Filed by Ispat International N.V.
Pursuant to Rule 425 under the Securities
Act of 1933 and Deemed Filed Pursuant to
Rule 14a-12 of the Securities Exchange Act
of 1934
Subject Company: Ispat International N.V.
Commission File No.: 001-14666
On October 25, 2004, the Ispat International N.V. broadcast a conference call
through the Ispat International N.V. website to investors regarding its
agreement to acquire LNM Holdings N.V. and its agreement to merge with
International Steel Group Inc., the conference call was then made available for
replay by investors on the Ispat International web site, what follows is a
transcript of said conference call:
You may obtain documents filed with the SEC by Ispat International free of
charge if you request them in writing from Ispat International N.V. 15th Floor,
Hofplein 20, 3032 AC Rotterdam, The Netherlands, or by telephone at
+31 10 217 8800. You may also obtain documents filed with the SEC by ISG free
of charge if you request them in writing from Investor Relations, International
Steel Group Inc., 4020 Kinross Lakes, Parkway, Richfield, Ohio 44286-9000, or
by telephone at (330) 659-7430.
Conference Call Transcript
IST - Ispat/LNM/ISG Analyst/Investor Conference Call
Event Date/Time: Oct. 25. 2004 / 9:00AM ET
Event Duration: N/A
CORPORATE PARTICIPANTS
Chuck Burgess
Abernathy MacGregor Group - IR
Wilbur Ross
International Steel Group Inc. - Chairman
Lakshmi Mittal
Mittal Steel Company - Chairman & CEO
Aditya Mittal
Mittal Steel Company - President & CFO
Rodney Mott
International Steel Group Inc. - President & CEO
CONFERENCE CALL PARTICIPANTS
Aldo Mazzaferro
Goldman Sachs - Analyst
Julien Onillion
HSBC Securities - Analyst
Wayne Atwell
Morgan Stanley - Analyst
Michael Gambardella
JP Morgan - Analyst
Cavis Vanever (ph)
Analyst
Anthony Rizzuto
Bear Stearns - Analyst
Bruce Klein
CSFB - Analyst
Chicagura Snowbec (ph)
CSFB - Analyst
Jeff (ph)
Analyst
Wayne Cooperman
Cobalt Capital Management - Analyst
Brett Levy
Jefferies & Company, Inc. - Analyst
Charles Bradford
Bradford Soleil & Research - Analyst
Dwayne Tennomer (ph)
First Capital Alliance - Analyst
PRESENTATION
Operator
Good morning everyone and welcome to the morning's conference call. Joining us
today are Mr. Lakshmi Mittal, Chairman and Chief Executive Officer of Mittal
Steel Company N.V.; Aditya Mittal, President and Group CFO, Mittal Steel Company
N.V.; and Mr. Wilbur Ross Jr., Chairman of International Steel Group
Incorporated. (OPERATOR INSTRUCTIONS) Now, I'll turn the call over to Chuck
Burgess, please go ahead, sir.
Chuck Burgess - Abernathy MacGregor Group - IR
I would like to remind you that this conference call contains forward-looking
statements including statements regarding benefits of the proposed merger,
integration plans and expected synergies, anticipated future financial and
operating performance and results, including estimates for growth and
expectations for our products and plans for development and expansion of our
pipeline. These statements are based on our respective management's current
expectations. There are a number of risks and uncertainties that could cause
actual results to differ materially. For example, we may be unable to obtain
shareholder or regulatory approvals required for the merger. Problems may arise
in successfully integrating our businesses. The transactions may involve
unexpected costs. We may be unable to achieve cost-cutting synergies. Our
businesses may suffer as a result of uncertainty surrounding the transactions.
The market for our products may change or be impacted by competition, new data,
supply issues, or marketplace trends.
For more detailed information on the risks and uncertainties associated with
Ispat International's and ISG's business activities, see our respective reports
filed with the Securities and Exchange Commission. The companies undertake no
obligation to publicly update their forward-looking statements, whether as a
result of new information, future events, or otherwise.
