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1.

INTRODUCTION

 Mittal Steel Company N.V. was the world's largest steel producer by volume, and also the
largest in turnover. The company is now part of Arcelor Mittal.
 CEO Lakshmi Mittal's family owned 88% of the company. Mittal Steel was based in
Rotterdam but, managed from London by Mittal and his son Aditya. It was formed when
Ispat International N.V. acquired LNM Holdings N.V. (both were already controlled by
Lakshmi Mittal) and merged with International Steel Group Inc. (the remnants of Bethlehem
Steel, Republic Steel and LTV Steel) in 2004.
 On 25 June 2006, Mittal Steel decided to merge with Arcelor, with the new company to be
called Arcelor Mittal. The merger has been successfully approved by shareholders and
directors of Arcelor making L.N. Mittal the largest steel maker in the world.
 Lakshmi Mittal built Mittal Steel from a single mill. His father, too, had been a steel man -- in
Calcutta. Lakshmi Mittal ran a factory for him in Indonesia before striking out on his own
with a plant in Trinidad. Soon, he seized on a strategy of serial acquisition, often scooping up
underperforming former government outfits in such far-flung places as Kazakhstan.
Although the locales have changed over the years, he has stuck to a common formula:
Import modern management practices, wring out costs and, where possible, create new
efficiencies by taking steps like acquiring nearby coal and iron ore mines. In some locations,
like the Czech Republic,he has left the local management team intact. In others, like
Romania, he has replaced every member.

