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Meanwhile, Sanjoy Mitra, director of sales and marketing, is sharpening pricing tactics, identifying new
customers, and tilting the product mix toward higher-margin goods like cold-rolled and galvanized steel.
He's melding the Poland sales operation with those of Mittal's Czech plants so the two outfits won't
compete. Plant staff will be reduced to 10,000 from 14,500 through a combination of buyouts and attrition.
Workers give the changes mixed reviews. “At least we are being paid on time”, says Slawomir Lekszton, a
foreman at the Dabrowa plant. But he says the pay – about $900 a month – is poor compared with Mittal
plants in Germany and France: “This is the [European Union], not Kazakhstan”.
Senior managers like Singh are the first to admit that the Mittal method is based mostly on commonsense
business practices. Indians don't need to teach the poles and the Czechs how to make steel. Says Singh:
“What we can bring is management knowhow in commercial areas. Mr. Mittal knows the world market as
no one else”. The steel king plays a very hands-on role in these turnarounds. Malay Mukherjee, Mittal's
longtime chief operating officer, says his boss meets with hundreds of managers at the plants he buys to
figure out who the real leaders are. Mittal also takes a close interest in figuring out the optimum mix for
plants. Indeed, the Ploish operation is profitable just eight months after being acquired, earning $121
million a month before interest, depreciation, and taxes, according to a Mittal exec.
While the turnaround in Eastern Europe has required little capital up to now, major spending lies ahead.
Mittal's plants in poland and the Czech Republic turn out relatively low-end steel used for construction
and highway barriers – not up to spec for the more demanding auto and white-goods industries. To retool
them, mittal will have to spend hundreds of millions. But he figures that with Poland and the Czech
Republic finally in the EU, their economies will gradually catch up with the West, leading steel
consumption to soar.
Mittal has built his career on spotting such opportunities. He recalls his 10 years in Indonesia as
“energizing”. The economy was wide open, and he learned to produce at low cost. His next stop was
Trinidad, where he took control of a state-owned plant in 1989. that led to purchases in Mexico and
Canada. Tehn came Kazakhstan in 1995. The plant was a notorious pariah where the workers were paid
in scrip. But nearly a decade and a lot of sweat equity later, he has a large, profitable 5 million-ton plant.
“No one would have believed the story if they hadn't been around”, says Christoper Beauman, a banker at
the European Bank for Reconstruction & Development in London who helped finance Mittal's work at
steel plants in Kazakhstan and Romania. The Kazakhstan operation was hit by misfortune on Dec.5, when
an explosion in a company-owned coal mine killed 23 workers. Mittal rushed to the scene to offer his
condolences.
One of Mittal's biggest challenges is to make the empire work together. A key part of meeting the
challenge is Mittal himself. Both associates and rivals give him high marks for determination and an
elephant-like memory. During the due diligence process in the Czech Republic, the manager of a rolling
mill gave a wildly optimistic assessment of the unit's capacity. When Mittal visited later as the owner, he
surprised the man by demanding to know how close he was to achieving that target.
Mittal knows how to pool knowledge and resources. Each Monday managers worldwide have a conference
call to hash over the world market and report on performance. If one area is short of iron ore or coal, for
example, supplies can be diverted from elsewhere. The group also locates export markets for production
that is in surplus in its home region. Another advantage: Mittal's group controls 40% of its iron ore
supplies and is self-sufficient in coke, a big edge when these materials are not available at reasonable
prices. Frantisek Chowaniec, the Mittal executive who overseas the Czech and Polish operations,
estimates that being part of the group slashes his input costs by 10%. This industry also has pockets of
excellence around the world. The Romanians are very advanced in blast-furnace technology; the Poles get
top grades for manufacturing coke. Mittal has brought in an ex-McKinsey consultant, Bill Scotting, to
make sure such insights are exploited throughout his companies.
Investors will now find it easier to put their money alongside Mittal's ,whose holdings will be listedon the
New York Stock Exchange. Ispat, traded on the Amsterdam Stock Exchange and the NYSE, groups most
of the family's Western operations, accounting for about 40% of revenues. The stock price has gone from
$7 a year ago to more than $36 today. More profitable LNM Holdings, a private company, has the non-
Western assets. In a complex deal, Ispat will acquire control of LNM, and the resulting Mittal Steel Co.
will acquire ISG in a 50-50 cash and shares transaction. Mittal's eldest son, Aditya, will be president and
chief financial officer of the group. The 28-year-old Wharton School graduate had a big hand in
negotiating the ISG deal.
Mittal will doubtless keep seeking ways to expand. Dolle of Arcelor thinks that in 10 years the industry
will be dominated by four or five majors. The candidates include Mittal, Arcelor, Shanghai Baosteel
Group, aJapanese entry, and possibly, posco in South Korea.
Mittal still has holes to fill in his portfolio. The big priority is China – a tough nut to crack. He recently
launched a $100 million finished steel operation Liaoning province. But acquisitions are getting more
competitive. A bid by U.S. Steel drove up the price of the Polish plants, and Mittal lost out to the
Pittsburg-based rival on a plant that he coveted in Slovakia in 2000.
And while Mittal has low costs, big capital commitments could be a stretch during a downurn. 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. Others, including some Mittal
insiders, think the next downturn could be vicious. A wild card is China, which in the last decade has
added capacity equal to 90% of the eurozone.
Still, even competitors concede that, compared with just four years ago, Mittal now has a broader-based
group with margins that are the envy of the industry. When Mittal vows to do a deal, his rivals have
learned to listen. “He's a manof his word”, says Daniel R. DiMicco, CEO of Charlotte (N.C.)-based Nucor
Corp. And Lakshmi Mittal hasn't finished yet.
Source: Copyright © 2004 The McGraw Hill Companies, Inc. All rights reserved. Stanley Reed with Michael
Arudt, “ The Raja of Steel”, Businessweek, December 20, 2004,pp.50-52