Homework 2: Lakshmi Mittal and the Growth of Mittal Steel

*** ***: International Business Professor ***** ****** February 9, 2012

By: **** ************

Lakshmi Mittal and the Growth of Mittal Steel

Company Facts & Statistics Company Headquarter Location: Luxembourg City (incorporated in Holland) Number of Employees: Approx 320,000 worldwide, 600 at HQ Company Locations: 60 different countries spanning the globe 2011 Revenues: ~$105 Billion Production Output: ~98 Million Tons, Approximately 6% of world steel output Stock Trading Reference: New York (MT), Amsterdam (MT), Paris (MT), Luxembourg (MT), Barcelona, Bilbao, Madrid, and Valencia (MTS) (arcelormittal.com, 2012)

How did Mittal Steel become ArcelorMittal Steel and the world s largest steel producer? Mittal Steel began as a small producer of steel in India in the early 1970s and grew to be ArcelorMittal and is the world s top producer of steel today. Mittal Steel was the brainchild of Lakshmi Mittal. He took a loan from his father and started a new steel making plant from scratch in Indonesia. He did this because the opportunities for growth in India were limited at the time (Hill, 2011, p. 261). Through his efforts in Indonesia, Lakshmi learned quickly how to cut cost during steel production. He learned that purchasing some of the required raw materials enabled him to save money and turn a small profit. He also began purchasing existing small plants or plants on verge of financial collapse and turned them around. He grew his company mostly through acquisition (Hill, 2011, p. 261).

When you use mergers and acquisitions as a path to growth for creating the world s number one steel company, integrating the new people and new ideas is a significant challenge. This is exactly the situation faced by ArcelorMittal. With 320,000 employees in more than 60 countries, the company has led the consolidation of the world steel industry, with current production equivalent to around 6% of the world s steel output (bankwatch.org, 2012). Mittal focused on purchasing mostly state owned operations since they were mostly underutilized and managed poorly. He often got them relatively cheap and was able to turn them around. In the long run, it is much easier to purchase existing companies versus building Greenfield plants from scratch. Most of the overall business frame and equipment is in tack and through tight cost control and management refinement, it is easier and faster to turn plant production around and possibly reap profits sooner than starting from the ground up. In 2011, ArcelorMittal had revenues of $105 billion and crude steel production of 98 million tons, representing approximately 6 percent of world steel output. The Group's mining operations produced 47 million tons of iron ore and 7 million tons of metallurgical coal (arcelormittal.com, 2012). ArcelorMittal is listed on the stock exchanges of New York (MT), Amsterdam (MT), Paris (MT), Luxembourg (MT) and on the Spanish stock exchanges of Barcelona, Bilbao, Madrid and Valencia (MTS) (arcelormittal.com, 2012).

The company s growth has not been easy. There have been approximately 191 worker deaths attributed to safety issues in several plants. The company was also

investigated and sued as a result. The findings were inconclusive (bankwatch.org, 2012).

The cost of Mittal Steel s success has largely been paid by the communities living and working near the company s plants. Mittal Steel has a global reputation for prioritizing productivity over the environment, communities and fair labor practices in countries where it operates steel mills, such as Romania, Poland, Czech Republic, South Africa, Kazakhstan and the United States, in spite of frequent company statements about its attention to and investment in these areas (bankwatch.org, 2012).

One of the most disappointing aspects of the Mittal success story is how, in spite of its poor environmental and social record, decision makers and international financial institutions have repeatedly supported the company, politically, and financially, implicitly condoning its working practices (bankwatch.org, 2012). Lakshmi Mittal is the world s 6th wealthiest person worth $31.1 Billion based on the 2011 Forbes World Billionaire list, he is ranked number 47 on the list of the world s most powerful people, and he is the number one richest man in India. He is the Chairman and CEO of ArcelorMittal Steel and owns approximately 44% of the voting shares of the company (forbes.com, 2011). Mittal lives a rather extravagant lifestyle. He currently resides in London, England in a home he purchased for $128 Million in 2004, which at the time was the most expensive real estate transaction to date worldwide. He has real estate holdings around

the world estimated to be worth some $500 Million. His daughter s wedding is the most expensive in world history at a record setting $60 Million (forbes.com, 2011). For all of his extravagance, the people and communities surrounding his plants live in near squalor conditions due to health and environmental issues attributed to the production plants. In Ohio, surrounding the Steel Cleveland Works plant, many residents are having many different health issues. These issues range from Asthma, eczema, ear and sinus infections, to migraine headaches. These symptoms are affecting adults and children alike. Most of the population surrounding the plant make an average of $15,000 a year and cannot afford to move away (bankwatch.oeg, 2012). The houses and cars closest to the plant are constantly covered by particulate debris released by the plant. The particulate debris released ranges from sulfur dioxide, carbon monoxide, lead, and hydrochloric acid, all of which are extremely harmful to the human respiratory system. Fine particle pollution (PM2.5) is so small that it passes through the body s natural defenses, penetrating the lung tissue and even entering the bloodstream. Scientists now report that fine particle pollution is the most dangerous health risk caused by air pollution (bankwatch.org, 2012). Fine particles cause lung damage, aggravated asthma, heart disease, bronchitis, irregular heartbeat, nonfatal heart attacks, and premature death for people with heart or lung disease. Children, the elderly, and people with existing heart or lung disease are most sensitive to exposure to fine particles. Sulfur dioxide constricts airways, inhibits breathing, and triggers asthma.