Ispat International intends to file with the Securities and Exchange Commission
a registration statement on Form F-4 that will include a proxy statement of ISG
and a prospectus of Ispat International and other relevant documents in
connection with the proposed transaction. In addition, Ispat International will
publish and make available to shareholders of Ispat International, and file with
Euronext Amsterdam N.V., a prospectus. Investors and security holders are urged
to read the prospectus regarding the acquisition when it becomes available
because it will contain important information and to exclusively base their
investment decision on this prospectus once available. Investors and security
holders of Ispat International and ISG are urged to read the proxy statement and
prospectuses and other relevant materials when they become available because
they will contain important information about Mittal Steel Company and ISG and
the proposed transaction. Investors and security holders may obtain a free copy
of these materials, when they are available, and other documents filed with the
Securities and Exchange Commission at the SEC's Website at www.sec.gov. Ispat
International and ISG and their respective executive officers and directors may
be deemed to be participants in the solicitation of proxies from the ISG
stockholders with respect to the proposed transaction. Information regarding the
interests of these officers and directors in the proposed transaction will be
included in the proxy statement and prospectuses.
And now I would like to turn the call over to Mr. Wilbur Ross.
Wilbur Ross - International Steel Group Inc. - Chairman
I would like to start by introducing to you the team sitting with me today. In
addition to myself--
Lakshmi Mittal - Mittal Steel Company - Chairman & CEO
Operator, we have some background noise--
Wilbur Ross - International Steel Group Inc. - Chairman
Operator, can you take the background noise, all of them should be in a
listen-only mode, thank you.
Operator
Yes, sir. That was wrong.
Wilbur Ross - International Steel Group Inc. - Chairman
There is all types of background noise, you should put everyone else in a
listen-only mode.
Operator
Yes sir, I'll will mute that line.
Wilbur Ross - International Steel Group Inc. - Chairman
Thank you, and good morning everyone. I would like to start by introducing you
to the team sitting here with me today. In addition to myself, as you know, I am
Chairman of ISG and I will become a Board Member of Mittal Steel. In addition,
Mr. Lakshmi Mittal, who is the CEO of Mittal Steel; Aditya Mittal, who will
become President, Group Financial Officer, and a Member of the Board; Malay
Mukherjee, who will become Chief Operating Officer; and Rodney Mott, who will
become CEO of our combined US operations.
This is a really exciting day for me and I think for all of you because the
transaction we are now announcing is going to change the entire world's steel
map. This will create the largest and more importantly in many, many markets
around the world, the lowest cost producer, and will create an entity that has
investment-grade debt characteristics to it. It will also be an entity that is
quite vertically integrated and is relatively self sufficient both in iron ore
pellets, coke, and then integrated all the way on through very, very high
quality finishing capability. I think that this will provoke a lot of change in
the rest of the steel industry, every bit as much as ISG's original formation
provoked a lot of change in the American steel industry. And I'd now like to
turn it over to Mr. Lakshmi Mittal, who will describe to you our purpose today.
Lakshmi Mittal - Mittal Steel Company - Chairman & CEO
Thank you Wilbur and good morning to all of you who are participating in this
call. I welcome, heartily, the participants on behalf of ISG group and also on
behalf -- who are participating on behalf of ISG. It's a great day today and I'm
also very excited about the transactions, which we are going to discuss in this
morning's call. This morning, the purpose of this call is to announce two
transactions and the creation of a new global powerhouse in the steel sector.
First, merging of Ispat International and LNM Holdings to create Mittal Steel.
Ispat is acquiring LNM for 100 percent stock consideration. Mittal Steel will be
a financially strong unified platform through which to achieve best-in-class
operating and financial performance. Second, we are announcing the merger of ISG
with Mittal steel, gaining the number one position in the North American
industry. Mittal Steel is acquiring ISG for a combination of $21 per share in
cash and a variable number of shares based on an exchange ratio, which floats
within a collar.
On a pro forma basis, economic interest in the Mittal Steel will consist of 9
percent owned by ISG's public shareholders, 3 percent owned by Ispat public
shareholders and 88 percent owned by the Mittal family. Completion of the LNM
merger is expected by the end of 2004; completion of ISG acquisition is expected
by the end of Q1 2005. Mittal steel will be the global number one company,
offering substantial new opportunities both to exploit the knowledge and
expertise of the two groups and to unlock the significant organic growth
potential.
The composition of Mittal steel, if you look at this graph on the Website,
you'll see that Ispat International has 29 percent share, LNM Group has 45
percent, and ISG has 26 percent. And combined all these, this composition's
total 9 months pro forma basis has a shipment of 43 million tons. Operating
earnings of this 43 million tons on a pro forma basis for 9 months is about $4.9
billion of which Ispat contributes 25 percent, ISG contributes 11 percent, and
LNM Group contributes 64 percent.
