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By William Patalon III
Money Morning/The Money Map Report
In two related developments, a Citigroup Inc. (C) analyst has upgraded the shares of ArcelorMittal (MT) – the company that has grown out of Mittal Steel – from a "Hold" to a "Buy." And billionaire investor and steel tycoon Lakshmi Mittal and his family will make $935 million in stock dividends from their stake in ArcelorMittal this year, according to new media reports.
The Rise and Fall of Sparrows Point
The Sparrows Point plant outside Baltimore was started by Maryland Steel in 1887. It was acquired by Bethlehem Steel in 1916 and by the middle part of the 20th Century was the world's largest steel mill: It stretched four miles from end to end and at its height employed more than 50,000 workers. The traditional "open-hearth" method it used to produce steel ingots was both labor- and energy-intensive, which would come back to haunt the company when the industry changed in the late 1980s and early 1990s.
Before that, however, the Sparrows Point plant of the Bethlehem, Pa.-based steelmaker enjoyed many high-profile successes: Steel from the mill ended up being used for girders in the Golden Gate Bridge, for cables in the George Washington Bridge, and was a vital part of war production during both World Wars.
The huge Sparrows Point mill also had a shipyard attached. Shipbuilding began in 1891. And through the years, under Bethlehem's stewardship [and known as the Bethlehem Sparrows Point Shipyard], the ship facility became part of a series of shipyards and produced tugboats, coastal passenger ships, dredgers, cargo ships and even some U.S. Navy destroyers. It also serviced and repaired ships and manufactured industrial products.
In World War II, the shipyard operated as part of the government's Emergency Shipbuilding Program. But through the years, the other shipywards were divested in one way or another.
By 1961, the mill was producing more than 670,000 tons of steel annually. But changes in the steel industry, including a rise in imports and the emergence of so-called "minimills" [which use simpler oxygen furnaces and recycled scrap metal] started and then exacerbated the competitive decline of the Sparrows Point steelmaking complex in the 1980s and 1990s.
In the latter part of the 1990s, Bethlehem invested nearly $1 billion in the facility in an effort to wrest back some of its competitiveness, but plunging steel prices from escalating foreign competition made it impossible for the vertically integrated steelmaker to compete.
Bethlehem spent millions re-lining the Sparrows Point blast furnace. It invested in a new mill for the production of cold-rolled steel. It also modernized other, existing facilities. And it slashed its largely unionized work force by the thousands through buyouts and job-reduction actions.
Morgan Stanley has started soliciting bids from prospective buyers of the plant, said Joseph G. Krauss, a Washington lawyer who was appointed by a federal judge in August to oversee the sale of the Sparrows Point steel mill.
"We are working toward reaching a conclusion in as timely a manner as possible," Krauss told The AP in an e-mail note Friday.
Back in February, Mittal agreed to divest the Sparrows Point mill in order to resolve U.S. Justice Department antitrust concerns that its $41 billion buyout of Arcelor SA would give the merged venture far too much muscle in the tin-plated steel market.
In December, an agreement that called for E2 Acquisition Corp. to buy Sparrows Point for $1.35 billion fell apart over what Mittal said was E2's inability to put together the required financing. E2 is an international investment group led by the Chicago Heights, Ill.-based Esmark Inc. (ESMK).
However, E2 has reportedly said it will make another bid. Asked about the potential bid on Friday, E2 Chairman
Back in late November, steelmaker Wheeling-Pittsburgh Corp., and steel distributor Esmark announced that their shareholders had approved the merger of the two companies.
The privately held Esmark took control of Wheeling-Pittsburgh in December 2006, following a proxy battle.
Esmark shares closed Friday at $9.90 each, up 80 cents each, or 8.79%. They are down 51% from their 52-week high of $20.04.
On Friday, a Citigroup analyst upgraded ArcelorMittal shares to a "Buy" from a "Hold." In doing so, the Citi analyst said "we believe that the risks to raw material prices are on the upside and will shift ArcelorMittal further down the cost curve [allowing improved future profitability compared to its peers]."
