Aditya Mittal’s tips on how to survive a downturn
Aditya Mittal, CFO, ArcelorMittal is just 32 and is the new face of the global steel industry. He has helped put together about 50 deals. Mittal is an M&A whiz and a strategist par excellence.
Born to the ‘Sultan of steel’, LN Mittal, and brought up near steel plants, it was only natural for Aditya Mittal to take to the family business. After graduating magna cum laude from the Wharton School of Business, Aditya was formally inducted into Mittal Steel a little over a decade ago in 1997. After a quick initiation, in 1999, he added Mittal Steel’s M&A division to his portfolio along with his first love, finance.
This marked the beginning of the company’s audacious inroads into Central Europe, Africa and the US. But soon Aditya found himself in the middle of the biggest downturn the steel industry had ever faced.
Mittal narrates the company’s journey. “I joined 11 years ago. We got into the IPO, which was fantastic. That was my condition for joining the company. I did not want to work for a private company; I wanted to work for a public company. Then I became the head of M&A. As soon as I became the head of M&A, the steel industry crushed. So, it was a trying time. A third of the US steel industry filed for bankruptcy. The famous Corus in the UK was close to bankruptcy.”
“We became a penny dollar stock. I got a letter from the NYSE that we would be de-listed in 90 days. We were having difficulties with our creditors and suddenly I became the head of M&A. My team left because they felt there was no future. It was me and my colleague Sudhir Maheshwari. Together, we said what are we going to do now. I started looking at opportunities around the world and lo and behold the opportunities were tremendous. There were very strategic, very low cost, and good companies. We could strike a deal even though we didn’t have money because the sellers were patient and that year in the worst downturn ever in the steel industry, we doubled our company. With that began the march of becoming the largest steel company in the world, which we achieved in 2005 when we acquired ISG in the US.”
The world sat up and took notice of Aditya as he led Mittal Steels’ almost unbelievable and controversial bid for Arcelor, which was at the time the world’s second largest steel company. It was an acquisition fraught with political and regulatory uncertainties. But that did not deter Aditya from convincing his father and the world that buying out Arcelor made sense.
After a five-month long process involving multiple governments, hundreds of lawyers, a battalion of investment bankers, white knights, poison pills and a USD 33 billion offer, Aditya finally got what he wanted. Today, the world’s largest steel company, Arcelor Mittal has revenues of over USD 100 billion and more than 3,20,000 employees.
Excerpts from CNBC-TV18’s Shereen Bhan’s exclusive interview with Aditya Mittal:
Q: It is interesting that you spoke about spotting the opportunity. You said the reason for Mittal Steel’s transformation was because you could spot the opportunities that other people, especially the Americans missed. What gives you the intuition or the ability to spot the opportunities that other people don’t?
A: There are a number of factors: it begins with my father. He never worked in his own country. He started his business in Indonesia, which since he is Indian, is a foreign country. So, the world became his oyster, and that is the mentality of our organisation. We have always considered ourselves to be global and our focus is every country. We are not limited to geography or states or provinces or anything like that.
If you looked at our steel companies historically, they are geographically focused. Even today, if you look at the Northern Asian companies like the Japanese and the Koreans, they are primarily focused only in their countries, even though they are the number 3 or 4 or 5 largest steel companies in the world. That is also seen in companies in Europe and across the world. So, that is one thing that we wanted to change because we saw opportunities in globalising the steel industry.
The second thing was obvious, at least when I was at university. I remember my Professor showing the three worst industries in the world for the last 30-years in terms of return on capital and steel was topping that list. It was terrible.
Q: Were you thinking, ‘Is this my future’?
A: Exactly. When I joined, my grandfather was so upset. He said why are you joining the steel industry? It is a setting sun; there is no future. All the young, smart guys- not that I was smart, but I was young- joined the IT industry. They join the Googles, Yahoos and the Microsofts of the world.
Q: That was never a consideration for you to actually go the Google, IT or “sexy” glamorous way?
A: No, I have liked steel, I don’t why, may be I was blind. I still love steel. It is a passion and now suddenly it has become the hot thing. For me whether it is hot or not does not matter. It is something that we love to do.
Q: Your father evolved the company and the way that you look at things because a lot of people, who have been observing the way that deals have been done within the group, say that your father likes to have management control. You are okay with not having management control as long as you get a foot in, as long as you get a toe-in? Is that a difference in the way that you look at deals?
