Foreign takeover of U.S. steel firms should raise alarms

Copyright © 2005, The Sun-Times Company
Chicago Sun-Times, April 8, 2005

By Mark Reutter

Three years ago, President Bush, backed by congressional leaders in Illinois and Indiana, promised to protect the steel industry from cheap foreign imports that threatened high-paying jobs and potentially compromised our post-9/11 security.

Now, without a peep of protest from the Bush administration or members of Congress, a big chunk of the nation's -- and Chicago's -- steelmaking is about to pass into foreign hands.

Mittal Steel Co. NV will exercise near dominance of key Midwest steel markets upon purchase of Ohio-based International Steel Group (ISG), set for April 12. This will include ownership of the ex-Acme Steel plant at Riverdale, and three of the four sprawling mills on Lake Michigan in Indiana -- ex-Inland Steel's East Chicago Works, ex-LTV Corp.'s Indiana Harbor Works and ex-Bethlehem Steel's Burns Harbor Works. (Gary Works will still be owned by U.S. Steel Corp.)

Controlled by an Indian family based in London with corporate headquarters in Rotterdam, Netherlands, Mittal Steel also will own the last major mill on Lake Erie at Cleveland and the nation's only tidewater plant at Baltimore.

While no longer the kingpin of American manufacturing, steel is still a vital commodity, essential for the manufacture of thousands of goods, and the sale of so many facilities to a single overseas company raises a number of issues, not the least of which is our long-term security. Is foreign control of 40 percent of U.S. production of flat-rolled steel, used to make military equipment as well as cars, in the best interests of the country? And are the business practices of the Mittal family in keeping with the expectations of the American public?

The Bush administration and Congress have sidestepped these questions since Wilbur Ross, a Wall Street financier, agreed to sell ISG to Lakshmi N. Mittal -- a transaction that will net Ross a personal profit of $267 million, according to the Financial Times.

What's remarkable about this silence is that the government has a huge stake in the steel industry. The Pension Benefit Guaranty Corp., for example, is paying pensions of retired steelworkers at the companies that Ross purchased out of bankruptcy in 2002-04. This alone will cost the federal insurance agency more than $6 billion over time, while sheltering Mittal Steel from future pension obligations to retirees from the bankrupt companies.

Equally remarkable is how little anyone knows about the new owners. Expanding at warp speed from a single steel mill in Calcutta, the family has purchased 35 steelmaking facilities around the world, mostly in Third World and ex-Soviet-bloc countries. Last December, Lakshmi Mittal paid himself a $2 billion dividend from his private company, LNM Holdings, before merging it with publicly traded Ispat International to form Mittal Steel. This sparked protest by minority stockholders at Ispat, who said the dividend should have been shared.

In South Africa, government officials have complained of price gouging after Mittal bought controlling interest of the country's mills in 2002. Faced with high prices, some of South Africa's steel exporters have been forced out of business.

In Kazakhstan, where 23 miners died Dec. 5 in a coal mine operated by a Mittal subsidiary, the trade union federation has protested "extremely low wages and other acute problems," including work speedups and job cutbacks at Mittal's Karmet Works.

Named by Forbes magazine the third-richest person in the world, with a net worth of $25 billion derived from his steel empire, Lakshmi Mittal staged a multimillion wedding celebration for his daughter at the Palace of Versailles last July. A month later, widows' benefits were eliminated at Ispat Inland in East Chicago, Ind., which the family acquired in 1998.

The company restored the benefits after the media covered a protest rally by widows and union members. But a Mittal official told analysts last month that the company will demand concessions from United Steelworkers of America Local 1010 at Inland, which presumably includes eliminating the modest $62.50 monthly widows' benefit.

At the same analysts' conference, Lakshmi Mittal announced plans to axe 45,000 steel jobs worldwide by 2010. How many of these jobs will be eliminated or outsourced from U.S. mills after the merger is completed hasn't been disclosed.

The future of steel isn't just a matter of maximum shareholder value. It's about guaranteeing a minimum level of investment and employment in our industrial infrastructure to keep this country strong. Political leaders in Washington, as well as union members, business groups and local citizens, ought to demand safeguards from international businessmen as the price of entry into domestic markets.

And they should start with steel, the industry that built America.