Emperor of steel
After a brutal takeover, billionaire Lakshmi Mittal stands atop the steel industry. So why is he still an outsider?
By Nelson D. Schwartz, Fortune Magazine senior writer

(Fortune Magazine) -- High above the Hudson River in a helicopter, the world's fifth-richest man doesn't bother to glance up from his BlackBerry and admire the view. That's because the deal he has pursued across four continents for five months, which a few hours earlier seemed unlikely to come to pass, is suddenly within reach.

But Lakshmi N. Mittal doesn't punch the air, or smile, or do any of the other things billionaires are supposed to do when they're about to clinch the Big One and the Manhattan skyline is glinting in the background. Instead, with a sigh, he says, "A lot of e-mails."

2006 FORTUNE Global 500
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Back on solid ground a few minutes later, Mittal leans low under the swirling blades and bends his six-foot frame to fit into the limo that will take him to Wall Street, his gray suit wilting in the New York heat. It's Armani, not Savile Row - decent enough, but still off the rack.

"I can't afford Savile Row," the 56-year-old steel tycoon says with a laugh, sounding like the accountant he trained to be in Calcutta more than three decades ago. While Mittal certainly enjoys his wealth in private - a $55 million wedding for his daughter, including a party at Versailles featuring Bollywood stars and Aussie singer Kylie Minogue; a London mansion that is Britain's most expensive private home; and his own Gulfstream 550 - he is anything but flashy in public.

Indeed he won't even talk about the wedding, saying, with a steely edge in voice, "I don't want to mix personal life with business."

The quiet billionaire

Maybe that's why few Americans have heard of Mittal, even though his $27 billion fortune isn't far behind Warren Buffett's, and his company, Mittal Steel (Charts), is the biggest steelmaker in the U.S., not to mention the world. Not that he gets much respect back home.

On the Continent, clubby steel execs didn't take him seriously, treating his bid for European steel giant Arcelor (Charts) with Gallic hauteur, deriding the Indian-born entrepreneur's stock-based offer as "monkey-money." And government officials, including French finance minister Thierry Breton, who questioned his business style, reacted with alarm and a soupçon of chauvinism.

But Mittal usually ends up getting what he wants - and the acquisition of Arcelor is no different. Late last month, six days after the chopper ride when he first learned that Arcelor's resistance was crumbling in the face of a shareholder revolt, the Luxembourg company agreed to sell out to Mittal for $32 billion in cash and stock.

When the deal closes later this year, the new company will be a colossus, producing 110 million tons of steel annually, three times more than No. 2 Nippon Steel (Charts). The combined companies' pro forma 2005 revenue of $68.5 billion would have vaulted Mittal Steel from No. 208 on this year's Fortune Global 500 to No. 63.

What's more, the deal comes as Mittal is digesting recent acquisitions in the U.S. and Ukraine, mergers that produced profits of $3.4 billion in 2005 and helped push Mittal's stock up threefold since 2004.

Skillful acquisitions

"It was like a boxing match," a more relaxed and less rumpled Mittal says over a cup of tea in early July, sitting in his sleek Berkeley Square offices in London. "We thought we were knocked out, and then we won it in the 12th round."

Still smarting from the way his company was portrayed by Arcelor executives until the moment they surrendered - they said Mittal's products were "eau de cologne" compared with Arcelor's "perfume" - Mittal is a long way from being an insider, at least on this side of the Atlantic. "I've learned a lot," he admits. "In America, it's just about shareholder value and profits. In Europe, values, culture, and tradition are important. It's different."

Indeed it is. But while acquiring Arcelor feeds Mittal's 20-year dream of consolidating the fragmented steel industry (the combined company will control 10% of world production) and Mittal is indisputably the most powerful steel magnate in the world, his battle is far from finished.

It's not just about proving the rationale behind the merger - whether joining these two giants will cushion the combined entity in the event of a downturn. There is also the question of control.

Most press accounts stress the compromises Mittal made to win Arcelor. He gave up majority ownership of the business he founded, lowering what was an 88% stake to 43.5% of the new, combined enterprise. And he will appoint only six of 18 board seats. But in talking to him it becomes clear that, regardless of what his new partners may think, he has no intention of ceding control of his company to anyone.

Corporate family

Mittal Steel has long been an unusual mix of publicly traded company and family firm: Mittal's 30-year-old son, Aditya, is president and CFO, and daughter Vanisha, 24, is on the board of directors. When Lakshmi Mittal recently visited the company's sprawling Burns Harbor, Ind., mill, he brought along Aditya, Vanisha, and his wife, Usha, as well as his son-in-law and daughter-in-law.

And when the time came to discuss giving up majority control, the meeting was held not at Mittal Steel's headquarters in Rotterdam or its offices in Berkeley Square but at the family's London mansion. No outsiders were present. "This is an incredibly tight family," says Lou Schorsch, who runs Mittal's U.S. operations. "There's a string of three generations of canny businesspeople."

