ARCELOR’s Luxembourg headquarters is one of Europe’s great temples to business. The four-winged palace, an architectural pastiche built in the 1920s to symbolise the importance of steel to the tiny state’s economy and identity, dominates a city square and is a must-see for tourists.
Pass through its monumental entrance — flanked by pillars and overlooked by figures of Victory and Mercury — and you enter marbled corridors more fitting to a museum than a modern office. At the top of the building is an impressive in-house restaurant — the boeuf en croûte is divine — that can call on a 25,000-bottle wine collection.
Not the kind of place, in short, you would expect to find Lakshmi Mittal, the steel tycoon who is the Sunday Times Business Person of the Year for 2006. The 57-year-old’s normal habitat is either a jumbled warren of offices in London’s Berkeley Square, the back of his business jet or one of the steel mills in his far-flung network.
It was his arrival at this Luxembourg palace, and how he got there, that separated Mittal from a strong field of contenders for our annual award.
At the start of the year Mittal already had impressive business credentials. He was Britain’s richest resident (a fortune put at £14.8 billion by the Sunday Times Rich List) and had, over a globe-trotting, dealmaking couple of decades, put together the world’s largest steel company.
But in January he stunned the business world by announcing a bid for Arcelor, the second-biggest steel group in the world and his main rival. The offer provoked a furious and nationalistic backlash from Arcelor management and European politicians.
Over the next six months the takeover battle raged in London, Paris, Luxembourg, Madrid and New York, culminating in a last-ditch attempt by Arcelor to stitch together a white-knight deal with a Russian steel group. Mittal finally carried the day in June, when Arcelor shareholders voted to accept a $34.2 billion (£17.5 billion) takeover.
In a year replete with deals, it was one of the biggest, probably the most audacious, and certainly the most loaded with meaning. Mittal had broken continental Europe’s protective hold on its industrial champions, creating a breach through which others will surely swarm. He had established himself as a modern-day Carnegie, a king of the steel industry who is unlikely to be deposed for the foreseeable future.
Mittal embodies the rise of a new breed of Indian entrepreneur: confident and commanding on the world stage. And he has done it all his way, including, at the end, taking the chief executive’s job at the new company, rather than the back-seat position of president.
Padding round the echoing hallways of the Arcelor — sorry, Arcelor Mittal — building, Mittal looks like the cat that got the cream or rather, given his physique, the bear that got the honey. He has a chunky build, with broad shoulders and a deep chest, and leans forward, nodding as he talks, clasping his hands together in front of him.
“I think this [the takeover of Arcelor] is the most important achievement in my life. It is a milestone. It is the biggest transaction in the history of the steel industry, and the biggest in terms of the size of the company created.
I don’t think we will find another company overtaking us for the next few years — maybe the next five to ten years,” he said.
It is worth reflecting on just what Mittal has created. The merged group employs some 330,000 people in 60 countries, and makes 130m tonnes of steel a year, 10% of world production. For an industry’s leading player, that’s a small market share — but it’s a long way back to second place. Japan’s Nippon Steel and Korea’s Posco, the next biggest players, each make only about 30m tonnes a year.
Arcelor Mittal’s dominance has little to do with organic growth. It is the product of the rapid amalgamation of a host of smaller steelmakers. The Mittal side has been built up by about 25 mergers, and the same can be said (albeit over a longer timeframe) of the Arcelor business, which was born just five years ago from a three-way merger of Usinor, Arbed and Aceralia — the national steel groups of France, Luxembourg and Spain respectively.
Mittal, who comes from a family with steel-business interests in India, started off with a small operation in Indonesia, and made his first foreign acquisition in 1989 when he bought an unpromising business in Trinidad. “At that time we were just a very small company with the idea of breaking into the international business. I would never have dreamt that we would be doing something like this,” he said.
As is often the case, the big deal was an unintended consequence of the search for a solution to an unrelated problem. Mittal executives — and in particular his son, Aditya, who is finance director — were becoming frustrated that in bidding for steel assets around the world, they always seemed to be facing the same tough competitor — Arcelor. On the two largest deals done last year, for Erdermir of Turkey and Kryvorizhstal of Ukraine, Arcelor and Mittal were big rivals. “Aditya came to me and said, ‘why don’t we think about buying Arcelor?’ I didn’t dismiss it — I’m an entrepreneur, and I don’t throw out ideas without thinking about them.”