2. HISTORY
The history of the Mittal Group can be traced back to the 1950s, when Mohan Mittal, the
father of the Lakshmi N. Mittal (LN Mittal), the head of Mittal Steel, laid the foundation of
the Ispat Group in India with his brothers and children. At the time, India followed a
socialistic pattern of development, and the economic environment did not encourage large
scale private investment.
The Mittals therefore looked for options abroad, and in 1976, they invested $15 million in a
steel mill in Indonesia which they named PT Ispat Indo. In their search for non-scrap iron to
feed the plant in Indonesia, the Mittals went to Trinidad and Tobago.
In 1989, they leased Iscott, a loss-making government owned steel firm in Trinidad and
Tobago.
Adopting innovative practices and cutting edge technology, the Mittals managed to bring
about a turnaround at Iscott and within a year, Iscott became profitable.
This set the stage for future expansions. During the early 1990s, the Mittals further
strengthened their growth strategy when they acquired another non-performing state-
owned mill, this time in Mexico.
The firm soon became the group's cash cow and earned huge profits through the 1990s. In
1994, Ispat International was split from the Ispat Group in India, and concentrated on
international acquisitions under the leadership of LN Mittal.
Another important acquisition from a strategic viewpoint was that of a steel plant in Kazakhstan in
1995. The plant was in very bad shape and there were not many takers for it in the industry.
However, LN Mittal saw potential in the plant, as it had a distinct locational advantage in
being fairly close to the Chinese border, since China was emerging as a major steel
consumer.
Over the next few years LN Mittal acquired several steel plants in places like Poland, the
Czech Republic, Romania and Canada. Some of these mills were privately owned by LN
Mittal underLNM Holdings (LNM), of which the publicly-traded Ispat International (Ispat)
was also a part. BY the late 1990s, Ispat had several steel plants around the world and
controlled nearly one-tenths of the global steel production
3.1 PORTER’S FIVE FORCE MODEL :-
Entry by potential competitors is enormous:- Entry barrier plays an important role
in the here. I case of steel industry these are the factors creating very high entry barrier for
new entrants.
1) Huge capital investment:- Huge capital investment is required for establishing
steel manufacturing facility.
2) Economies of scale:- In case of steel industry economies of scale is achieved at very large
scale. Due to its large size Mittal Steel enjoys high magnitude of economies of scale. It has ownership
on factories in many countries(by acquisition ) so uses the technology and knowledge knowhow
across the borders. So it becomes very difficult for new entrants to enter into the market and
compete with an already established large company.
3) Absolute cost advantage:- Established companies such as Mittal Steel has absolute cost
advantage over new entrants because of its 1) superior production operations and processes
because of accumulated experience, patents and secret processes, 2) By vertical backward
integration Mittal Steel acquired coal and iron mines. It gave lower cost for input materials. 3)Going
for low labour cost regions allowed Mittal Steel to have more cost advantage which is very difficult
for a new entrant.
4) Customer switching cost:- Steel is a product for which buyer industries has to
establish very well structured transportation facility with the producers. It becomes
difficult for a buyer to establish a new transportation channel when it wants to switch
the seller.
5) Government Regulation:- In some the countries Mittal Steel enjoyed very low tax
rate or zero tax for few initial years after it bought the loss making government units.
Rivalry among established competitors:-
1)By acquiring large number of Steel Companies Mittal Steel became behemoth and
gained the more control on price.
2) Large number of steel industries are in government hands. Management of these
companies find it difficult to compete with private players such as Mittal Steel.
3)Since Mittal Steel was ready to acquire the sick government units it gave an easy exit
barrier to these industries and weakened the competition.
4)Other big players were present in the market. But Mittal Steel concentrated on its low
price strategy(mostly in Asia and Africa) while many of its competitors competed for
higher quality(mostly in Europe) and better distribution channel.
Buyer Power:- It buyers are appliance (white goods), automotive (passenger vehicles,
trucks, auto components ), building and construction (including housing and
infrastructure),fabrication (sheet steel and metal fabricating industry), oil and
gas(including pipeline), packaging (tin plate, tin-free and aluminum / aluminium), rail
transport and maritime shipbuilding industries.
1)Building and construction, fabrication, oil and gas and packaging industries are
fragmented so they have less bargaining power.
2)Although, some of the buyers are large players but in comparison to behemoth steel
industries they are dwarfed in size. Comparatively they have less bargaining power.
3) Since steel making industries are less in number so they enjoy more bargaining power
than its buyers.
Supplier Power:-
Since coal and iron mines are large in size and few in number and controlled by large player,
their bargaining power can significantly effect the steel industry business.
1)But Mittal Steel adopted the strategy of backward vertical integration. Before
acquiring any industries, they first ensured the iron ore and coal supply from mines.
2) Mittal Steel buys a large chunk of supply from its suppliers and retains the bargaining
power to itself.
Threat of Substitute:-
1)Steel has currently no substitute at its price level.
2)At some places(utensils, white goods) steel can be substituted by natural fibers and
other metals but that is at very small scale.
3) Due to new emerging markets such as China, India, South East Asia consumption of
steel have risen sharply in recent decades.
3.2 OPPORTUNITIES:-
Opportunities arise when a company can take advantage of conditions in its environment to
formulate and implement strategy that enable it to become more profitable. Some
opportunities for Mittal Steel
1. After merger with Arcelor it can use its low cost technology to in the countries of Europe
and South America where Arcelor was operating.
2. After merger with Arcelor it can use Arcelor’s good distribution channel and high quality
product technology in Asia, Africa and North America.
3. Many new emerging markets are following policy of globalization, privatization and
liberalization. These countries are primarily focusing on infrastructure development.
These will lead to significant growth in the steel demand.
4. In many developing countries resources and raw material are available in good amount
which can be exploited for further growth.
5. Cheap labour in developing countries can give absolute cost advantage to Mittal Steel.
3.3 THREATS:-
Threats arise when conditions in the external environment endangers the integrity and
profitability of the company business. Threats for Mittal Steel
1. Anti globalization protest in many countries. As an example Mittal Steel, which has
headquarters in Rotterdam but is controlled by the Indian entrepreneur Lakshmi Mittal,
has met ferocious opposition in France and Luxembourg, where Arcelor is based and is
the biggest private employer of some 5,900 people.
2. Recession and falling demand in developed countries.
3. Unstable political condition in many developing countries.
4. INTERNAL ANALYSIS
Internal Analysis include the analysis of factors which are within the industry such as
distinctive competencies, competitive advantage, profitability. Internal properties of
a company can be categorized into two parts strengths and weaknesses.
4.1 STRENGTHS
Position as the world's largest, most diversified steel group
Strong profitability and free cash flow generation through the recycle, supported by
low cost operations and upstream vertical integration.
Learning curve benefit due operation experience of long time.
Acquisition experience of acquiring industries from different countries.
Compared with peers, Mittal has higher exposure to spot markets. Most of the
shipments outside North America are spot sales.
4.2 WEAKNESSES
Ambitious growth strategy that implies integration challenges and uncertainties for the
company's future financial profile
Exposure to operating in emerging markets.
Different acquisition can lead to cultural mismatch among different units.
Exposure to those countries weak legal and regulatory systems, as well as the integration
of new assets into the group structure (for example, establishing appropriate control
procedures, achieving operational synergies, and turning around former state-owned and
often inefficient plants)
5. STRATEGY OF MITTAL STEEL
5.1 CONSIDERATIONS BEFORE AN ACQUISITION
When Mittal Steel considers an acquisition, it seeks not only low-cost inputs and an
expanding market, but also inexpensive labor.
But it will bend its criteria if an opportunity looks promising enough. Its Algerian plant, for
example, had no obvious source of iron ore. When Mittal staffers discovered that the
country had ore deposits, the company secured a license to open a mine.
Similarly, its purchase of International Steel Group did not seem to fit its requirement for
lowcost labor; U.S. wages are among the highest in the world. But ISG had been cobbled
together out of such storied American steel names as Bethlehem and LTV by U.S.
turnaround specialist Wilbur Ross, and Ross had streamlined the companies while
reorganizing them. He laid off employees and jettisoned pension plans, giving ISG a cost
edge over U.S. competitors.
Although the company has a blueprint for acquisitions, each of its deals presents unusual
challenges. In the former Eastern Bloc, for example, financial statements have proven
unreliable because plants often did business via barter. In Romania, they had a central
computer which would track all of the barter transactions.
In Kazakhstan, where it opened a warehouse and found 50,000 bottles of Romanian red
wine.
They had traded steel for wine. And they had created their own currency -- IOU notes. You
would go to the hospital or the grocery store, and there were these IOU notes.
5.2 OPERATIONAL STRATEGY
Mittal acts as a consolidator in the global steel industry, focusing on growth through
acquisitions, and has a successful acquisition and integration track record.
Operationally, Mittal has a highly diversified asset base, with plants of different types,
including
both integrated and minimills.
Mittal's base capital-expenditure requirements are lower compared with those of peers,
because of its lower cost base in emerging markets (for example, Romania andKazakhstan),
where comparable types of work can be performed at a lower cost.
Mittal may invest in new projects to strengthen its upstream integration. For example, the
group is considering new projects in iron ore mining in Liberia and expansion of its Ukrainian
production.
5.3 BID FOR ARCELOR
Mittal Steel & Arcelor complemented each other in terms of geographical coverage and
product mix, as there is no significant overlap.
Mittal has strong positions in the U.S. market; low-cost operations in Central and Eastern
Europe, Asia and Africa; and vertical raw-material integration. Arcelor is the leader in
highervalue-
added products in Western Europe, low-cost slab manufacturing in Brazil, and has a
successful distribution system.
As the largest player in the steel industry--globally and in the key markets--the combined
group
enjoys significant bargaining power. The merger was expected also yield synergies in
procurement, marketing, and optimization of production processes and capital
expenditures.
The bid significantly increased Mittal's leverage.

