By KEVIN NEVERS
International Steel Group is about to become truly international.
Less than 18 months after ISG acquired the bankrupt Bethlehem Steel
Corporation—the largest but not the only failed steelmaker to come under ISG
ownership since its creation in 2002—ISG itself is on the block, after
signing a definitive merger agreement with Ispat International N.V.
In a complicated deal involving two separate acquisitions, Ispat
International has announced its purchase of LNM Holdings N.V. and the
formation of Mittal Steel Company N.V. Mittal Steel, in turn, will merge
with ISG in a transaction valued at approximately $4.5 billion.
Ispat International—which is based in Rotterdam, The Netherlands, and owns
Ispat Inland at Indiana Harbor in East Chicago—is the publicly owned member
of The LNM Group, the world’s second largest steelmaker. Ispat International
operates in six countries in North America and Western Europe and has an
annual production capacity of 19 million tons.
LNM Holdings—which is based in the Dutch Antilles—is the privately owned
member of The LNM Group, held by Lakshmi Mittal, who also is chairman of The
LNM Group. LNM Holdings operates in eight countries in Europe, Africa, and
Asia and has an annual production capacity of 32 million tons.
The LNM Group itself is the second largest steelmaker in the world,
estimated revenues last year of $12 billion, and approximately 120,00
employees around the globe.
ISG, on the other hand, was created by WL Ross & Company, a New York firm
specializing in buyouts, specifically to acquire from liquidation the assets
of LTV Steel Corporation. It did so in April 2002, for $135.8 million in
cash and $54 million liabilities. In October 2002 ISG also acquired from
liquidation the assets of Acme Steel Corporation, for $60.9 million in cash
and unspecified liabilities. Then, on May 7, 2003, ISG went for the stands
when it acquired Bethlehem from Chapter 11 bankruptcy protection, for $836.2
million in cash, $15 million in common stock, a set-aside of $125 million
for “transition assistance,” and unspecified liabilities. In addition, ISG
this year acquired Weirton Steel Corporation for $253 million in cash and
liabilities and Georgetown Steel Company for $18 million and liabilities.
In short, in only two years, ISG became—by a hair—the largest steelmaker in
the U.S., with an annual capacity of 22 million tons, a shade more than U.S.
Steel Corporation’s annual domestic capacity of 19.4 million tons and
approaching U.S. Steel’s worldwide capacity of 26.8 million tons.
In December 2003 ISG raised $462 million in an initial public offering and
raised a further $69.3 million when the underwriters of the IPO exercised
their over-allotment option and purchased an additional 2,475,000 shares of
common stock at the IPO offering price of $28 per share.
Those shareholders would do well under the proposed deal, receiving $21 per
share in cash and a number of Mittal Steel shares equal to $21 divided by
the average closing price of Mittal Steel for the 20 trading days prior to
closing, with a maximum of 0.6087 shares and a minimum of 0.4793 shares. The
transaction would thus be valued at $42 per ISG share, or $4.5 billion in
the aggregate if the price of a Mittal Steel share averages between $34.50
and $43.81 in those 20 trading days.
On Friday Ispat International closed at $25.34 and ISG at $29.68.
On completion of both transactions—Mattel Steel’s merger with ISG is
expected to close by the end of the first quarter next year—Mattel Steel
would have operations in 14 countries on four continents and 165,000
“These transactions dramatically change the landscape of the global steel
industry,” Mittal said in a statement released this morning. “We are bring
together Ispat International, LNM Holdings, and ISG, one of the largest
integrated steel producers in North America, creating a global powerhouse.
In recent years, the steel industry has been characterized by predominantly
regional consolidation. This combination represents a significant step
forward in the globalization of the industry.”
“The combined company,” Mittal added, “will have excellent positions in raw
materials, particularly coal, coke, and iron ore, as well as strong
positions in key end sectors. This combination also provides Mittal Steel
with a more significant presence in important industrialized economies such
as those in North America and Europe and in economies that are expected to
experience above average growth in steel consumption, including Asia and
“This transaction achieves all of our financial and business objectives,”
ISG Chair Wilbur Ross said. “It provides our shareholders with an excellent
rate of return and the potential for strong future appreciation. It
accelerates by several years our strategy to become a leading global
steelmaker. By joining with Mittal Steel, respected in the global steel
industry for both its strategic vision and operational excellence, we have
provided our shareholders immediate value, as well as participation in a
new, financially strong, profitable global enterprise with excellent growth
Mittal would become chair and CEO of Mittal Steel. ISG Chair Wilbur Ross
would become a member of Mittal Steel’s Board of Directors. ISG President
and CEO Rodney Mott would become head of Mittal’s combined U.S. operations
and assume the title of CEO of Mittal ISG.
How exactly Mittal Steel ownership would impact ISG’s holdings—especially
its local holdings—is unclear. “We honestly can’t say,” ISG spokesman
Charles Glazer told the Chesterton Tribune. “We’re going to put together a
strategic integration committee from all parts of our company and all parts
of their company . . . and look for ways to leverage this as successfully as
Glazer did say, however, that Northwest Indiana would become one of Mattel’s
Although, Glazer noted, “a lot of folks were surprised on the world scene”
by news of the merger, he suggested that perhaps they shouldn’t be. “This is
a result of success,” Glazer said. “ISG had done a great job of turning
around the assets of the bankrupt corporations. . . . It’s a nice strategic
mesh of both companies, born of great industrial logic. . . . It just makes
It does make sense, Paul Gipson, president of Local 6787 of the United
Steelworkers of America, told the Tribune. “It is positive for us and for
the steel industry.” Gipson noted that the combined resources of Mittal
Steel would go far to insure a ready and steady supply of raw materials
which—with the spike in consumption most notably in China—have been hard and
costly to come by: iron ore, coal, coke, and limestone. “We’re certainly
going to be able to get plenty of it and at the right price.”
Gipson also remarked that the union’s position has long been that the
problem in the steel industry is not too much capacity but too many
companies. “We need to consolidate,” he said. “This merger is a tremendous
The USWA contract, he added, would remain the same under Mattel Steel
ownership and profit-sharing would not be affected. As far as profit-sharing
for the third quarter goes, Gipson said, ISG will pay members $5.326 per
hour x 40 hours per week x 13 weeks in the quarter.
U.S. Steel spokesman John Armstrong declined comment today. “It’s premature
for us to comment on the proposed merger or its potential effect on the
steel industry,” he said.