Much of the thinking was done at Mittal’s winter holiday home in St Moritz, where he spent the festive season again this year, indulging in his new hobby of cross-country skiing. “During the Christmas holidays last year we started thinking about the possibilities, and we called Dollé’s office (Guy Dollé, the chief executive of Arcelor) and asked for some dates to meet.”
The date chosen has gone down in steel- industry folklore. It was January 13, a Friday. Dollé went to Mittal’s London home in Kensington Palace Gardens for a meal, and over dinner Mittal sounded him out about a merger. Dollé was not receptive, and only a fortnight later Mittal announced a hostile bid.
The more Mittal and his advisers thought about it, the more they realised they should have acted much earlier. “We were kicking ourselves in January. We realised we should have made a move straight after doing the ISG deal [a large American acquisition in 2005]. Arcelor shares were just €13 or €14, and ours were €45.” Mittal eventually bought Arcelor for €40.40 a share.
There was little time for self-castigation. The bid caused a furore in France, Spain, Luxembourg and Belgium, with some comments about Mittal’s Indian background verging on racism. To his credit, Mittal never rose to the bait. “I was surprised with this kind of reaction, but the more we got into the details of the transaction we saw there was a history to this. If you look at the European steel industry, it has been supported by subsidies from governments and taxpayers, so their attachment to the steel industry was understandable.”
In fact, the Mittal bid struck at the very heart of European identity. The modern European Union is the end result of a 1950s plan to integrate the coal and steel industries of western Europe — a scheme that worked so well that it provided a springboard for political integration.
Unfortunately for the more nationalist politicians, Arcelor’s fate was always going to be decided not by governments, but by the company’s shareholders — a majority of whom were hard-headed fund managers, not political historians. Once Mittal had won them over, Arcelor’s days were numbered.
Even so, there was a moment when he thought the big prize had eluded him. On May 26 — another Friday — Arcelor announced it had found a white knight in the shape of Severstal, one of a wave of new Russian steel producers. Instead of being bought by Mittal, it had hammered out plans for an agreed merger with the Russians.
“The day it was announced was a low point,” said Mittal. “Over the Saturday and Sunday we sat in one of our adviser’s offices, perhaps 30 or 40 of us, and we thought it might be our last meeting on this transaction.
“But when we started to look at it, we realised it [the Severstal deal] was a bad transaction, and that if we could get support from shareholders we could still win. On Monday and Tuesday we were back in action, ripping the Severstal deal apart.”
As well as wooing shareholders, Mittal made endless trips to convince European politicians and investors who were sceptical about the deal. “We wanted to educate everyone. Once we started to explain the nature of the steel industry, how much it has changed, and the need for consolidation, they started to listen. In the end they were neutral rather than against.”
The crucial point came when Arcelor shareholders rebelled against a management plan to return €7 billion (£4.7 billion) to them over several years as part of the company’s bid defence — a return of cash that shareholders would normally jump at.
“I think that, looking back, the whole transaction was a wake-up call for the rights of shareholders and for the duties of directors to shareholders,” said Mittal.
This emphasis on corporate governance will provoke wry smiles among some long-time Mittal critics, who have said his family interests in the company are at odds with other shareholders’ rights. Until the Arcelor transaction went through, the Mittal family used to enjoy not only a straight majority interest in Mittal Steel, but were also the only owners of a powerful class of “super” shares that gave them total control.
That majority stake has gone — the family now has 43% — and the super-voting shares have been eliminated. But there are still three Mittals on the company’s board — Lakshmi, Aditya, and Vanisha, Lakshmi’s 26-year-old daughter. And last month Lakshmi took over as chief executive of the merged group, overturning a previous arrangement under which he was appointed president, with Roland Junck, an Arcelor man, taking the top executive post. The decision will be approved — or rejected — at the company’s 2007 annual meeting.