Cleveland Steel s pollution control devices are outdated. The oldest device still used today was installed in 1943. The newest device still used today was installed in 1990. Most of the devices were installed in the 1970 s and 1980 s. Of Mittal Steel s six boilers in operation, only Boiler Three has a pollution control device in place (bankwatch.org, 2012). Mittal Steel s two Cleveland blast furnaces lack pollution control equipment that other Ohio steel mills have. Installing bag houses at their blast furnace cast houses could cut particle pollution at Mittal s two blast furnaces by seven times. These blast furnaces are Mittal s two biggest sources of fine and coarse particle pollution, sulfur dioxide, carbon monoxide, and volatile organic compounds (bankwatch.org, 2012). This is just one plant in a company which owns many in approximately 60 countries around the world and all have been guilty of this kind of pollution at one time or another. ArcelorMittal has promoted health and safety as their number one goal at each plant and have taken loans in the name of correcting these issues, but the results are slow coming or nonexistent in most cases. As recently as 2010, ArcelorMittal has slowed or completely shut down production at several plants around the globe and has laid off thousands of workers as a result. These plants are in counties or states that already have high levels of unemployment (Martins, 2010). As workers retire or leave a plant, new workers are not hired to backfill that position. Instead, the remaining workers are tasked with picking up the slack and

working harder and longer hours to increase the per worker production numbers that the plants are measured on. As a result, injuries are on the rise as management at these plants are bonused on these high per worker production numbers. The incentive to overlook safety runs rampant. For everything that Lakshmi Mittal has become famous and wealthy for, it seems not everything is above board. It is sad that he uses his power and influence to manipulate an already poorly managed system for what seems to be personal gain. The following information details some of the key acquisitions that led to the creation of the ArcelorMittal Steel giant and the countries where the plants exist:

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1989: Lease deal with Iron & Steel Company of Trinidad & Tobago. 1992: Acquisition of Sibalsa in Mexico. 1994: Acquisition by Ispat of Sidbec-Dosco in Canada. 1995: Acquisition of Karmet Works in Kazakhstan. 1995: Acquisition of Hamburger Stahlwerke in Germany. 1997: Ispat International floats in NY & Amsterdam. 1997: Takeover of Thyssen Duisberg, Germany. 1998: Acquisition of Inland Steel Company, USA. 1999: Ispat purchase of Unimetal, France. 2001: Purchase of Sidex Galati in Romania. 2001: Purchase of Alfasid [renamed Mittal Steel Annaba] in Algeria. 2001: Equity partnership deal with Iscor, South Africa. 2003: Acquisition of Nova Hut in Ostrava, Czech Republic. 2004: Acquisition of Skopje plant from Balkan Steel, Macedonia. 2004: LNM Holdings & ISPAT International merged into Mittal Steel. 2005: Purchase of PHS - Polskie Huty Stali in Poland. 2005: Mittal Steel takeover of the International Steel Group, USA. 2005: Acquisition of Kryvorizhstal, Kryvyi Rih in Ukraine. 2005: Purchase of small stake in Hunan Valin, China. 2005: Iron ore mining agreement with government of Liberia. 2005: Unsuccessful bid for Erdemir Group, Turkey. 2006: Acquisition of Arcelor and creation of ArcelorMittal. 2007: ArcelorMittal purchase of 100% stake in Galvex, Estonia. 2007: Arcelor Mittal finalises acquisition of Sicartsa. 2008: Increase of stake in Macarthur Coal Australia to ~20%.

y y y y y y

2008: 2008: 2009: 2009: 2010: 2011:

Sale of Sparrow's Point to Russia's Severstal. Purchase of three coal mining assets in Russia. Dispute in South Africa over iron ore supply from Kumba. Divestment of minority interest in Wabush Mines, Canada. Spin-off of stainless & specialty steels business into Aperam. ArcelorMittal wins control of Baffinland iron ore mine, Canada.

(steelonthenet.com, 2012).

Bibliography:

(November, 2011). The World s Billionaires. Retrieved February 7, 2012, from forbes.com. Web Site: http://www.forbes.com/wealth/billionaires

(2012). About ArcelorMittal. Retrieved February 6, 2012, from ArcelorMittal.com. Web Site: http://www.arcelormittal.com/corporate/about.html

(May 2008). In the wake of ArcelorMittal: The global steel giant's local impacts. Retrieved February 7, 2012, from Bankwatch.org. Web Site: http://bankwatch.org/documents/mittal_local_impacts.pdf

(2008). Case Study: ArcelorMittal, Many Companies. One Language. Retrieved February 7, 2012, from Steelonthenet.com. Web Site: http://www.steelonthenet.com/pdf/arcelor_mittal.pdf

(2001-2012). The History of ArcelorMittal. Retrieved February 7, 2012, from Steelonthenet.com.

Web Site: http://www.steelonthenet.com/kb/history-arcelor-mittal.html

The Extraordinary Story of Mittal Steel. Piramal & Ghoshal. (March 2005). Retrieved February 6, 2012, from Rediff.com.

Web Site: http://www.rediff.com/money/2005/mar/17mittal.htm

Martins, A. (March 2010). How Lakshmi Mittal Created ArcelorMittal Steel and became a Billionaire.

Hill, M. (2011). International Business: Competing in the Global Market Place. McGraw Hill Irwin. 8th Edition.