The Global Guru: The Andrew Carnegie Of The 21st Century

Fellow Investor,

One hundred years ago, steel was the IT industry of its day — a cutting-edge sector that was a symbol of a country’s economic might. Andrew Carnegie, U.S. Steel, and Pittsburgh were what Bill Gates, Microsoft and Silicon Valley are today. The United States, Britain and Germany made the bulk of the world’s steel until the 1970s, when competition from Japan and South Korea sent these traditional Western steelmaker-behemoths reeling. By the late 1990s, the steel business had one foot in the grave. Two trends reversed this during the past five years. First, a series of recent mergers and takeovers among steel companies put the sector back on a more profitable and sustainable path. Second, a jump in demand for steel from China — coupled with a tripling of steel prices — brought the whole industry back from the brink of extinction.

Andrew Carnegie came to the United States penniless at age 12, and gave away a vast fortune of $480 million (the equivalent of $10.8 billion today) before he died. Today’s version of Andrew Carnegie is Lakshmi Mittal, a quietly spoken, London-based tycoon originally from India. Although he recently was named the world’s fifth-richest by Forbes magazine, Lakshmi Mittal’s empire is little known or followed on Wall Street. But during the past decade, this London-based, Indian steel magnate has assembled a global steel empire that now controls 10% of the world’s steel output. And with his current stake in the world’s #1 steel company worth over $45 billion, Mittal can lay legitimate claim as the 21st century heir to Andrew Carnegie.

The Andrew Carnegie of the 21st Century: Modest Beginnings

Born into a family of Marwaris, a group from the Indian state of Rajasthan known for producing shrewd merchants, Mittal grew up in a poor and remote Indian village without running water until the age of five. Mittal’s father later started a tiny steel company in Indonesia during 1977. In the late 1980s, Lakshmi Mittal himself began to spread his wings internationally. First, he leased and then purchased a company in Trinidad. Mittal’s strategy throughout the 1980s was to cobble together a portfolio of assets by taking over fading steel mills that no one else wanted. As late as 2001, the company’s $2-billion Mexican operation was teetering on the edge of default. But Mittal transformed crisis into opportunity by snatching up plants in Eastern Europe and Algeria at rock-bottom prices. Mittal doubled his company’s annual production capacity to 30 million tons during just two years.

Then in 2004, Lakshmi Mittal — by then chairman and main owner of the Netherlands-based Mittal Steel — acquired Ohio-based International Steel Group, itself a recent agglomeration of famous names such as Bethlehem Steel and LTV. The biggest turning point came in 2006, when Mittal launched an audacious $38 billion takeover bid for Luxembourg-based Arcelor — the #2 steelmaker in the industry.

The merger of Arcelor and Mittal — to be finalized later this year — created by far the world’s largest steelmaker in terms of market value, revenue and output. Today, ArcelorMittal (MT) is the world’s only truly global steelmaker, with 320,000 employees in more than 60 countries. The combined company is responsible for about 10% of world steel output, with a production capacity of 138 million tons of crude steel. ArcelorMittal has an industrial presence in 27 markets, with its principal focus on North and South America, Western Europe, Eastern Europe, the Commonwealth of Independent States, and Africa.

The Mittal Dynasty

Lakshmi Mittal today lives in a $105 million, 12-bedroom London mansion with butlers on call and a Picasso on the wall. He famously splurged $55 million on his daughter’s wedding last year, which included a party at Versailles. Part of the key to Mittal’s success has been that he has operated free of many of the social and cultural constraints that so often hamstring business in both Europe and India. Although Mittal is a poster boy for Indian success, because he built his business first from Indonesia and then from London, he is seen as something of an outsider in his homeland.

Few outside the steel industry, however, know much about Aditya Mittal, Lakshmi Mittal’s chief financial officer and son, and the key role he plays in his father’s success. Where the 56-year-old Lakshmi is the steel industry visionary, 31-year-old Aditya is the financial dealmaker. In fact, it was the Wharton-educated Aditya who was behind the $38 billion takeover of Arcelor. Together, Lakshmi and Aditya combine street smarts with book smarts and have a reputation for being cunning, tenacious, and tough — even ruthless — pushing aside anyone in their way.

With Aditya in charge of mergers and acquisitions, the Mittals have shifted their business away from snapping up cheap assets for low prices. Instead, they’re now paying top dollar for some of the best mills in the industry. Arcelor had been a sophisticated rival that had consistently outbid Mittal for valuable steel properties around the globe. After a brief power-sharing deal with Arcelor’s old management foundered, Lakshmi is now CEO, and Aditya is overseeing the integration of the two companies — including squeezing a promised $5.3 billion in savings and revenue gains from ArcelorMittal by 2008.

The Future Looks Bright

ArcelorMittal recently became the first $100 billion steel company in history. Mittal believes that strong demand for steel from India and China will ensure that the industry’s good times could easily continue for the next five to 10 years. The company recently announced its intention to spend $35 billion to expand internationally, with about $20 billion going to two steel plants in India. Mittal also wants to build a plant in Russia, and strengthen its position in China. In the long run, Mittal’s vision is a steel industry dominated by a handful of companies that produce more than 100 million tons a year. And you can be sure that the Mittals will be working hard to make sure ArcelorMittal remains #1 in that exclusive group.


Nicholas A. Vardy
Editor, The Global Guru


View All