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Mittal & the art of empire building
Stanley Reed, BusinessWeek | February 16, 2006
The battle for supremacy in the global steel industry is getting personal. At a Jan. 30 press conference in Paris, Guy Dollé, chief executive of Arcelor, the world's second-largest steel producer, kicked off his defense against a brazen $23 billion takeover bid from London-based Mittal Steel Co with a dig at the predator's owner and boss, Lakshmi N Mittal. After introducing three senior management colleagues, Dollé quipped: "My son is not on the management board."
Arcelor's chief was making a not-so-subtle reference to the fact that the Mittal clan exercises tight control over the steel giant and that the CEO's son, 30-year-old Aditya, serves in the key posts of president and chief financial officer.
"If Lakshmi Mittal retired or got hit by a bus and Aditya took over, you wouldn't feel very good," says an industry source. He adds that while Aditya, who holds an undergraduate degree from Wharton, is sharp, it's the father who "has the strategic vision."
What's more, some worry that Mittal's board lacks independence, which the Mittals dispute. That -- and the fact that only 12 per cent or so of Mittal's shares trade freely -- explains why the stock has typically traded at a discount of about 45 per cent to its peers.
Mittal's cozy business ways are coming under scrutiny now that the Indian-born steel baron wants to weld a European giant onto his empire. No question looms larger than Aditya's place in a combined Mittal-Arcelor behemoth.
"It is going to be an interesting question whether Aditya would survive in the enlarged group," says a source, noting that the son lacks the usual qualifications for serving as CFO, such as an MBA.
Still, Aditya is not just another spoiled rich kid. He has been a key player at his father's company since joining in 1997. He orchestrated its initial public offering that year and has worked on many acquisitions, including the $4.5 billion purchase of International Steel Group Inc from American investor Wilbur Ross in 2004.
That deal transformed Mittal into the world's largest steelmaker and boosted the family's fortune to some $20 billion. "Aditya has added a lot of value to the company and brought new perspective in terms of growth and strategy," says Lakshmi.
Father and son appear to complement each other well. Lakshmi, 55, has the entrepreneurial flair and the deep, hands-on knowledge of steel. Aditya is the number cruncher who's more comfortable with bankers and investors.
"It's a very impressive double act," says someone familiar with the Arcelor deal. "Aditya is a very capable young man. His father listens to what he has to say."
Aditya says they hit on the idea of acquiring their Luxembourg-based competitor in November, after Mittal outbid Arcelor in a tough contest for Ukraine's Kryvorizhstal steel complex.
Acquiring Arcelor would give Mittal greater pricing power and eliminate a rival in future deals. Mittal-Arcelor would have about 11 per cent of the world market and sales of $60 billion.
The markets see the logic in the deal: Shares in the two companies have soared since the bid was announced. Investors also hope that an Arcelor takeover will force the Mittals to address their corporate governance concerns.
The Mittals are vowing to add more independent directors to the six they already claim. Aditya also hints he may have to cede his CFO post to a more seasoned pro: "Personal egos would not come in the way." The deal would also boost the Mittal shares available for trading, by paring back the clan's stake to 50.7 per cent.
But the Mittals won't cede ground on one issue: "We don't see any reason to give up family control," says Lakshmi. "In our view, family-controlled companies create better shareholder value." Looks like this dynamic duo isn't about to relinquish its super powers.