The Turnaround of Ispat Karmet
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Case Details:
Case Code : BSTA005
Case Length : 11 Pages
Period : 1994 - 2004
Pub Date : 2005
Teaching Note :Not Available
Organization : Karaganda Metallurgical Complex (Karmet)
Industry : Steel
Countries : Kazakhstan
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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.
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Introduction
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By 1996, L N Mittal (Mittal), chairman Ispat International,
had come a long way from a wire rod manufacturer with a single plant in
Indonesia in 1976 to being the owner of a steel company with a market
capitalization of roughly $3 billion and net sales of $2.7 billion.
This impressive growth, which had attracted media attention all over the world,
had been driven by a series of acquisitions in Mexico, Canada, Trinidad, Germany
and Ireland between 1992 and 1996. Most of these acquisitions followed a similar
pattern. As governments around the world privatised their steel industries,
Ispat bought underperforming mills at bargain prices, maximized production, and
upgraded the product mix.
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A major reason behind Mittal's success had been his
anticipation that the price of steel scrap, the main raw material for
mini-mills, would rise as more mini-mills were constructed. He had therefore
invested in a substitute for scrap known as direct-reduced iron (DRI), and was
soon producing more of it than any one else. DRI cost about $95 a tonne in 1996,
compared with $155 a tonne for the high-quality scrap that mini-mills mostly
used, and $125 a tonne for the pig-iron used to make steel in blast furnaces.
Mittal had developed a tremendous reputation as a turnaround artist. His
turnaround strategy revolved around cutting purchase costs, laying off workers
and making necessary investments to eliminate production bottlenecks. In
addition to the quality of technology and management, Ispat's geographical
spread enabled Mittal, as soon as he acquired a firm, to redirect sales and
purchasing internationally in order to strike the best deals. Analysts believed
that Mittal had a remarkable eye for a bargain and had figured out the art of
turning around rundown steel mills. Also, he was willing to walk away from a
deal if the price was not right...
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