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Thursday, February 09, 2006
Heavy Mittal The richest man Americans have never heard of
The Wall Street Journal Europe.
PARIS--Lakshmi Mittal built up the world's biggest steel company--and the third-largest personal fortune of any man--by acquiring mills in the dodgiest of places. He honed his deal-making skills on the frontiers of capitalism: in Indonesia, Kazakhstan, Algeria, the Balkans, often in countries one might need to look up in the very latest atlas. In the past week, however, the 55-year-old Indian mogul has found himself in arguably the most difficult business environment of all--Western Europe.
In terms of political resonance as much as sheer size, Mittal Steel's hostile $24 billion bid for the world's second-largest steelmaker, Luxembourg-based Arcelor, is without precedent in Europe. The prime ministers of France and Luxembourg, jointly and repeatedly--along with politicians across the board--condemned the Indian's gumption and vowed to stop him. Worse were the threats from the unions and Arcelor's chief executive, Frenchman Guy Dollé.
A takeover of Arcelor would take Mr. Mittal a long way toward realizing his vision of a dominant global steelmaker in an industry for decades characterized, and brought low, by fragmentation. To pull it off, Mr. Mittal needs to break an Old World taboo against takeovers, hostile or otherwise, involving a company dear to Continental protectionists' heart. That this task falls to a man born in Rajasthan, and raised in Calcutta, is one of the more delicious gifts of globalization.
Before Arcelor's shareholders get their say on his offer, Mr. Mittal is trying to smooth the way with irate politicians. He spent this week shuttling around European capitals talking up the deal. If it's Tuesday, this must be Luxembourg in the morning and Paris in the afternoon, where I catch him, before a late-evening trip back home to London. "I've been all over, all over, all over, from one meeting to another meeting," he says.
In person, Mr. Mittal hardly looks the brash and aggressive "raider with foreign values" portrayed in Arcelor spin. He says he's relieved to be away from the army of cameramen who've dogged him around Paris the past two days. (The merger has stayed front-page news the whole week in France, home to 30,000 Arcelor workers.) "It has been blown way out of proportion," Mr. Mittal says, slouching in his seat, with more than a hint of an Indian accent. "It should have been a very positive atmosphere. That steel companies are merging should be great news." Is he serious? He claims to be. "We're waiting for Arcelor to begin friendly talks," he says. "We really do not want to work in a confrontational environment." He uses the word "friendly" repeatedly.
Mr. Mittal is disarmingly agreeable, an impression that his staff insists is the real deal. He takes steel seriously and seems to keep his thoughts to himself. The modesty can strike a bit of a false note, if only because anyone who got around corrupt governments to build a metals empire can't lack a thick skin and, shall we say, some flair. When I suggest the nice tycoon image might be the "Indian way," he scoffs, saying, "There is nothing Indian here, there is nothing European here, you have to run a multinational company in a proper fashion with top professionals."
The attacks on him have been vicious. Valery Giscard d'Estaing, the former French president, warned against giving into economic "laws of the jungle." A former French finance minister referred to Mr. Mittal as "an Indian predator," although his company is traded and based in Europe and he hasn't lived in India for 30 years. Mr. Dollé, the Arcelor boss, said Rotterdam-based Mittal Steel is a "company full of Indians" that wants to buy his with "monnaie de singe." The expression means "monopoly money"--Mittal's offer is mostly shares--but the literal translation is "monkey money." That double-entendre wasn't lost on people.
This barbarian at the gate fights back with flattery. "They're all emotional comments . . . absurd and frivolous," says Mr. Mittal. "I know Guy Dollé and he's a very nice gentleman. I respect him and I admire him." He says he hasn't seen the race card played against him for a long time. "In the late '80s, when I bought the first company in Trinidad, I remember the headline was 'An Unknown Indian Takes Over Caribbean IISCOT.' But people started knowing me and today they don't ask who is Lakshmi Mittal. [Nationality] is not an issue globally. I don't think the world is moving in that direction."
Trinidad was the start of an acquisitions spree that catapulted Mr. Mittal into elite business ranks almost overnight. He says it took longer than people imagine. Mr. Mittal was born in a small village in the Indian desert state of Rajasthan, which he suggests may explain his dry character: "My roots are there." His father moved the family to Calcutta, ran a mining concern, and took him on at 16. "He has been my mentor in India and encouraged me to go outside," Mr. Mittal says. In 1976, while in Indonesia to finalize a land sale for the family firm, he convinced his father to help him start a new steel business there. But only in Trinidad, the maiden foray outside of Indonesia, did "I realize that we can turn around these kinds of companies and create value for us."
Not long after came a $2 billion purchase in Mexico, against his father's advice, and an audacious move into Kazakhstan in 1995, when no major steelmaker could stomach the risk or the climate. The Kazakh plant, which employs 50,000, supplies China. At the time of its purchase, Mr. Mittal was the world's 32nd-largest steelmaker. But he has made a simple gamble that low-cost producers can thrive, once made efficient, by selling to growing developing economies that are hungry for steel. Against the grain, Mr. Mittal held that an industry plagued by overcapacity and low prices had hidden value. As other steelmakers were busy retrenching, Mr. Mittal picked up plants in 14 countries, mostly in emerging markets.
