The Mittal Steel-ISG Merger - Creating a Steel Behemoth (Part-A)

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Case Details:

Case Code : BSTR147
Case Length : 12 Pages
Period : 2004
Organization : Mittal Steel
Pub Date : 2005
Teaching Note : Available
Countries : UK, USA
Industry : Steel

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"These transactions dramatically change the landscape of the global steel industry. We are bringing together Ispat International, LNM Holdings and (International Steel Group), one of the largest integrated steel producers in North America, creating a global powerhouse. In recent years, the steel industry has been characterized by predominantly regional consolidation. This combination represents a significant step forward in the globalization of the industry."

- L N Mittal, Chairman, Mittal Steel, November 2004.¹

"We strongly believe that it is a good acquisition on both sides."

- Charles Glazer, Spokesman of International Steel Group, November 2004.²

"We are changing the entire world steel map. The formation of Mittal Steel would create the same sort of change in the global steel industry that the creation of ISG, which includes assets of companies such as Bethlehem Steel and Weirton Steel, had done in the US."

- Wilbur Ross, ISG chairman in 2004. ³

A New Steel Giant

When a three-way merger between the Mittal steel companies (Ispat International and LNM Holdings) and the US-based International Steel Group (ISG) was announced in late 2004, it generated considerable interest in the global steel industry.

Mergers and acquisitions had become commonplace in the industry in the early 2000s, but this merger had a special significance in that it involved three big entities in the industry and sought to create the largest steel company in the world. The three-way merger which would create Mittal Steel Company NV (Mittal Steel) was valued at $17.8 billion.

The three companies that made up Mittal Steel would have a total annual production capacity of 70 million tons and expected combined 2004 revenues of $31.8 billion (Refer Exhibit I). Its total shipments for 2004 were expected to be around 57 million tons.

Mittal Steel would be much larger than Arcelor,⁴ which was till then the largest company in the steel industry with a total annual production capacity of 45 million tons (Refer Exhibit II for total annual crude steel production capacity of major companies). The company would also have a strong presence in various parts of the world, and an impressive client list including companies like Ford Motor Company, The General Electric Company and Whirlpool Corporation.

Background Note

The steel industry witnessed several mergers in the aftermath of the 1997 Asian financial crisis.⁵ The situation in Asia precipitated a large scale international steel crisis as domestic consumption stagnated in Asia and export markets dried up, creating a glut in steel production across the world. This led to a feeling that market adjustments would be necessary to reduce overcapacity by eliminating non-competitive companies. To fight the recession and survive, companies negotiated several mergers and acquisitions. However, most of these mergers and acquisitions were regional or localized, and the industry was still very fragmented.

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1] Rimin Dutt, "Mittal forges $32 billion steel company empire," Indus Business Journal, November 1, 2004.

2] Rimin Dutt, "Mittal forges $32 billion steel company empire," Indus Business Journal, November 1, 2004.

3] "Mittal Creates World's Largest Steel Firm," Guardian Newspapers, October 25, 2004.

4] Arcelor was formed in 2002 by the combination of steel giants Usinor (France), ARBED (Luxembourg), and Aceralia (Spain).

5] The Asian crisis started in mid-1997 and affected currencies, stock markets, and prices of other assets in several South East Asian economies. Western investors lost confidence in securities in East Asia and began to pull money out, creating a snowball effect.