A: There are a lot of differences. But, fundamentally, both of us bring our shared prospects on the platform and that is why this company is successful. If I was going one way and he was going another, I do not think this company would have the strength that it is having today and together we are stronger than we are on an individual basis. We do compliment each other.
Q: What does he bring to the table? What do you bring to the table?
A: He brings a lot of things like vision, wisdom and experience. I bring the new ideas, some energy and some boldness.
Q: Eye for detail?
A: Clearly, I am not comfortable if I am not aware of everything. But together we work well. For example-Arcelor, was proposed to him by me; perhaps it was a bit bold, when I proposed it to him. But over time, he got convinced and then it was just a matter of convincing the world.
Q: How long did it take you to convince your dad about Arcelor?
A: It probably took a good week. He wasn’t that slow. That is why he is where he is.
Q: What was the apprehension on his part when you proposed it to him first?
A: First, I just told him the concept, whether we can do this and come together and what that means. The apprehension was that what are the underlying assets of Arcelor, how are we going to achieve it and all of that. Clearly, once we started talking, it became obvious that this is the best thing that can happen to the company and the industry.
Q: Tell us about your ability to stitch together deals. I believe you have personally been involved with or directly overseen about 20 deals and indirectly overseen about 50 deals being put together. What gives you the ability to be with this M&A?
A: I don’t know if I am an M&A whiz or any record holder.
Q: The numbers speak for themselves.
A: Yes, the numbers are significant, and the company has done well. We are all proud of that success and there is clearly no doubt about it. But fundamentally I don’t know, is the answer. I think I would have been very lucky and the exposure I have seen; I lived through the worst downtrend in the industry and when you live through it, you get to see the worst and the best.
When the steel industry was at its bottom, it was very obvious that you needed to make sure a steel company was sustainable. We had certain steel companies that we had acquired which were bad apples, and they had problems strategically, either in their cost or market position.
So, on that basis, we could create a very robust M&A strategy going forward. That is what we did and that is why we are very careful about the companies we choose. Even though we have done 20-70 deals, we were very diligent in making sure that these companies would survive not only the upturn but also the downturn in the steel industry. That focus differentiates us compared to someone who is just grabbing assets and building a larger company. We built a larger company but on assets which have very sound strategic profiles.
Q: The book “Cold Steel” is out. I was reading about code names, telephones are being bugged and helicopter chases. Is it is a thriller? Was it really like that?
A: Absolutely. It was a thriller every single day. We did not realize it when we launched, obviously, that it was going to be a thriller. When I joined the steel industry ten-years ago, I did not think the steel business is going to be exciting like this.
But the Arcelor-Mittal deal was and it was one of a kind. I do not think we would see something like that again in the future. Clearly, the book does portray some aspects of the deal. It does not get everything right because it is supposed to be a thriller.
Q: Was it a slight exaggeration or a lot of exaggeration?
A: I do not think it is an exaggeration as much as just focusing on different aspects of the deal. There was a lot of intricacy in the deal and a lot to do with how we achieved the deal with the shareholders and what we did with the politicians. It covers the media angle very well actually.
Q: The PR battle?
A: Yes, the PR battle.
Q: The clandestine meetings?
A: Yes, the clandestine meetings. Some of the personalities are exaggerated, especially because a lot of colleagues were with us at Arcelor-Mittal. But it is one of those deals that you can never forget, a highlight of anyone working in Arcelor-Mittal. We enjoyed it not only because we were successful but we think we changed the steel industry through this transaction.
Q: A lot of people who worked on that deal say conceptually, it was Aditya Mittal’s deal. How do you respond to that? What was the hardest part of that battle for you personally?
A; The hardest part was to make sure we win because when you launch something like that, one cannot fail because then the company is not the same, the industry is not the same and the amount of risk that you have taken has all gone wrong. My job is to be Head of M&A. So, I have been doing this for the last seven years and so Arcelor was obvious to me.
It clearly was the best fit; not only would it change our company but also the industry. It is may be an exaggeration. But if you think about us in the steel industry, we started with may be one chip (we use the example of casino), we walked in with one chip and slowly through our efforts we built a steel company. In 2001, when we started, we were small. We doubled that year in the worst downturn of the steel industry.
Q: Did it become an ego purchase somewhere down the line, when the battle really begun to get bitter and ugly?
