Aditya Mittal values Wharton education

By: Stephen Chien, WG'06

Posted: 10/3/05

On September 27, Wharton External Affairs hosted a Distinguished Alumni Lecture featuring Aditya Mittal, W'96, President and Chief Financial Officer of the Mittal Steel Company, the world's largest steel producer. After Wharton, Mittal worked at CSFB in mergers and acquisitions in New York and London before joining his father's steel company. Starting as Head of M&A and Director of Finance at Ispat International, one of Mittal Steel's predecessor companies, he quickly rose to Vice-Chairman and Head of M&A at LNM Holdings, another predecessor company which after a series of acquisitions would become the Mittal Steel Company. In April 2005, Mittal Steel acquired International Steel Group of the United States, making the company the largest steel producer in the world, with a market capitalization of roughly $20 billion, sales of roughly $30 billion, and a capacity of roughly 70 million tons per year. Mittal's father, Lakshmi, is the Chairman, CEO and predominant shareholder of the company. Mittal shared his thoughts on Mittal Steel's recent success, globalization, and corporate social responsibility.

The rise of Mittal Steel

Initially, Mittal wasn't sure about the value of his Wharton education. However, in 1997, managing the IPO for Ispat, he found that his wide-ranging knowledge of tax, regulatory, managerial, and financial issues he had developed while at Wharton were key to the success of the IPO. His Wharton education continued to prove useful as he managed a long series of acquisitions that helped build what would become the Mittal Steel Company.

The early years were rough. The company's bid for a $1 billion steel producer in Slovakia failed, and during 1999-2003, steel prices fell dramatically, forcing numerous U.S. and international steel producers into bankruptcy. Mittal initially thought this was the worst period of his life, but in hindsight, he believes those years provided invaluable learning. The Slovakia acquisition failed because of a surprise bid from a company that hadn't made an acquisition in 100 years; the episode helped him realize that the steel industry was undergoing fundamental change. He was "unwilling to quit" despite the collapse in steel prices and the challenges of making acquisitions in this environment.

Three strategic priorities drove Mittal's acquisitions strategy. He looked for target companies with access to low cost raw materials, distinct cost advantages (especially low labor costs), and growing markets. This strategy led him all over the world, including South Africa, Algeria, Romania, Poland, and the Czech Republic. Each country presented a unique challenge. For instance, though Mittal Steel was the only bidder in the Romanian government's privatization, it took 10 weeks of tough negotiation with "24 chain-smoking" government bureaucrats before Mittal gained acceptance for his proposed restructuring program. In another case, while examining a potential acquisition in Kazakhstan, Mittal found a warehouse stocked with 50,000 bottles of wine that had served as barter payment from suppliers in the last days of the Soviet Union's economic decline.

Globalization

Mittal Steel had a unique globalization and acquisition strategy. Mittal Steel had never been a domestic producer - indeed, it still does not have steel facilities in India - so an international outlook came naturally. The company was the first to recognize the fundamental changes making a global strategy possible. Among other things, steel-making countries had made significant improvements in quality and therefore could compete in export markets, and the 1997-1998 financial crises further spurred Asian and Central/Eastern European countries to export. And of course, the wave of economic liberalization in the late 1990s facilitated international acquisitions.

The global strategy offered access to low-cost raw materials and growing markets, as well as expanded market intelligence and knowledge transfer around the world. Mittal recalled one unusual instance in which a subsidiary in Kazakhstan taught Americans about their smelting practices (apparently, the Soviet Union did once have good steel processing techniques). Other benefits of globalization included greater aggregate purchasing power and the ability to find nontraditional suppliers of iron ore.

Corporate social responsibility

Mittal noted that Mittal Steel is committed to corporate social responsibility (CSR). Beyond simply supporting charities and hospitals, it seeks to apply CSR in innovative ways. In Romania, workers were worried because the company had been losing money before it was acquired. To demonstrate Mittal Steel's long-term commitment, the company built a $2.5 million church, which went a long way in lifting worker morale. Mittal Steel also works with the International Finance Corporation (IFC), the private sector arm of the World Bank, to promote the growth of small and medium enterprises in developing countries.
Mittal believes adhering to high standards of CSR can be good for business, too. Mittal Steel follows World Bank environmental standards, which are often higher than local standards, qualifying it to work with multilateral institutions like the European Bank for Reconstruction and Development (EBRD) and the IFC.

In just nine years, Mittal has compiled an impressive list of accomplishments and has played an instrumental role in the rise of the world's largest steel producer. His next visit to Wharton will undoubtedly feature even more interesting stories and lessons.