Cold Steel : Lakshmi Mittal and the Multi-Billion Dollar Battle for a Global Empire

“ Cold Steel ” is written by Tim Bouquet and  Byron Ousey. The later was advising the Luxembourg Government on their communication strategy  during the period covered by the book. As the name suggests,  the book is about Shri Lakshmi Mittal and the multi-billion dollar battle for a global empire. The book written like a fiction, puts together a compelling story on struggle for market domination between the two of the world’s largest producer of steel,  i.e. Arcelor  and Mittal Steel. 

Since during this time,  I was working  at  the Polish entity of Mittal Steel, I had a ring side view, but not in as much detail as is given in this book. Some of the  characters in the book are known to me, but that is besides the story. As is well known ultimately the controlling interest of  Arcelor was bought over by the Mittals and  Arcelor-Mittal became the largest steel company of the world. Subsequently, I worked at the combined head-quarter of Arcelor Mittal at Luxembourg too. 

The then CEO of Arcelor, Guy Dolle has been painted as a principled person, an expert in production of steel, not as good in public relation. On the other hand Shri LN Mittal and his son Shri Aditya Mittal are portrayed as master strategists, who traveled the entire world, met all the stake holders, had numerous meeting and made numerous presentations. They are master financial and PR strategists also and had no dogmatic approach on any matter always ready to accommodate.. The billion dollar savings because of the synergy  of  merging the operations of Arcelor with Mittal Steel and the complimentary nature of their product baskets made logical sense at that time to many shareholders. Use of Russian Servostal  as a poison pill from Arcelor’s side did not go well with the shareholders, it seems. Two highly internationally renowned investment bankers and brothers Yeol Zaoui ( Goldman Sachs) Michael Zaoui ( Morgan Stanley ) were in  opposite camps.As brothers they were very close, speaking to each other most of the days, and dining their mother once a week. They would be holidaying together, but when they were working on opposite sides they were strictly professional. The writers want us to believe, that there was one thing they never spoke out to one another is the deal.

After the acquisition, in 2007 Arcelor Mittal had grown to a company, with market capitalization of $ 128 billion, producing 116 million tons of steel generating a revenue of $ 105 billion. Its EBITDA was $19.4 billion  and net income of $ 10.4. Almost all the savings because of synergy promised by the Mittals were also achieved.

The political class of France, Germany. Luxembourg, India had played their respective roles and that is also well captured in the book. The names and roles of some of the executives on both sides are also well captured in the book. A battery of lawyers, investment bankers, PR firms were engaged by both the sides, and their names and roles also detailed as a part of the drama,

Prologue

However as Guy Dolle had put, the final outcome and success of this merger is yet to be pronounced. Because of the high Chinese demand and high steel price Arcelor Mittal made extra-ordinary profit in 2007 and a few months of 2008, which gradually came down over years. The turmoil after Lehman Brothers' collapse and the subsequent recession-like situation added woes to the steel industry.  Mr. Mittal lost many slots  in his ranking in the list of Forbes’ wealthiest persons.  The fall can be easily understood from the share price of Arcelor Mittal. Its shares were quoted at $103.1 as on June 2, 2008 and  on November 12, 2012, it is quoted at $ 14.85, a fall of 85% from the highest price.  Many of the subsequent expansion plans are on hold and Mr. Mittal’s dream of transforming Arcelor Mittal into a 200 million ton steel is still a distant vision. With profit margin of -0.85%, return on equity of – 1.29%, and book value of $ 35.58 , its shares are quoting on Nov 12, 2012, at 41% of book value, in short it is a disaster as of now. Only posterity will tell whether the acquisition  made any sense.

Whether the merger has worked or not, world steel production has gone up or not, steel quality has improved or not, many people in the game, the shareholders, investment bankers, and an array of advisers  have made huge money, and  even the employees, who unloaded their stock options at a huge profit. 

This  is an engrossing  story of modern day  mega-capitalism.

Extreme Money – The Masters of Universe and the Cult of Risk

“Extreme Money – The Masters of Universe and the Cult of Risk “ by Satyajit Das is a book on the present day bankers. After reading this book, you would feel tempted to withdraw all your savings from the bank, or plan to be as mischievous as possible  with your bank and be a part of the robbery that  is possibly going on even now.

 Though mostly focused on US and European Banks, I think, some Indian Bankers are also waiting in the wings for such an opportunity  to emerge. The Salary of the top level of executives in many Indian banks are also sky-rocketing and it is only possible that they are just waiting to catch up with their friends abroad, who are simply mastermind burglars.

I have attended the class of Mr. Das, when he was in India as a part of Euromoney Traning’s training program on  derivatives. His understanding on the subject and mastery over financial modeling was very appreciated by his enlightened class. But this book, shows much  more than his mastery over the subject, it shows his understanding of the entire world of rogue banking. Most of the rogue bankers got scot free, except a  few in the periphery.

“The analysis shows the dizziness of spiral debt. Borrowing by US Government, corporations and individuals have reached around 350% of what America produces in a year, its GDP. Consumers borrowing at a record level, every man woman and child in the USA ( a supposedly rich country), has borrowed around Rs 4000 dollar each from their Chinese counterparts ( who are supposedly less well off ). Complex, incomprehensible, untested financial products have accumulated unnoticed, outside regulatory perview. Banks are lending money to people, who will never be able to pay them back. “

In every line and every page of the book there is insight of an insider, who reveals the real truth of high end banking, particularly investment banking.

 While reading the book you will discover what pleases these bankers, their habits and wealth, who toil hard to make their own money and not for their customers and investors. They always believed that they are so complex that no one will understand them, no regulatory mechanism can touch them and  they will go on creating this unending web of risk management theories and draw every one into their greed lock.

Sample this :

" Crime without Punishment : In 2008 hedge fund returns averaged negative 20% Even marque funds took large losses. Hedge Funds investments fell by around $ 600 billion. Over 3500 hedge funds out of 8000 ceased operation. Devaney a hedge fund manager and bon vivant with a taste for high living, lost $100 million, and was forced to sell prized personal assets, properties in Aspen, Colorado and Miami, his helicopter, a Gulfstream jet and his cherished 142 foot yatch 'Positive Carry'. "

" The brave new economy was built  on debt. Individuals borrowed to buy houses, cars, gadgets or take holidays.  They borrowed to get education, and to get healthcare. They even borrowed to save, using debt-financed investments. Companies borrowed to invest and to buy each other. They borrowed to pay dividend, repurchase their own stock. ...America borrowed in good times, because it could and borrowed n bad times because it needed to. Vice President Dick Cheney stated " Reagan proved deficits don't matter".

The sheer magnitude of neglect revealed in this book, will make you boil inside you and  you will feel like doing something about these white collar robbers.  This is also an eye opener for you, why should you keep your money in gold and other real assets, and not in bank accounts totally , however, allured you are. The housing bubble has also to be watched against, although India probably has not reached that stage as yet.

The domino effect of this rogue banking is what we are seeing everywhere, particularly Europe, who have been half-heartedly drawn into this circus.

This book is worth reading from cover to cover and should find a permanent place in your almanac.