A: I would like to say no but the answer is yes obviously, not only for us but also for the whole company it was a matter of the whole of ex-Mittal Steel. It was all about are we going to be successful in realising our vision of transforming the steel industry.
It was no longer about the company and not the steel industry, because if this deal had not gone through, I do not think the steel industry would be where it is today, consolidation would not have happened and people would be very careful in doing deals.
Even Indian global companies would be careful because suddenly there was an example of a big company being rebuffed. So, the world would have been a different place and so would be the steel industry.
Q: And Tata-Corus may not have happened?
A: Yes, it may not have. Corus was very clear, once we had succeeded, that they need to do something about their future and they began discussions with Tata very wisely. It was very interesting. The day we became successful, there were 10 steel companies in the world that immediately instituted a defense mechanism. But that was only on the day we were successful, which was in June or July and not in January because they thought this was not going to happen. So, it just shows how the world changes.
Q: Have the integration issues been resolved and sorted out, with differences buried and the targets set for 2008 in terms of savings and revenues, on target to meet those?
A: Yes, absolutely. It has happened much better than any of us expected, both sides of the deal. We expected synergies in three years and we did that in 18 months. The integration was phenomenal and people are genuinely happy. As you walk around the company, there is level of motivation and excitement, which is higher than it was even in the ex-Mittal company.
We have all made changes and have learnt a lot from the Arcelor side and vice versa. To give you a cultural antidote, we used to never serve alcohol in our offices and that was our old style. But now we have so many French employees, which is just an example of how we are making people feel comfortable in the new entity. Then people are not only comfortable and also motivated and passionate and hopefully they are bold everyday in their working life.
Q: One of the other differences that people talk about, that you have made personally, is in terms of corporate governance. This was a huge issue that was brought up when the battle for Arcelor Mittal was on. You had a condition of yours that you would work only for a public company and not for a privately held company. In terms of corporate governance, what are the changes that you have actually gone about making to change the perception and the image?
A: There are a lot of things that you do; some are obvious and some are not. The most obvious one is working for a public company. The second was convincing everyone that it was okay to have a shareholding in ArcelorMittal, which was less than 51%.
Q: Your dad wasn’t happy with that, was he?
A: I would not say he was unhappy with it, but it just requires an understanding and an appreciation. Today, if you ask him, he will tell you that it does not matter what shareholding you have in a company, only performance matters. So, clearly that is a learning experience.
Q: You have gotten him to change that mindset, haven’t you?
A: Yes, it has been a good discussion and that is a fundamental move forward because it reflects that the company or the family is not on to the crutches of its shareholding but because of its performance capability and that is very important. That distinction is really the change in corporate governance. I do not like it when I am at a conference and people say that this is a conference of a family run company. I refuse to attend that.
Q: Had that happened when the deal pass was going through? There was a lot of talk on ‘the son as the owner and the family and so on and so forth’. Did that hurt you?
A: Obviously, it hurts you when someone tells you something like that. Often you realise that when you are working in a company, you have to demonstrate yourself because of what you have achieved. But sometimes that does not translate so well on the world outside. That clearly was another discussion with stakeholders as well as with the media and that is part of life.
Q: I read somewhere that people are constantly trying to test you. How would somebody test you for instance? Give us an example of what you mean by that.
A: I was tested when I joined the company. I do not think people test me today. I told you about this IPO. So, I was part of the team working on this IPO. There was a point in time when this deal was basically dead. We were presenting with the top management about this deal and my boss said, “This is Aditya’s responsibility.” So, that is a test because I was never really responsible at the beginning on this transaction, and I was 21 then. But I was made responsible when the deal was completely at its worst. So, then the whole organisation is testing you and whether you can bring it back up, revive it and make it a success.
I was fortunate that it was clearly a success and it did well. But that is an example of how the organisation can maneuver to test you. It is part and parcel. I don’t blame anyone. In a way, it is good because it makes you stronger and more capable and confident. So, I went through some of that in the early stages. Now, I am not saying I am pleased about it, but it was a good thing.
Q: Every article that has been written about you or every prelude to an interview that has been done with you were ‘Aditya Mittal – the man with the Bollywood star looks and the boyish charm’.
A: You have met me and know that it is a complete lie.
Q: Does it embarrass you when you read stuff like that?
A: It is completely irrelevant. I don’t even look at myself like that. So, now you know how untrue it is.