AMSTERDAM, Netherlands — Steel tycoon Lakshmi N. Mittal announced plans to pay $4.5 billion in cash and stock for U.S. steelmaker International Steel Group Inc., which had been cobbled together by onetime investment banker Wilbur L. Ross Jr. from mills whose parents landed in bankruptcy court.
The takeover and the consolidation of two Mittal-controlled companies also announced on Monday will create a global metals mammoth with anticipated 2004 sales of $31.8 billion, 70 million tons of steel production capacity and 165,000 employees, rivaling the world's largest steel and mining conglomerates.
"These transactions dramatically change the landscape of the global steel industry," said Mittal, who will be chief executive of the combined company.
The size of the renamed Mittal Steel Co. NV will provide it economies of scale in purchasing raw materials and advantages in setting global prices for steel, analysts said. The deal comes against the backdrop of rising demand for steel in China, whose appetite for oil has already contributed to rising energy prices.
Mittal, a native of India who now lives in London, has spent years acquiring steelmaking plants in locations ranging from the Czech Republic to South Africa to Mexico, much as ISG chairman Ross has since 2002, scooping up the steel-making assets of fallen U.S. giants like LTV, Acme Steel, Bethlehem Steel and Weirton Steel.
Mittal Steel will have a particular advantage in the United States, where it will control about 40 percent of the flat-rolled steel market, said analyst Chris Olin of Longbow Research. He said the new company has the potential to become one of the lowest-cost steel producers in the world and has the potential to generate even more savings through scale advantages.
The takeover of ISG, which is based in Richfield, Ohio, must be approved by regulators. Mittal said he does not plan layoffs.
Under the deal, Rotterdam-based Ispat International NV — in which the Mittal family has a majority stake — will issue $13.3 billion of shares to buy another Mittal family company, LNM Holdings NV. Then, that company would pay $21 in cash and about $21 a share in stock for each share of ISG.
Shares of ISG surged $5.57, or 19 percent, to close at $35.25 Monday on the New York Stock Exchange.
Ross, 66, who formerly worked at the investment firm Rothschild Inc., controlled 32.8 percent of ISG shares when the company's last proxy statement was filed with the SEC in April. Many of those shares were owned by various funds Ross managed. He personally owned 7.1 percent of ISG shares, worth $291.3 million in cash and stock if the Mittal transaction is completed.
The combined company will be based in Rotterdam and will seek a dual listing on the New York Stock Exchange and Amsterdam's Euronext exchange. The Mittal family will own 88 percent.
Mittal Steel will "have excellent positions in raw materials, particularly coal, coke and iron ore," Mittal said.
The new company is comparable with the world's largest steelmaker, Luxembourg-based Arcelor SA, which had 2003 sales of $33.2 billion and around 100,000 employees.
Frank Holmes, chief executive of U.S. Global Investments, who follows the steel industry, said Mittal is one of a handful of consolidators — like ISG's chairman Ross — who have taken over from the last generation of steel company managers. They "tend to have a better eye on the bottom line and are ready to shut down weak operators," Holmes said.
Holmes said Mittal — one of the world's richest men — is known as a "very shrewd businessman, who lives in a jet" making deals. In February, Mittal was ranked No. 62 on the Forbes list of billionaires, worth an estimated $6.2 billion. Mittal "sees the big picture and the long term," Holmes said.
During a conference call, Mittal said the combined company would have posted a 2004 operating profit of about $7 billion with debt of around $3.2 billion.
ISG chairman Ross said the deal emerged from a meeting several weeks ago between him and the Mittals.
"We had an immediate love affair in that we both felt that we each had more in common with the other than either of us did with any of the other steel companies," Ross said. "That gave us a great deal of confidence that the corporate culture would not be anything very shocking in terms of requiring change."
Ross, who will be on the board of the new company, said the deal "provides our shareholders with an excellent rate of return and the potential for strong future appreciation."
The deal is supported by the corporate boards of all three companies, they said in a joint statement, though it has not been approved by regulators. The companies said the United Steelworkers of America and the Independent Steelworkers Union had also agreed to the deal.