Yet after the deal Arcelor chairman Joseph Kinsch will remain in his current role, with Mittal serving as president. The company will be called Arcelor-Mittal. And it will have headquarters in Luxembourg, giving Arcelor executives an edge as they battle for jobs with the Indian-born Mittal associates who currently make up half of Mittal Steel's senior management. Aditya's exact role in the new company has yet to be determined, although the merger agreement guarantees him a place in the company's top ranks.

These are not small concessions for a man who prides himself on knowing how much hot metal each of his mills can turn into finished steel and who enjoys getting together lieutenants scattered from Baltimore to Kazakhstan to examine the nuts and bolts of his business.

Indeed, in the post-victory interview in Berkeley Square, he seemed unwilling to accept that things might not be the same now that he controls less than half of the company. While Kinsch told reporters he hoped the merger would be a "love marriage between our teams," Mittal seems to be thinking more along the lines of an arranged wedding, with Arcelor as the dowry.

"I will have to agree to all strategic decisions, investment projects, and the direction of the company," he says, quickly adding that appointments will be made on the basis of merit, not family connections.

The winning hand

Still, Mittal can't help mentioning that his nemesis in the takeover fight, Arcelor CEO Guy Dollé, won't be staying on and that Kinsch is expected to remain as chairman only until next April. As for restrictions in the merger agreement barring him from raising his stake above 45% for five years, well, Mittal counters that a share buyback would allow his portion to effectively increase.

"It's called 'indirect creeping,' " he volunteers, already anticipating his next move. "If they can handle it on a day-to-day basis, then I would not like to get involved," Mittal says of the team that will eventually run Arcelor-Mittal. "We will see how much help they need."

Mittal likes to portray his company as a decentralized firm with plenty of autonomy for local managers. But anyone who has worked for him will tell you that's about as realistic as an air-conditioned blast furnace.

"Mr. Mittal is the driver; he doesn't sit back and let things happen," says John Lefler, who ran the Sparrows Point steelworks in Baltimore for Mittal until he retired in April.

Sparrows Point is emblematic of both the decline of American steelmaking and the rise of Mittal. Built in the 1880s by the company that would become Bethlehem Steel, it employed 30,000 workers at its peak in the 1950s, churning out profits while also guaranteeing its unionized workforce ample salaries and benefits.

On weekends, Bethlehem brass played golf at an 18-hole company club. By the 1980s, though, as competition from domestic mini-mills and new steel exporters like Brazil, Korea, and Japan was heating up, Bethlehem was struggling.

Knowing the industry

Half a world away, Mittal was learning about the steel industry from the bottom up - and about the importance of family connections. Born in a village without electricity in Rajasthan, he was hardly destined for riches.

His father had an entrepreneurial bent, building a steel company in Calcutta, where Lakshmi got his start in the mailroom. Sent to Indonesia to sell a piece of land for his father, Lakshmi persuaded him to open a mill there instead.

He says he found he had a passion for steel and was inspired by the ultra-efficient, high-tech operations of the Japanese giants. By his late thirties, Mittal had decided to focus on international opportunities, leaving India to his father and brothers. He bought the Indonesian mill from his father, and expanded to Trinidad and Kazakhstan.

In 1997 he acquired Inland Steel in Chicago. And he followed that by scooping up privatized works in low-cost locales like Poland and Romania. "I realized," he says, "that life is too short to build a steel company from scratch."

While Mittal expanded, Bethlehem and fellow U.S. giants such as LTV were making multiple trips through bankruptcy court. New York turnaround artist and financier Wilbur Ross eventually purchased the assets, creating the International Steel Group.

He cut management, improved relations with the United Steelworkers union, and generated profits, then sold ISG to Mittal for $4.5 billion in April 2005. Although Ross walked away with a $1.2 billion profit, the timing for Mittal proved just as sweet: With global steel prices borne aloft by Chinese demand, Mittal's U.S. operations are expected to generate operating income of roughly $1.5 billion this year.

Tight controls

The key to Mittal's approach, says Lefler, is gathering reams of data, then using it to fine-tune each plant for minimum cost and maximum profit. At ISG, says Lefler, "I had to make six reports a month. With Mittal, it was 66 - how much oil were you using, how many units of electricity per hour, how much time for repairs, in minute detail at every step.

They'd come back and say, 'Why are you using more than the plant in Kazakhstan?' And we'd try to figure out what they were doing better." He adds that while ISG was tough on costs, Mittal "bargains to the last penny."

Although Mittal is the ultimate decision-maker, he relies heavily on his son, as well as on Malay Mukherjee, his longtime chief operating officer. Inside the company, the three are known as "the father, son, and holy ghost."

Every Monday at 2:30 in the afternoon London time, Mukherjee presides over a conference call with Mittal managers from around the world, going over issues like blast-furnace output, local steel prices, and the cost of raw materials.