Mittal defended the switch, saying it avoided potential conflicts. “I said from the beginning, to shareholders and to the board of directors, that I should continue to be involved in the company, but I never wanted to be chief executive. But Roland (Junck) realised there could be an issue — we spoke for hours on this issue and raised it with the board. They understood his viewpoint and asked me to take over as chief executive.
“It is working very well. We have to make sure that whoever is right for the job gets it. I am happy with the decision in that it clarifies any confusion there might be from my former role as president, and Roland’s as chief executive — there could be a conflict there, so it is good that we have cleared it up.”
The next question is whether Mittal will become chairman, too. He was meant to step up to the position in 2007 as part of the terms of the deal, but that would now mean him combining the roles of chairman and chief executive — something frowned on by shareholders because it breaches European corporate-governance codes.
Mittal said it was not uncommon in America — “if you look at the top 50 companies of the Fortune 500, they will often have one person as chairman and CEO” — but said he had no opposition to an independent chairman. “Anyway the decision has to be taken by the board and the shareholders,” he said.
Mittal’s bid for Arcelor became something of a cause célèbre in India, where he was regarded as an example of what Indian entrepreneurs could do on the world stage — despite his having no operations to speak of on the subcontinent. In the early days of the battle, it was the Indian government that was most aggrieved by some of the language used by European politicians.
“I think they [the Indian government] saw this deal not so much as one for Lakshmi Mittal, but in a much larger perspective. They did not want Indian entrepreneurs to face this kind of resistance when they went abroad. If we had given up, other Indian entrepreneurs would not have been encouraged to go after this kind of transaction,” said Mittal.
He may have achieved his long-held goal of market leadership, but Mittal is still hungry for more. He hopes that in a few years Arcelor Mittal could be making 150m or 200m tonnes. “We need to be of that size,” he said.
And what about his palatial building in Luxembourg? The merged company will hang on to it, Mittal said — but at the same time it is also looking for something a bit more modern in the same city.
A dizzying rise to the top
ONLY a few years ago Lakshmi Mittal was regarded as a fringe player in world steel, a maverick with an eye for a bargain and big ideas about industry consolidation, but little else.
Nobody can say that now. But the manner and speed of his rise is still bewildering, and the list of deals he has done along the way almost defies belief.
The Mittal legend starts in 1975, when he was on holiday in Japan with a friend. His father asked him to stop in Indonesia on the way home. Mittal Sr had bought property there with an eye to building a steel plant, but had then decided against it. His son concluded differently.
His efforts to develop the Indonesian plant led him into international expansion. Looking for a supply of raw iron to feed it, in 1989 he alighted on an unlikely prospect — a struggling business in Trinidad.
He then bought in Mexico, then (to mention the major transactions) Germany, America, Czechoslovakia, Algeria, South Africa, Kazakhstan, Poland and Ukraine. Last week he cemented a deal to buy Sicartsa, one of Mexico’s leading producers, for $1.4 billion (£713m).
You can read an in-depth report we wrote last year about the workings of the Mittal empire at www.timesonline.co.uk/mittal.
High achievers who were pipped at the post
THE selection of the Sunday Times Business Person of the Year always generates furious debate among the business team, and among readers. Mittal’s audacious and successful bid for Arcelor made him this year’s choice, but it was a close-run thing.
Stuart Rose won great praise from readers for his revival of Marks & Spencer. “In my opinion he has performed a near miracle in restoring the fabulous M&S to a position where it can once again be recognised as genuine leader in British retailing,” said Peter Gutteridge.
David Hurt, another reader, wrote: “Rose has achieved a surprising level of success by turning round a very big company in a short time. He has shown the ability and determination to provide it with a sound base for the next generation.”
Rose has played down the praise, realising perhaps that an even tougher task — making M&S a force on the world stage — still awaits him.
John McAdam’s resuscitation of ICI also earned readers’ plaudits. Arthur Dicken e-mailed us to commend his “phenomenal achievement in restoring the respect and success of the once-great ICI, which fell from grace under past poor leadership, but now re-emerges as a slimmer fitter model, to benefit customers, shareholders and pensioners”.