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5.4 FINANCIAL RISK PROFILE
Acquisitions introduce risks, but the group has a good track record of turning around
underperforming steel acquisitions, particularly in less-developed countries, through LNM
Holdings, which implemented this strategy since 1995.
The advantages of Mittal's strategy of expanding into emerging markets include low cost
bases
for steel production and capital construction. In most cases, assets the group acquired in
emerging markets like Romania or Kazakhstan were low priced, and the plants enjoyed
sizable,
albeit temporary, tax breaks.
The key risks of Mittal's emerging-market expansion strategy include exposure to those
countries weak legal and regulatory systems, as well as the integration of new assets into
the
group structure (for example, establishing appropriate control procedures, achieving
operational synergies, and turning around former state-owned and often inefficient plants).
But
Mittal has a track record of successfully integrating and restructuring previously
underperforming state-owned assets. Vast geographical diversification also mitigates risk in
each particular emerging market, as the group is no longer markedly dependent on any
single
asset or market.
In the medium to long term, the main issue for the group is its success in integrating
recently
acquired assets and maintaining long-term, stable relationships with the governments of
host
countries.
The Mittal group has a complex structure and has only majority control, but not full control,
over some of its cash-generative and cash-rich subsidiaries. For example, Mittal owns only
51%
of the South African plant, 70% of the Algerian plants (30% is state-owned), and 76% of the
Czech plant. This constrains cash flow circulation within the group and may lead to
significant
spending to buy out minority interests (although no such requirements are currently
effective).
6.CONCLUSION
The business strategy that has made Mittal Steel the world's largest steel maker is a
commitment to consolidation and globalization and a willingness to take risks that scare off
competitors. As the steel industry overall struggled in the present decade, Mittal Steel,

