an analyst with the Dutch bank Rabo Securities, does not foresee too rough a ride from the competition authorities. "In North America, for example, Mittal is very strong but Arcelor has only a minor operation. And in Europe, Arcelor is strong but Mittal has operations mainly in Eastern Europe."

The company is now seeking a meeting with the European Union, but Mr Mittal says: "These companies are complementary; there's hardly any overlap." He believes the link-up can bring savings of some $1bn.

Mr Mittal sparked outrage in 1996 when he acquired and then shut down a plant in Ireland, with the loss of 400 jobs. But the company insists this will not be the case with Arcelor.

The regional government of Wallonia, meanwhile, holds 2.4 per cent of the company and has already said it does not know if it will back the bid. Yet Mittal is considering relocating from its current tax-efficient base in the Netherlands to its even more tax-efficient neighbour Luxembourg, where Arcelor is domiciled.

Ultimately most accept that consolidation is inevitable. "This deal makes sense," says Mr Bakenhoff, "and the company will still be too small to have pricing power - the market is so fragmented."

Meanwhile, Mr Mittal is back in the spotlight. After making around 20 acquisitions in the past five years, including buying Ukraine's largest steel mill for £2.7bn, he has faced accusations of being an asset stripper. There are also likely to be questions over whether he has bitten off more than he can chew in creating such a mammoth company.

Yet he insists this is not the case: "I am confident we will have the participation of Arcelor's management in our combined entity. They will see the future is bright. They will enjoy working in the largest, [most] powerful steel company. However, we have also been growing through acquisitions and we have proved that we are able to handle large businesses."

Before all that, Arcelor needs to make its feelings known; the board meets today to consider the bid. Mittal has not ruled out upping the offer but the company also stresses that it does not believe it should: "We have offered a very attractive price to Arcelor shareholders. I don't think we will need to increase it."

For Mittal, the potential benefits are clear. A merger will ensure that the group leads industry consolidation, gets increased access to markets where it is not already dominant, and is ideally positioned to take advantage of future growth in the global steel industry. It's a sizzling deal, but Mr Mittal has never shown any problems handling the heat.