Ispat-Sidbec : Entering North America



When Lakshmi Mittal acquired Sidbec Dosco in 1994, he was already well known in America, having successfully turned around two loss making steel mills in Trinidad and Tobago and Mexico. Sidbec-Dosco, was Canada's fourth largest steel producer in 1994. Headquartered in Montreal, with its principal steel mill located in Contrecoeur, Sidbec’s product portfolio included hot- and cold-rolled sheet, strip, rods, bars, shapes, pipe, wire rod and wire.

Sidbec-Dosco was the only steel producer in Canada to use internally-produced directly reduced iron (DRI) as its principal feedstock, and had developed unparalleled know-how in DRI production. DRI was critical to Ispat’s groupwide strategy to increase sales of higher-value products.

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Background Note

Mittal acquired poorly run plants, and thus invested less for each tonne of steel-making capacity than any other firm in the world. Analysts calculated that Ispat was spending half of what Nucor or Steel Dynamics (another American mini-mill firm that was reckoned to be the world's lowest-cost builder of new steel plants) spent on a similar exercise. Mittal realized that simply buying “dud firms” was not enough. They had to be turned around too. The turnaround strategy included cutting purchase costs and laying off workers. More interestingly, Ispat was also prepared to invest when others were reluctant. In addition to the quality of technology and management, Ispat’s geographical spread was emerging as Mittals’ third strength. As soon as Mittal acquired a firm, he redirected sales and purchasing internationally in order to strike the best deals.

The Acquisition

Soon after acquiring government owned Sircasta steel mills in Mexico in 1992, Mittal had started scouting for acquisitions in the US. In November 1992, he signed a letter of intent to purchase Bethlehem Steel’s Bar, Rod and Wire (BRW) division based in Johnstown. The division had electric furnaces, ingot teeming, blooming, and rolling at Johnstown and bar mills in Lackawanna and Sparrows Point.

Mittal contacted potential customers before negotiating a new labor contract with the United Steelworkers of America (USWA). The union, which represented workers at the three plants, believed it was being taken too lightly. After three months of very public and contentious bargaining, the sale collapsed despite the last ditch efforts of the Pennsylvania governor and a congressional representative. An investment group subsequently purchased the Johnstown and Lackawanna plants and restarted operations there under the name Bar Technologies. It was at this point that Mittal began to look seriously at Canada.

Sidbec-Dosco had been established in 1968 by the Qu?ec government. By 1994, the government was eager to withdraw from the steel business. The facilities at Sidbec included two DRI modules, electric arc furnaces (EAFs), and continuous casters. The plant received iron ore from Qu?ec's North Shore and Brazil. In 1996, Sidbec-Dosco's shipments amounted to 1.5 million tons and net sales were $846 million. The company employed over 2000 people.

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