In Asia, where it's almost impossible to take over a company due to intensely nationalistic feelings, he decided to follow the joint venture and greenfield plant routes. After all, everyone's convinced that the future demand will come from the Asian nations and Mittal needs to have a toehold in these markets to take advantage of the local conditions. LNM realised that only a combination of better economies of scale and local presence can help him effectively compete with Asian steel giants in China, Korea and Japan. The two-pronged plan will also help the LNM group to match the prices of steel being manufactured in low-cost nations like Russia and China.
Last year, Mittal clinched a joint venture deal in China by buying a 36.7 per cent stake in the country's eighth-largest steel company. He's now eyeing a Chinese steel mill and, according to Aditya, the group is scouting for targets in Korea. In India, the group has signed an MoU with the Jharkand state government to invest Rs 40,000 crore to set up a mining-cum-steel project. The proposed Indian venture will also provide the group with an access to cheap and quality iron ore. The Korean and Japanese competitors too are eyeing India's iron ore. Posco has already inked an agreement with the Orissa state government for a similar venture.
A global presence may also protect the LNM group from the adverse impacts of the strictly cyclical steel sector. In 2001, a number of LNM's businesses took a knocking due to the crash in global steel prices. Now he wants to acquire enough capacity to control enough steel supply at any given stage to virtually set the price. The Acelor acquisition will enable LNM to own 115 million tonnes of annual capacity with an overall marketshare of 10-11 per cent. Even if the LNM group is forced to curtail supply in certain regions—like other European steel makers, it reduced production in mid 2005—during the next downturn cycle, it'll still be in a position to make money in regions (like Asia) where the demand will continue to grow. LNM has admitted that the Acelor acquisition is an attempt to reduce the "risk and volatility" in the steel sector.
Whatever the strategists may say, LNM is playing the age-old game of Monopoly. In corporate jingo it's called 'consolidation' and Mittal has confirmed that his mantra is to seek "more and more consolidation activity going forward." But everyone knows the game. Buy out the smaller players, partner with those who are big enough and willing to do so. If there's a confrontation, try and force the other guy to acquiesce. As things are turning out in the LNM-Acelor battle, this phase of the monopoly game is far from over.
