Laxmi Niwas Mittal has won the long drawn battle for Arcelor. He eventually convinced the Arcelor board and shareholders to vote in his favour to create the world's largest steel company. But what does this victory mean for Mittal Steel, the global steel industry and for himself. Laxmi Niwas Mittal, chairman and CEO of Mittal Steel, says in an exclusive interview with CNBC-TV18, that the steel industry needs consolidation as consolidation means sustainability.
On top of the world in all sorts of ways?
It is a very fantastic moment. I am very proud of what we have been able to achieve. It has been a long journey. It started in January, took lot of hurdles, problems and frustrations.
Do you think there was a lot of justice here? Severstal was brought in to keep you out… in fact it might have ended up delivering it to you?
There have been a lot of hurdles created to frustrate our transaction. But I am very pleased that shareholders got up on their feet and mobilised themselves. They asked the Arcelor board to review and revisit their decisions, and they wanted to be given a fair chance as shareholders. The Severstal transaction was not very clear to shareholders; it was kind of an opaque situation. They did not understand the value, they never got to know the industrial logic and industrial rationale. We have been working on this transaction for so many months, explaining to all the shareholders and stakeholders about the industrial logic and rationale behind this transaction. Suddenly they saw a company, Severstal, without proper, full disclosures. So they got upon their feet and they protested. I think it made a big difference.
But the shareholders were thinking one way, the Arcelor management was going another way. What was the reason for the disconnect? Was it the personal attitude issue?
I think the whole process began with emotions and there has been lot of emotional outbursts with the process.
Emotional outburst against you?
I guess Mittal Steel, obviously.
I think Arcelor was not expecting an unsolicited bid on the company. For them it was the price and they never looked objectively into the whole thing. It became more of a subjective decision and of emotions.
Was there a subjective view that you are an Indian?
I never experienced this kind of feeling. But I read lot of comments made by some of the Arcelor key management. It was quite emotional and perhaps, not required.
But you will now be working with the same Arcelor board. Guy Dolle, who led the opposition against you, he will now manage the merger, does that sound a bit odd?
Guy Dolle will not be the chief executive of this company after the merger is done; this is what he has announced. Because of his experience, we wanted him to get involved for the smooth integration for sometime. But very soon the board of directors of Arcelor will consider the new CEO.
You and Mr Kinch spoke a great deal about the metaphor of marriage, but many of us know that it is perhaps easier to get married than to stay married. Are you anticipating any difficulties here?
I do not expect problems in this integration and successful marriage. First of all, both companies have a lot of experience in integration and merger. This experience, if put together with the best team and with a desire to work together to make it successful, then I don't think there would be any problems. It should be a smooth transition and integration.
In the end would you call it an acquisition, merger or perhaps a reluctant merger? I would call it a merger of equals. Clearly a number one and number two company merging is generally a merger of equals.
Over the last five months have you lost any sleep over this?
In fact, I am happy I didn't lose much sleep. I could sleep well and I maintained my routine of exercising and everything, inspite of the fact that I have been busy meeting all the stakeholders, talking to the media, politicians and shareholders.
What was it like at home because your wife, your son everyone is involved in the business? So do you talk steel at breakfast, lunch and dinner?
It is true that for the last five months this has been the major topic of discussion at home. Such a major and unique transaction is being done in the steel industry and since the whole family is involved in the business, it naturally became a topic of discussion all the time.
Is there a sort of steely determination running through the family and are you looking to another acquisition; so which steel giant should start shaking thinking, here comes Mittal?
We have said steel industry needs consolidation, consolidation means sustainability.
But consolidation is another name for monopoly, isn't it?
Of course not. The industry has been so fragmented they never had a clear objective, or direction. Now with consolidation, the industry will have a much clear direction in the future. They will be able to deliver the values and returns to shareholders.
Are you trying to have enough control on both supply and prices?
I do not think that is right, because we will only be producing 10 per cent of the global production.
But you are not stopping at 10 per cent?
We are stopping at 10 per cent, there should be a couple more players, global players in the range of 150-200-million tones. We are ahead of the game, at least a couple of years, than the competition.
What is your target?
We believe that at least there should be one company, which should be in the range of 150-200 million tones.
But you are geared at 10 per cent. Will it be 30 per cent to 50 per cent over the next ten years?
I do not think that is possible in the steel industry. If we can achieve between 10 per cent to 15 per cent in the new geographies like China and India, which is our new focus for growth, I think we will make good progress.