"I wouldn't say they're dodgy but they're places that others would not think to go," he concedes. So why did he? "I believed in my people--I believed in our ability to run those operations." Continued family control lets Mr. Mittal, who owns 88% of his firm, take chances that companies with diverse shareholders would never dream of. His only daughter, Vanisha, sits on the board, and his 29-year-old son, Aditya, is the chief financial officer. The ownership structure raises questions about transparency and corporate governance that Mr. Mittal dismisses. He says Mittal shares, if anything, are "always undervalued." If Mittal Steel gets Arcelor, he'll keep 50.1%, and insists on no less.
For years, Mr. Mittal has said that only two or three big players will dominate his industry in the future. He wants to do what Henry Ford did for cars: make Mittal synonymous with steel. "If you look at our customers, they are consolidating," he says. "There are three or five major car companies in the world. If you look at our iron suppliers, there are only three iron suppliers. It is a very natural process. It is more so in the steel industry, which has been very fragmented." Even together, Arcelor-Mittal would still only account for 10% of world steel production. "It's longer to go for us," he says.
The American steel industry was broken up not only along national but state lines. "I gave a speech in '97 in Pittsburgh where I spoke about consolidation and globalization," he says. "It was difficult for my audience to accept it. But three years down the road there were 27 bankruptcies in the United States." In 2004, Mr. Mittal made his breakthrough deal, buying Ohio-based International Steel Group, a hodgepodge of once-proud names like Bethlehem, Weirton and LTV that investor Wilbur Ross put together. Historic highs in steel prices have made Mr. Mittal's strategy look brilliant. The company earned $4.7 billion on $22.2 billion in sales in 2004, the last year for which results are available.
The U.S. purchase turned him into the new Carnegie, the biggest steel producer in the U.S. That year, Mr. Mittal added nearly $19 billion to his net worth. He's doubtless the richest man most Americans have never heard of. Unlike an Ellison or a Trump, Mr. Mittal doesn't court or invite publicity. When I mention in passing his No. 3 spot on the Forbes list (net worth: $25 billion), he smiles sheepishly: "Am I?"
But in Europe, the overtly modest man's lavish tastes garner notice. He owns the world's most expensive private home, a $127 million mansion in London. Nearly two years ago, the British tabloids had great fun with the $60 million wedding thrown for his daughter and a thousand close friends over five days in France. Kylie Minogue and Bollywood stars entertained at the 17th-century Chateau Vaux le Vicomte and other venues. Plenty of moneyed people like to spend it; there's a whiff of condescension in the faux-outrage about this rich Indian's tastes, no? He refuses to talk about it. "We want to keep private everything," he says.
London, a cosmopolitan city as never before, is an ideal base for this poster-magnate of globalization. He says it's well-placed for a geographically diverse operation. But the future, for him, is in the East. He recently started his first business in India. China "is in the same place Japan was in the 1970s," where steel consumption outstrips economic growth as the country builds up infrastructure. Mittal was the first company to take a major stake in a Chinese steel mill, but he suggests further investment can only come once Beijing agrees to open the sector and let marginal producers fail. Of the two Asian powers, only India is politically open. "I don't think democracy has anything to do with business." Is freedom or stability more important? "Most important is growth," he says.
In selling the Arcelor takeover, Mr. Mittal plays to his European audience by stressing the competitive threat from Asia. "If we do not have a strong European base with a global enterprise, we could have an issue from a country like China, and our jobs could be in danger," he says. Together, Mittal-Arcelor would employ 340,000 people and produce 100 million tons of steel, more then the next four companies combined.
The bid did win him some influential friends in France. Jean Arthuis, a former finance minister and senator, met the Indian and liked him. "France has to acknowledge the reality of globalization," he said in widely reported comments. Seeing that Paris lacks the weapons to stop him--the French state no longer owns a stake in Arcelor and leading politicians as well as Mr. Dollé backtracked a bit from their tough talk by yesterday--the markets hope that Mr. Mittal will succeed in slaying the dragon of "economic patriotism" that's spooked away other foreign companies looking for acquisitions. Last year Pepsi backed off from Danone once the French government declared the yogurt-maker a "strategic" national asset.
One rumor sees Wal-Mart buying France's Carrefour. Mr. Mittal is skeptical. "This is a Luxembourg company merging with a Dutch-listed company," he says, referring to his own intra-European, on paper at least, takeover bid. "A Wal-Mart case would be different." In other words, the Yanks are still more despised than any Indian. The knee-jerk hostility to hostile takeovers--in effect, to capitalism itself--seems a Continental trait. "Could be," says Mr. Mittal, only "Arcelor is involved in a hostile takeover in Canada." He laughs, for Mr. Dollé is certainly no innocent: Arcelor last month won a heated battle against a German rival for a $5 billion Canadian steel producer.
Mr. Mittal's own nationality is an elusive target for adversaries. His very business makes a mockery of the old nation-state model. He is nowhere and everywhere. As a sop to the old European way of thinking, Mr. Mittal offered to keep the future headquarters of a combined Mittal-Arcelor back in Luxembourg. "It doesn't matter to me," he says. For in his sort of world, it really doesn't matter.
Editorial page editor
The Wall Street Journal Europe.