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CASE ANALYSIS ON
THE RAJA OF STEELBY:
SAHANA- 09113
AKSHAY-0911349
PARIDHI-0911363RUCHIKA-0911364
KIRAN-0911371
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A) SUMMARY(INTRODUCTION)
This case talks about Lakshmi Mittal who is building the
biggest steel company on earth.
In this case we come across various mergers and takeovers by
Lakshmi Mittal, the most important being a $4.5billion deal to
buy International Steel Group(ISG)- a package of 5 once
Bankrupt steel companies assembled by U.S
This case highlights the various strategies used my Lakshmi
Mittal in consolidating distressed mills and reviving plants by
various means such as quick capital injections, dispatchingemergency teams of managers to stabilize factories, etc.
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It indicates the vision of Lakshmi Mittal we need much larger
companies, healthier companies that will bring sustainability
in the industry.
It reflects Mittals biggest challenges to make the empire work
together through his elephant like memory.
It indicates his knowledge and entrepreneurial skill of pooling
resources and knowledge.
Mittal has doubtless seeked ways to expand but it has holes
to fill in his portfolio- china (a tough nut to crack).
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B) SITUATIONAL ANALYSIS
a)Key facts in the case:
Lakshmi Mittal is building the biggest steel company in the
world.
Mittal announces a $4.5 billion deal to buy International SteelGroup(ISG), a package of 5 once Bankrupt steel companies
assembled by U.S.
Assuming the transaction is finalized on schedule in early
2005, Mittal will stand at the helm of the worlds no. 1 steelcompany, annual shipments of 52 million metric tones, some
$32 billion in annual sales, and 2004 pro forma profits in
excess of $6.8 billion.
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For decades ,steel has been fragmented, financially weak, andplagued by over supply. Suppliers of coal and iron ore andcustomers such as carmakers were far stronger than steelmakersand dictated terms.
Through years, Mittal patiently perfected his techniques of revivingplants by making quick capital injections, dispatching emergencyteams of managers to stabilize factories, and exploiting theefficiencies in purchasing and expertise that come with anexpanding network of mills.
Global market is in favour of Mittal.
A doubling of steel prices in the last year due to strong worldeconomy and insatiable demand from China is making Mittal looklike a genius.
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Mittal's vision is: we need much larger companies, healthier
companies. They will bring stability to the industry. as even
after acquiring ISG, Mittal will have just 5% of the 1 billion
metric ton world market for steel.
Long term viability of Mittals strategy depends on success in
the U.S and on the groups ability to thrive in a downturn.
Mittal is ready to make his name in the U.S.. Ispat already has
a presence stateside through its $1.2 billion acquisition of
Inland Steel Co. in 1998.
Overnight, the ISG deal catapults Mittal from a bit player to
the top of the heap
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Inland suffered 2000-2002 collapse in steel prices, but wit abigger base Mittal maybe able to wring out more efficienciesas he has done in other parts of the globe.
Mittal declined to discuss his plans for !SG in detail, citing the
risk of antitrust action. Mittal wants to integrate his eight U.S mills mostly clustered
around the Great Lakes to mine regional economies of scale, asimilar formula is being applied in eastern Europe as well.
By running the facilities as a single unit, he seeks to extractbetter terms from suppliers of iron ore, coal and electricity.And with the plants, no longer competing with each other forcustomers.
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Upgrading ISG looks relatively easy to Mittal and his execs.
Mittal beat out U.S building Corp. bidding $35` million for acontrolling stake in Polksike Huty Stali, a package of fourseparate companies close to Bankrupt .
Mittal applied his time tested method to stabilize the patientplant( 15 strong SWAT team).
Mittal always took a close interest in figuring out the optimummix for plants.
Mittal's plants in Poland and the Czech republic turn outrelatively low end steel used for construction and highwaybarriers. To retool them, Mittal will have to spend 100s ofmillions.
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One of Mittal's biggest challenge was to make the empirework together through his elephant memory.
He knew how to pool resources and knowledge. EachMonday. Managers worldwide would have a conference call
to discus about the world market and report on performance. Mittal group had advantages like:
Locates export markets for production that is in surplus in itshome region
Controls 4% of its ore supplies and is self-sufficient in coke.
Investors will find it easier to put their money alongsideMittal's, whose holdings will be listed on the New York StockExchange.
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Stock price has gone up from $7 a year to mere than $36
today.
Ispat will acquire control of LNM, and the resulting Mittal
Steel Co. will acquire ISG in a 50-50 cash and shares
transaction.
Mittal has doubtless seeked ways to expand but it has holes
to fill in his portfolio- china (a tough nut to crack).
In the last steel slump his companies struggled. Mittal figures
that consolidation and a focus on profits rather than volume
in the industry will head off supply gluts in the next crunch.
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b) Fishbone analysis
ISG- a package of 5
bankrupt companyIntegration of 8
U.S mills
Stake in Polksike Hulty
Stali- package of 4
bankrupt companies
To mine Great
regional economies of
scale
If transaction is finalized,
Mittal will stand at the
helm of the worlds No 1
steel company
To stabilize the plant
through time tested
method of a 15 strong
SWAT team
Takeovers and
mergers b Mittal
Reasons
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C) QUESTIONS TO BE ANSWERED
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Q 1) What are the various strategies used
by Lakshmi Mittal to expand his steel
industry? It was formed when Ispat International N.V. acquired LNM Holdings N.V.(both were already controlled by Lakshmi Mittal) and merged withInternational Steel GroupInc. In 2004.On 25 June 2006, Mittal Steeldecided to merge with Arcelor,with the new company to be called ArcelorMittal.
Soon, he seized on a strategy of serial acquisition, often scooping upunderperforming former government outfits in such far-flung places asKazakhstan.
