Mittal's LNM group may acquire Polish steel firm

Tuesday, 24 December 2002, 08:00 Hrs
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BERLIN: Steel tycoon Lakshmi Mittal's LNM Group is trying to acquire an ailing state-owned Polish steel firm that has debts running into billions of dollars, an excessive workforce and anachronistic production.

As Poland joins the European Union (E.U.) in 2004, Polskie Huty Stali (PHS) will have to make drastic adjustments to survive the business environment.

Given the limited choice it has, state-owned PHS' survival strategy is obvious: it will either have to close down, which could spell disaster for its large workforce, or be acquired by an outside group that can help turn it around.

According to Rotterdam-based steel sources, there are two rivals waiting to grab PHS. The first is the Pittsburgh-based U.S. Steel Corporation (USSC) and the second one is the LNM group. LNM maintains a stable of steel companies, of which Rotterdam-based Ispat International is considered the group's flagship.

Rotterdam sources said Poland wants to dispose of its 51 percent stake in PHS, whose production accounts for approximately 70 percent of the country's steel output. PHS has reported annual earnings of the equivalent of $1.8 billion.

Both USSC and LNM representatives have been quietly calling at PHS to assess the actual value of the Polish operations. Rotterdam sources, however, said these have been "preliminary talks" and not "serious negotiations".

The PHS acquisition would strengthen Mittal's operations in Eastern Europe where he already owns mills in the Czech Republic, Romania and Kazakhstan. Mittal also has operations in Western Europe. He owns two firms in Germany and the U.S.

Wolfgang Frank, a German analyst who works for a bank outside Frankfurt and is a keen observer of Europe's steel industry, said that USSC would "not sit idle and watch Mittal take a swipe at the Polish steel conglomerate".

"It's an all-out grab what you can as far as the Polish steel conglomerate is concerned. USSC will also fight to the last to get the five PHS mills which will give the bidder access to an entirely new range of products," he said.

USSC is among a couple of U.S. steel companies that still make profits; the remaining firms are fighting for survival, thanks to the pressure on pricing, cheap foreign imports and rising labour and production costs.

Western steel firms that have survived recent turmoil in the steel market want a piece of the action in the fast developing East European steel industry. And East European firms serve as cheap manufacturing sites for them to cash in on.

Poland looks particularly attractive in the backdrop of its E.U. membership in 2004. Also, the Polish steel industry has generally been the fastest growing in Eastern Europe, and its 2004 E.U. membership will accelerate its pace of growth.

German experts who have been closely monitoring the fortunes of PHS express scepticism on whether Mittal would be able to sustain the costs of buying the Polish conglomerate and instituting a massive reorganisation for which he would have to draw on or divert his resources from other major projects.

Mittal's office did not return calls for comments on the PHS acquisition.

PHS has said it will reduce its production capacity to 690,000 tons a year.

This had become necessary because many West European member countries of E.U. - the "core", as they are called, expressed fears that cheap Polish steel imports would simply inundate E.U. markets and drive the high-cost producing steel mills out of business. The reduction in production capacity is not going to make the PHS look less attractive in the eyes of its two bidders, according to Frank.

Source: IANS
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