‘Steel of a deal’

AMSTERDAM: Lakshmi Mittal, one of UK’s wealthiest men, will merge his steel assets and buy International Steel Group Inc in a deal worth $17.8 billion to form the world’s largest steel company. The creation of Mittal Steel Company with businesses spanning Europe, Africa, Asia and the United States, brings an international angle to consolidation in the steel industry, which has been dominated by numerous local and regional mergers over the last decade. The new industry leader will outstrip current global number 1 Arcelor in terms of output and will benefit from economies of scale while positioning itself to tap growth markets in all corners of the globe.

The merger also gives Mittal Steel greater control over pricing in the heavily fragmented industry, where a recovering global economy has fuelled demand, mainly in China and the United States, and sent prices soaring. The news sent shares in Mittal’s Netherlands-based firm, Ispat International, and Richfield, Ohio-based ISG surging. Rival Arcelor welcomed the creation of Mittal Steel, saying it would help to consolidate the industry into five or six players, which would give those companies more leverage. “The combined Mittal Steel will be the largest and most global steel company in the world and will be listed on the New York Stock Exchange and Euronext Amsterdam,” said Mittal, who was ranked Britain’s fifth-richest man by the Sunday Times.

Despite Mittal Steel’s size, it will have a mere six percent of global output, raising expectations that many similar deals will follow and boosting shares of US Steel Corporation, AK Steel and Nucor Corporation. ISG chairman Wilbur Ross — the American steel tycoon who made his fortune by buying up and turning around troubled firms — said the Mittal deal advanced his ambitions too. “This transaction achieves all our financial and business objectives ... It accelerates by several years our strategy to become a leading global steelmaker,” he said.

NEW STEEL LANDSCAPE
Ispat, 77 percent owned by Mittal, will buy the Mittal family’s LNM Holdings in a reverse takeover by issuing $13.3 billion in shares to form Mittal Steel Company.  Mittal Steel Company will then pay about $42 per share in cash and stock — or about $4.5 billion — to the shareholders of ISG, one of the largest steel makers in North America. “These transactions dramatically change the landscape of the global steel industry,” said Mittal, who holds steel assets in South Africa, Poland, Indonesia, South Africa and Kazakhstan. Mittal, who will be chief executive officer of Mittal Steel, told a news conference the new group will have an annual production capacity of 70 million tonnes and operations in 14 countries. “(This merger) provides Mittal Steel with a more significant presence in important industrialised economies such as those in North America and Europe and in economies that are expected to experience above average growth in steel consumption, including Asia and Africa,” Mittal said. The Mittal family will own 88 percent of the combined group, Ispat public shareholders will own three percent and ISG’s public shareholders will own nine percent.

GLOBAL CONSOLIDATION
Analysts said the merger was positive, continuing years of consolidation in a profitable industry and promising future gains for well positioned players. ISG, which completed an initial public offering in December, has bought up and revived the assets of bankrupt steelmakers, including Bethlehem Steel, LTV Corporation and Weirton Steel. Arcelor was created out of the three-way European merger of France’s Usinor, Luxembourg’s Arbed and Spain’s Aceralia. Early in the day, shares in Ispat, which also reported a record third-quarter net profit of $460 million, surged 15.48 percent to 23.50 euros, their highest in a week, after being suspended prior to the announcement. ISG was up 25.8 percent to $37.35. Steel prices have soared this year, with spot prices reaching about 500 euros per tonne and the cost of several grades doubling, as a recovering global economy has fuelled strong demand mainly in China and the United States. While some global growth forecasts have been trimmed in recent weeks due to surging oil prices, the world economy is still expected to grow around four percent next year, underpinning demand for raw materials.