Although the locales have changed over the years, he has stuck to acommon formula: Import modern management practices, wring out costsand, where possible, create new efficiencies by taking steps like acquiringnearby coal and iron ore mines.
In some locations, like the Czech Republic, he has left the localmanagement team intact. In others, like Romania, he has replaced everymember.
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CONSIDERATIONS BEFORE AN
ACQUISITION
When Mittal Steel considers an acquisition, it seeks not only low-cost
inputs and an expanding market, but also inexpensive labor. But it will
bend its criteria if an opportunity looks promising enough.
Its purchase of International Steel Group did not seem to fit its requirement
for low cost labor; U.S. wages are among the highest in the world. Polskie Huty Stali paid a debt of 1.2bn.
In Romania, they had a central computer which would track all of the
barter transactions.
In Kazakhstan, where it opened a warehouse and found 50,000 bottles ofRomanian red wine. They had traded steel for wine.
Similar cases in Canada and Mexico.
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OPERATIONAL STRATEGY
Mittal acts as a consolidator in the global steelindustry, focusing on growth through acquisitions,and has a successful acquisition and integration trackrecord. Operationally, Mittal has a highly diversifiedasset base, with plants of different types, includingboth integrated and minimills.
Mittal's base capital-expenditure requirements arelower compared with those of peers, because of itslower cost base in emerging markets (for example,Romania and Kazakhstan), where comparable typesof work can be performed at a lower cost.
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FINANCIAL RISK PROFILE
Acquisitions introduce risks, but the group has a good track recordof turning around underperforming steel acquisitions, particularly inless-developed countries, through LNM Holdings, whichimplemented this strategy since 1995.The advantages of Mittal'sstrategy of expanding into emerging markets include low cost basesfor steel production and capital construction. In most cases, assetsthe group acquired in emerging markets like Romania or Kazakhstanwere low priced, and the plants enjoyed sizable, albeit temporary,tax breaks.
The key risks of Mittal's emerging-market expansion strategyinclude exposure to those countries weak legal and regulatory
systems, as well as the integration of new assets into the groupstructure (for example, establishing appropriate control procedures,achieving operational synergies, and turning around former state-owned and often inefficient plants).
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But Mittal has a track record of successfully integrating andrestructuring previously underperforming state-owned assets. Vastgeographical diversification also mitigates risk in each particularemerging market, as the group is no longer markedly dependent onany single asset or market. In the medium to long term, the mainissue for the group is its success in integrating recently acquiredassets and maintaining long-term, stable relationships with thegovernments of host countries.
The Mittal group has a complex structure and has only majoritycontrol, but not full control, over some of its cash-generative andcash-rich subsidiaries. For example, Mittal owns only 51% of the
South African plant, 70% of the Algerian plants (30% is state-owned), and 76% of the Czech plant.
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Q 2) Do u support Mittals strategy of buying non
performing plants and reviving them through
management expertise?
Yes I agree with Mittals strategy because :
He has the needed expertise in terms of advisories on eachproject that he has adopted .
In forming strategic alliances with the companies he ensures a
security net is provided in all operations. He understands that the strength of steel companies lie in its
consolidation and hence plan out strategies in that manner.
When the steel industries were shutting down due to financial
crunch Mittals bought over them and over the years hestabilized the plants through quick capital injections andmanagerial support.
He has gained the global expertise required to carry out thisfunction .
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He waited for the opportunistic moment for steel prices to
double therefore putting his purchases to good use .
He recognizes that there huge savings involved in reviving a
plant than the cost incurred in the setting up of a new onefrom scratch
They are using tactics like tilting the product mix, identifying
new customers and sharpening their sales .
From the HR aspects he uses buyouts and attrition to increasestaff strength
He uses state of the art technology from places like the
Romanian blast furnace technology
He is at an advantage as his group own 40 % of the iron oreand is self sufficient in coke
He knows how to pull his knowledge and recourses and make
the, work together.
Q 3)
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Q 3) Site examples of how Mittal foundadvantages in the economic disadvantages of
other economies. When global markets fell so did many of the steel manufacturing
plants , the cause of which many plants were forced to shut down ,
for instance
He acquired 5 plants in Poland , Czech Republic , over the span of
two years , this went on to join a collection of plants that span 4continents .
He also sapped up distressed mills from Trinidad and Kazakhstan
He then carefully perfected his techniques of reviving plants
through quick capital injections and exploiting efficiency inpurchasing a network of mills .
Finally when the global market favored Mittal doubling steel prices
in the last year thanks to demand from china and due to demand
from strong world economies put Mittal's plant at an advantage
due to the prior acquiring of cheaper factors of production
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Q 4) What was the biggest challenge for
Lakshmi Mittal? Was he successful in meeting
the challenge? His key challenge was to make the empire to work together.
A key part of meting the challenge is Lakshmi Mittal himself.
He was given high marks for determination and elephant like
memory by his rivals and his associates.
Lakshmi Mittal was able to meet the challenge successfully as he
had the entrepreneurial trait of pooling knowledge and resources.
Each Monday, managers worldwide would have a conference call to
hash over the world market and report on performance.
He had sound management ability which helped him to be asuccessful entrepreneur and meet his challenges for example:
If one area was in short of iron ore or coal, supplies would be
diverted from elsewhere.
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Mittal also located export market for production that was in
surplus in its home region
Mittal group controls 40% of its iron ore supplies and is self
sufficient in coke.
He is a man of words and had the vision to meet his goals.
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CONCLUSION
He adopts a low cost big capital commitments
strategy and figures that consolidation and
focus on profits rather than volume will
enable him to pull through in the next supplycrunch
His strategy is that of- common sense
business which to this day remains a foolproof strategy at most business levels