Although Mittal says he leaves the day-to-day operations to Mukherjee and Aditya, executives report he still participates in the call once or twice a month. "He is a perfectionist who wants everything just right," says Lefler.

Mittal still expresses wonderment at the ways of the club that was Big Steel. He recalls meeting executives from other companies during a trip to the U.S. in 1993: "Come Friday, everyone was saying have a nice weekend and play golf well. I never played golf, and it shook me that the mentality was that you work for five days of the week and play golf for the rest." Even then, Mittal preferred to be on the road, inhaling the acrid smell of hot metal and phoning managers on Saturday afternoons.

The golf-playing swells from Bethlehem and LTV are either retired or in another line of work, and Mittal owns their assets.

Continental divide

But in Europe change has come more slowly, thanks to financial support and equity stakes by governments, even in companies that had been privatized. So when Mittal made an offer in January to buy Arcelor, which had been cobbled together from formerly state-owned steel companies in Western Europe, the shock was palpable from the Élysée Palace to the tiny Grand Duchy of Luxembourg, where Arcelor is the largest private employer, and the government owns a 5.6% stake.

It didn't take long for the fear that barbarians were at the gate to morph into not-so-subtle hints that Mittal was a barbarian because of his Indian roots.

Luxembourg Prime Minister Jean Claude Juncker highlighted Mittal's links to India, even though Mittal Steel is focused elsewhere. And just days before Mittal won the Arcelor takeover bid, CEO Dollé couldn't stay away from the I-word in an interview with Fortune about Mittal. "It's not an Indian company but a company with many Indians at the top," he sniffed.

Although Mittal still calls Dollé a friend, the feeling isn't mutual. "We are not friends, but not enemies," Dollé replied when asked about his relationship with Mittal. "I did not take vacations with him."

To beat back Mittal, Dollé and Kinsch jerry-rigged a rival deal with Russian oligarch Alexey Mordashov, who agreed to buy a third of Arcelor and combine it with his company, Severstal. Kinsch even hailed Mordashov as a "true European."

But Arcelor's shareholders didn't like Mordashov any more than Dollé and Europe's elite liked Mittal. And Mittal assiduously courted European investors, skipping across Europe in his Gulfstream to lobby them and twice raising his terms and increasing the cash portion of his offer to allay fears that he was using what Dollé provocatively termed "monkey-money."

Even in old Europe, shareholders still call the shots most of the time. So when Arcelor's shareholders rejected a share buyback key to the Mordashov plan in late June, and Mittal agreed to limit his stake to 45% and keep Arcelor in Luxembourg, the board had no choice but to surrender.

For Mittal, the sniping by the likes of Dollé was a small price to pay to acquire Arcelor, which is strong in the specialty steels that bring high prices from automakers and command fat margins even when demand drops for more basic products like steel for construction.

It's also an ideal fit because Arcelor lacks access to raw materials like iron ore, while Mittal controls half of the ore it consumes. But it will be hard to achieve the synergies - $1.6 billion annually - that Mittal and Arcelor are promising investors. "I think the numbers are optimistic," says Bear Stearns analyst Daniel Altman, "especially given the challenge of integrating management."

So while Arcelor has its own top-notch restaurant with a well-stocked wine cellar (it doesn't own a golf course), merely eliminating perks and cutting management won't be enough to meet the financial targets.

Unlike the assets Mittal acquired in Ukraine or Kazakhstan, or even in the U.S., Arcelor isn't a company that has come through a wrenching bankruptcy or recent privatization.

It is highly profitable - $4.8 billion last year on sales of $40.5 billion - with a proud management that's unlikely to want to yield too much power to the likes of Aditya and his sister. And the challenge of integrating Arcelor's 47 million tons of capacity with Mittal's 63 million tons means the company will need to hold on to seasoned Arcelor executives.

Nor can Mittal easily move operations to cheaper sites in Ukraine or Poland - to win Arcelor, he promised to preserve blue-collar jobs in Western Europe, and European unions have the muscle to hold him to his word.

That also makes it harder to close steelworks and cut production when prices dip, one of the rationales behind Mittal's drive for consolidation and a tool he used last year when he shut blast furnaces in Weirton, W. Va., and laid off 1,000 workers.

Steel prices have rebounded since then, but the Weirton furnaces remain shuttered, infuriating workers who hope Mittal will sell what they call the "hot end" of the plant. (Mittal has kept the finishing mills in Weirton open but wouldn't comment on the fate of the idled plant.)

Still elated by his 12th-round victory, Mittal brushes aside these problems, or the threat that a drop in demand from China or the U.S. might send steel prices and Mittal shares back to where they were before he went on his acquisition binge, before he bought a 12-bedroom, $128 million mansion in London's Kensington Park Gardens, complete with Turkish baths and a 20-car garage.

Pessimism doesn't come naturally to Mittal - nor does understatement. "I can't think of a better combination than this," he boasts, explaining that consolidation will smooth out the brutal boom-and-bust cycle of the steel industry. "We are creating the path for the future." Top of page

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.