ArcelorMittal, formerly Mittal Steel Co. NV, is a global steel producer. The company has steelmaking operations in 26 countries on four continents, including 64 integrated, mini-mill and integrated mini-mill, steelmaking facilities. Mittal Steel produces flat-steel products – including both sheet and plate steel – and so-called "long" steel products as bars and rods. It also produces stainless-steel products.
ArcelorMittal shares closed Friday at $62.98, down 82 cents (1.29%) each. The shares are down 25% from their 52-week high of $83.88.
Mittal Family to Profit
London-based billionaire Lakshmi Mittal, the steel tycoon who heads the world's largest steelmaker, and his family will make $935 million in share dividends from their stake in ArcelorMittal this year, according to figures the company published Monday.
Mittal ranked fifth last year on Forbes magazine's list of the world's wealthiest people, with an estimated fortune of $32 billion.
Born in India [he now lives in Britain's most expensive house], he led Mittal Steel Co.'s battle for control of the Luxembourg-based Arcelor in 2006. That battle led to the combination of the world's No. 1 and No. 2 steelmakers into a Global Titan that will control fully 10% of the world's steel production, putting it well ahead of Japan's Nippon Steel Corp. (PINK: NISTY). The newly combined company has $80 billion in sales, with operations in more than 60 countries and employs 330,000.
Mittal is the chief executive officer.
This year, shareholders will see four quarterly dividends of 37.5 cents per share [a total of $1.50 annually].
Profits in the third quarter alone were $3 billion, up 36% from the year before.
With their 44% stake, or 623.62 million shares, members of the Mittal family are the company's biggest shareholders. That will give them $233.8 million in dividend payouts per quarter – or $935 million over the course of the year.
Mittal began his career in Calcutta, in his family's steel business. He founded his first steel plant in Indonesia in 1976; he then moved on to Trinidad and Tobago to turn around another steel company.
By the early 1980s, Mittal was a global steel player, and he never looked back: He bought companies in Canada, Germany, Ireland, Kazakhstan and Mexico.
Four years ago, he paid $125 million for a 12-bedreoom mansion in London's Kensington district, and media reports labeled it the world's most-expensive house. Mittal's neighbor: The Sultan of Brunei.
The house is emblematic of his lifestyle, according to other media reports. In May 2004 – just a month after Mittal purchased the Kensington mansion – the Sunday Times of London reported that he spent $60 million to hire singer Kylie Minogue to entertain guests during a Paris wedding bash for this daughter that lasted six days.
According to The AP, Mittal has donated generously to Britain's governing Labour Party, including a total of $3.6 million in 2006. Back in 2001, Mittal was alleged to have donated $178,000 to the Labour Party just weeks before Britain's Prime Minister Tony Blair wrote a letter to his counterpart in Romania, supporting Mittal's bid to buy Combinatul Siderurgic Sidex SA Galati, that country's state-run steelmaker.
Not content to just dominate one industry – steel – Mittal is branching out. One of his latest deals was to spend $980 million for a 50% stake in Kazakh oil firm Atlantic Caspian Investment Resources PLC, a subsidiary of Russia's Lukoil (LUKOY).
News and Related Story Links:
- The Associated Press:
Citi upgrades ArcelorMittal (MT) to Buy
Mittals to Make $935 Million From Shares
Sparrows Point Shipyard
About the Author
Before he moved into the investment-research business in 2005, William (Bill) Patalon III spent 22 years as an award-winning financial reporter, columnist, and editor. Today he is the Executive Editor and Senior Research Analyst for Money Morning. With his latest project, Private Briefing, Bill takes you "behind the scenes" of his established investment news website for a closer look at the action. Members get all the expert analysis and exclusive scoops he can't publish... and some of the most valuable picks that turn up in Bill's closed-door sessions with editors and experts.