Word: mittal
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...Spain and France. Corus emerged from the 1999 union of British Steel and Dutch firm Hoogovens. In order for steelmakers to wield sufficient clout, notes Tommy Trask, an analyst at Standard & Poor's, steel "needs to be as consolidated as the iron-ore suppliers or the end customers." Both Mittal and Wilbur Ross, the former investment banker and distressed investment specialist who helped create ISG, envisage a future where steel is dominated by as few as half a dozen multinational companies. "Because of the scale of the transaction," Ross told Time, "it will accelerate [the merger trend]. It's inevitable...
...grand vision, though not without risk. In a series of shrewd moves that netted him an estimated $22 billion fortune and the nickname "the Carnegie of Calcutta," Mittal, 54, has spent much of his career buying run-down steel facilities in far-flung locations like Romania and Kazakhstan and returning them to profitability. But ISG is a different animal. It was formed in 2002 from the guts of the bankrupt LTV steel business. Under the watchful eye of Ross, the firm, which employs 15,000 people, grew into one of the U.S.'s major steel producers by acquiring money-losers...
...also got a major boost from the United Steel Workers of America union (uswa), which made major contract concessions to Ross to help get the business underway. So far, uswa seems to view Mittal's move as positive. Says union president Leo Gerrard: "Larger, stronger steel companies benefit our members and retirees." And outside analysts see a good fit between Mittal's surfeit of raw materials and ISG's demand for them. Raju Daswani, head of research at industry analysis firm Metal Bulletin Research, says: "Mittal [has] a lot of raw material production, but not much exposure to the high...
...that boom? Many observers still believe that prices will fall as a result of the World Trade Organization move that forced the U.S. in December 2003 to drop tariffs it had introduced in 2002, though that market effect has yet to emerge. Dropping prices could make it harder for Mittal to service its estimated debt of $3.2 billion. At the moment, China is devouring raw material, which may cause a nasty glut when the steel pendulum starts to swing back the other way. And, notes Standard & Poor's Trask, "the new steelmaking capacity in China will eventually catch up with...
...Does this mean that in five years, the new class of big firms like Corus, Arcelor and Mittal will want to walk away? Not likely. In the short term, there is money to be made. And by mere virtue of their size, giants like Mittal should also be well-placed to ride out the industry's next dip. The new group will have "enough economies of scale to ride out the downward part of the cycle," says Daswani. "No-one sits pretty in a downturn. But it's the small and medium-sized companies who get squeezed first." Maybe...