When are you going to come to India and people can say in India, here comes Mittal?
We have already announced a project in Jharkhand, though the progress has been very slow. This is a big project of 10-million tones investment in ten years. So we are there with this project in India.
Are you planning major expansion in China?
Both Arcelor and Mittal have a presence in China and now both the companies have a great intention of increasing presence in China and we will be working towards this.
Do you think you might have paid too much for Arcelor following the determination to get the company?
The steel industry's multiples are very low. If it is compared with other industries that are consolidated and have delivered proper values to the shareholders, the multiples are very high. I believe that with this merger the steel industry should be re-rated and should be able to command higher multiples in terms of valuation and should be able to deliver values to the shareholders.
If you are going to be leading this expansion is it fair to describe you as the Alexander of the world of steel?
I will not endorse what you are saying; I can only say that we have led the process of consolidation and we have lot of other players who are following us and working towards consolidation.
You have spoken of this as a marriage, that it makes commercial sense. In what sense? In the terms of the kind of products you have and the kind of reach you have, how does this merger make sense? What will it do?
The beauty of this merger is that there is very limited overlapping, in terms of geography, in terms of product, in terms of competitiveness. Arcelor has been very strong in Western Europe in their products and in their reach. We have been very strong in our products in North America for example.
They (Arcelor) do not have businesses in Africa; we are the largest player in Africa. We do not have business in Brazil or Argentina and we are the largest in the whole of North America. So there is compatibility and this merger increases our geographical reach. It improves our product mix, it improves our customer reach and we will be able to serve global customers on a global basis.
Do you think the steel industry has a long-term future? When countries like China and India are done with their infrastructure? Who will you sell to?
Countries will continue to grow. First of all there is a demand for growth and while the countries are growing they need more steel. Once they have reached to a certain level then you need steel to sustain that growth.
However all these countries India, China, Poland, Czech Republic or Brazil, have a very low per capita consumption today. They are between the range of 20-30-40 kg per person whereas the world standards have gone up to 500kg to 1,000kg per person. So still they have a long way to go and catch up with the developed world in terms of consumption of steel.
What is your own long-term strategy in terms of management? Will you be sharing it primarily with your family and how do you distribute management decisions between say yourself and your son?
In the new company I will be president of the board and when the chairman of the board retires in April 2007, I'll take over from him and become the chairman. Aditya will be the member of the managing board and very soon we will announce what will be the respective positions of the managing board.
The family will continue to play the decisive role here?
As the largest shareholder, 43.5 per cent going up to 45 per cent naturally, we will be very much involved in all the strategic or important decisions of the company.
Has this acquisition or merger meant a substantial amount of debt for Mittal Steel? We have announced very clearly that we will maintain our credit rating. Today both the companies have investment credit rating. Even after the merger we have seen and we have talked to the credit rating agencies, we will still be maintaining our credit rating. Do not forget that with this merger we have also announced USD1.6-billion of new synergies.
This has also increased the potential of improvement. There is also potential to improve these synergy numbers once these companies have merged together. Plus if you look at the combined EBIDTA based on the forecast we will be at 1.3 multiples in the year 2007.
That debt to EBITDA is very comfortable and very healthy for the company.
A lot of people are very proud that an Indian has done this. Are you proud that an Indian has done this?
I am very happy that an Indian could achieve this. But our company is listed in Rotterdam and we are a Dutch company.
Would you have a particular interest in your Indian project, or you will continue your international presence and expand to India as an international company?
As a company we have announced our strategy of expansion in China and India going forward. When it comes to India, naturally, I have a soft corner to make sure that things run well. As I have promised to our shareholders we will continue to grow in emerging markets and India is our priority.
You heard a lot of expression of political support from Kamal Nath. Does that have some value for you?
Definitely. It created awareness in the western world. Kamal Nath has been a very important leader even in the WTO discussions. I admire his foresightedness in this respect. He did not see that this is only Mittal versus Arcelor. He is seeing this in a much larger context, India versus the world.
If a person coming from India, running a Dutch company, is not encouraged to consolidate his business with another European company, it means that there could be more hurdles and more problems for our Indian businessmen who want to go abroad and expand their business.
Are you seeing a new confidence in Indian companies and Indian businesses going global?
I am sure and confident that after this transaction Indians will definitely be very encouraged and confident going abroad and looking for opportunities to have an alliance with them or being partners with them, acquiring or merging with them.