New #1 in steel
Consolidation in the steel industry just moved up a notch. The world's #2 steelmaker, held in controlling interest by Indian-born Mittal family, made several moves that would catapult it into the #1 position, over Luxembourg-based rival Arcelor. The key move is a $4.5 billion buyout of US-based International Steel Group, itself a result of a series of bold acquisitions in the past few years.
The Mittals' steel empire is founded in two closely related companies: Dutch-based LNM Holdings and Dutch-based Ispat International. The new combined company, subject to regulatory approval, will be called Mittal Steel. It will have a capitalization of $21 billion, and will have operations in four contents and 14 countries.
According to an article in the Wall Street Journal ("Deal Would Create No. 1 Steelmaker" ,10/26/2004), the acquisition of ISG
moves industry-wide consolidation efforts from the regional stage to the global one and also shifts the balance of power to relatively new players. If successful and if followed, as expected, by further consolidation, it could provide the surviving steelmakers with more consistent pricing power over raw-materials suppliers and customers.
As the article points out the steel industry went from a low point a decade ago, causing numerous bankruptcies and buyouts, to its current situation, where demand has grown and prices have gone up, making it a far more promising industry to belong to. The industry has moved from regional to global consolidation, and this latest move is the boldest one yet.
The Mittal family has managed to move up from running a local steel plant in Calcutta by buying distressed, small steel mills throughout the world and building a major industrial power by turning these units around. Among the companies now in the group are: Ispat Inland and Walker Wire (US); Ispat Sidbec and Acufil (Canada); Ispat Mexicana (Mexico), Caribbean Ispat (Trinidad); Ispat Hamburger Stadtwerk, Ispat StadtWerk Ruhrort, and Ispat Walzdraht Hochfeld (Germany); Ispat Unimetal, Trefileurope, and SMR (France); Ispat Shipping (UK); Ispat Polska Stal (Poland); Ispat Nova Hut (Czech Republic); Ispat Petrotub, Ispat Siderurgica, Ispat Sidex, and Ispat Tepro (Romania); Ispat Karmet (Kazhakhstan); Ispat Annaba (Algeria); Ispat Indo (Indonesia); and Ispat Iscor (a partnership in South Africa).
ISG has grown in much the same way as the Mittal holdings. Founded by an investment banker, it has scooped up bankrupt US steel mills, five venerable companies in two years. These are LTV, Acme Steel, Georgetown Steel, Bethlehem Steel, and Weirton Steel. The company has managed to get labor concessions, has instituted new approaches, and had a successful public offering. It is now the second-largest US steel company, after USX, the company's US holdings are complemented by Ispat's ownership of Inland Steel, another historic (once bankrupt) company.
More acquisitions in the industry are likely. The Mittal family has already expressed an interest in more Asian holdings. As the WSJ article states, "The world's steel industry is largely fragmented; the top 10 steelmakers supply less than 30% of global output. Guy Dolle, CEO of Arcelor SA of Luxembourg, the world's largest steelmaker, said the industry needs even more consolidation." Whatever the "need," the reality seems to heading that way.
According to an article in the Guardian ("Mittal creates world's largest steel firm", 10/26/2004) "Analysts argue that the steel industry needs consolidation to cope with powerful suppliers and end users." In other words, oligopolies create oligopsonies and vice versa. As the customrrs for steel get bigger and the mining companies consolidate, it makes sense that the steel manufacturers themselves should merge.