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grappling with financial problems of its own, continued to expand. And as competitors
insisted
that steel should remain a regional business, Mittal Steel pursued its vision of becoming a
global giant.
Mittal steel is as the world's largest, most diversified steelmaker; strong positions in North
America, Asia, and Africa; and robust free cash flow generation.
The group's vertical integration in mining and low cost position in emerging market
operations
support profitability through the cycle and help reduce capital-expenditure needs.
These factors are tempered by the group's ambitious plans to grow through acquisitions;
institutional risks associated with emerging markets; and uncertainties regarding the
integration of newly acquired assets, although Mittal's integration track record has been
successful to date.
Mittal is the most diversified steel company in the world in terms of asset location and
market
presence across all regions, and the group's product range includes both flat and long steel.
As
such, Mittal is not overly dependent on any single region, product, or end market (see chart
1).

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The company's overall low cost position is buttressed by vertical integration and low wage
costs in its Kazakhstan, Romania, Poland, Algeria, and South Africa locations. The acquisition
of U.S.-based International Steel Group Inc. (ISG) in early 2005 moved the group into a high
cost-base market, but bettered geographical market diversification. Moreover, Mittal's cost
advantages are expected to strengthen further since acquiring Mittal Steel Kryviy Rih in late
2005.
In cyclical businesses, such as steel, volatile margins depend on changes in raw-material and
finished-product prices. Compared with peers, Mittal has higher exposure to spot markets.
Most of the shipments outside North America are spot sales. Although a significant part of
sales
in North America are under long-term contracts, most of these contracts are annual and
carry
surcharge provisions, and there is significant exposure to automotive customers.
Upstream integration into iron ore and coking coal provides Mittal with a competitive
advantage throughout the cycle. In 2005 (pro forma ISG acquisition), 56% of iron ore and
42%
of coal requirements were supplied by the group's mining subsidiaries or under long-term
contracts. Kryviy Rih integration would further increase vertical integration, as that company
is
about 80% self-sufficient in coke and iron ore.
Also, as one of the largest players in any of its markets, Mittal has major negotiating power.
Mittal takes advantage of its diversified asset base to achieve operating synergies. For
example,
the group estimated the synergies on ISG to be about $250 million, and on Kryviy Rih about
$200 million, because of optimization of sales, marketing, procurement, and IT costs.

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