The Mittal Steel-ISG Merger - Creating a Steel Behemoth (Part-A)
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Case Code: BSTR147 Case Length: 12 Pages Period: 2004 Pub Date: 2005 Teaching Note: Available |
Price: Rs.400 Organization: Mittal Steel Industry: Steel Countries: UK, USA Themes: Merger and Acquisition |
Abstract Case Intro 1 Case Intro 2 Excerpts
Background Note
The steel industry witnessed several mergers in the aftermath of the 1997 Asian financial crisis. The situation in Asia precipitated a large scale international steel crisis as domestic consumption stagnated in Asia and export markets dried up, creating a glut in steel production across the world. This led to a feeling that market adjustments would be necessary to reduce overcapacity by eliminating non-competitive companies. To fight the recession and survive, companies negotiated several mergers and acquisitions. However, most of these mergers and acquisitions were regional or localized, and the industry was still very fragmented.
The International Iron and Steel Institute (IISI), based in Belgium, estimated that the top ten companies in the global steel industry accounted for only one-third of the total world output. However, analysts expected that greater consolidation was around the corner (Refer Exhibit III for a note on the global steel industry).
The Mittal Companies
The history of the Mittal Group can be traced back to the 1950s, when Mohan Mittal, the father of the Lakshmi N. Mittal (LN Mittal), the head of Mittal Steel, laid the foundation of the Ispat Group in India with his brothers and children. At the time, India followed a socialistic pattern of development, and the economic environment did not encourage large scale private investment.
The Mittals therefore looked for options abroad, and in 1976, they invested $15 million in a steel mill in Indonesia which they named PT Ispat Indo. In their search for non-scrap iron to feed the plant in Indonesia, the Mittals went to Trinidad and Tobago.
In 1989, they leased Iscott, a loss-making government owned steel firm in Trinidad and Tobago. Adopting innovative practices and cutting edge technology, the Mittals managed to bring about a turnaround at Iscott and within a year, Iscott became profitable. This set the stage for future expansions. During the early 1990s, the Mittals further strengthened their growth strategy when they acquired another non-performing state-owned mill, this time in Mexico. The firm soon became the group's cash cow and earned huge profits through the 1990s. In 1994, Ispat International was split from the Ispat Group in India, and concentrated on international acquisitions under the leadership of LN Mittal. Another important acquisition from a strategic viewpoint was that of a steel plant in Kazakhstan in 1995. The plant was in very bad shape and there were not many takers for it in the industry.
However, LN Mittal saw potential in the plant, as it had a distinct locational advantage in being fairly close to the Chinese border, since China was emerging as a major steel consumer. Over the next few years LN Mittal acquired several steel plants in places like Poland, the Czech Republic, Romania and Canada. Some of these mills were privately owned by LN Mittal under LNM Holdings (LNM), of which the publicly-traded Ispat International (Ispat) was also a part. By the late 1990s, Ispat had several steel plants around the world and controlled nearly one-tenths of the global steel production...
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