We are a global leader, and based on pro forma 2004 estimates, we'll have a
production of approximately 57 million tons, which clearly puts the group in
number one position in the steel industry. We'll have a revenue of $31.5
billion, which also puts the group in number one position. Operating earnings of
6.8 to $7.0 billion, and we believe this is also number one in the steel
industry. Based on Friday's close, the transaction has a market capitalization
of $18.5 billion, which we also believe is the highest market capitalization
among the steel companies in the world. We'll have a net debt of $3.2 billion at
year end, less than half times operating income. It's clearly is an
investment-grade characteristic. We'll have operations in 14 countries across 4
continents. We've 165,000 proud employees. In a global ranking, based on market
capitalization, we will have $18.5 billion, which is the highest among the steel
companies. In shipment, based on pro forma fiscal year 2004, Mittal Steel
figures of 2004 and for the rest 2003 we will have shipments of 57 million tons.
In North America, on the first half actual pro forma basis, we will have a
shipment of, in North America, of 13.6 million tons.
In operating earnings, first half actual pro forma basis is -- Mittal Steel,
combined entities of all the 3 companies, has operating earnings of $2.7
billion. If you look at the product mix of the group, we have out of 43 million
tons, the shipments for 9 months '04, 26 percent is long and 74 percent is flat.
If you look at the geographic mix of the production of the shipment, we have 47
percent in North America, which includes Mexico, Canada, and Trinidad, we have
32 percent in Europe, and 21 percent for the rest of the world. It clearly
demonstrates geographic diversity of the products.
If you look at the group structure, we can define the group in 3 zones. North
America, which constitutes North America, Europe, and rest of world. North
America has shipment of - for 9 months - 20 million tons. We are number one
producer and we have operations in US, Canada, Mexico, and Trinidad. In Europe,
we have a shipment of 13.5 million tons, we are number two in Europe, number one
in Central Eastern Europe with operations in France, Germany, Poland, Czech
Republic, Romania, Bosnia, and Macedonia. In rest of world, we have shipments of
about 9.2 million tons. Number one in Africa, leading exporter to China, and
operations in Kazakhstan, South Africa, and Algeria.
Other key operating attributes of the group. In terms of raw material, if we
look at iron ore, over 40 percent is coming from captive sources and the group
has large reserves of over 2 billion tons. Similarly on coal, 40 percent is from
captive source and large reserves of over 1.5 billion tons. Coke, the group is
neutral on its coke needs. Spot sales by some companies offset spot buys in
others. Direct reduced iron supplement is a substitute for the scrap; we are
number one in the world with a total production capacity of 11 million tons.
We are not only in the steel making business, we also have strong infrastructure
in some of our facilities like deep-water ports. We have the railway facilities,
railcars, and locomotive. We also have very high quality engineering workshops.
We are clearly -- has a leadership in technology, we have all the 3
technologies, minimill technology, integrated minimill, and integrateds.
If you look at our CAGR for last 15 years, it is an average of 19 percent, which
is a phenomenal CAGR if you compare with any other steel company in the world.
2004 however includes Iscor and Poland -- Iscor, which is a South African
company, Poland which is -- PHS is Polish company, and pro forma number of ISG.
By the way, if we continue to follow this CAGR of 19 percent, we will soon be
producing the world global production. So there is a limit to such kind of a
CAGR going forward. With this, I will hand it over to Wilbur to give us an
overview of ISG.
Wilbur Ross - International Steel Group Inc. - Chairman
I think that you can see already why we are so excited at ISG to be a part of
this new company and why we are delighted to own over $2 billion worth of stock
in it. So my friend, this is by far the largest single investment we have made
in anything.
ISG, as many of you know, is the leading North American producer with production
capacity of 20 million tons per year generated from facilities in 8 states
throughout the Eastern and Central United States with significant production
flexibility and modern facilities, and as you know, a very competitive cost
structure consisting of a highly productive culture, pattern setting labor
agreement, and no legacy costs. In addition, we have had a disciplined financial
strategy and a conservative capital structure.
The transaction summary of the deal with Mittal is as follows -- It is the
acquisition for cash and stock of all of the outstanding shares of ISG. The
payment is $21 cash per share plus shares in Mittal, based on a floating
exchange ratio between 0.4793 shares of Mittal per ISG share and 0.6087, subject
to a collar with a floor of $34.50. Total pro forma shares outstanding will be
704 million of which the Mittal family will own 88 percent based on Friday's
closing Ispat stock price. The total transaction value we estimate to be $4.5
billion including the assumption of ISG's debt based on Friday's closing Ispat
stock price. The public bonds of ISG will remain outstanding to a noncallable,
nonfloatable and they will stay outstanding; they will be unaffected by this.
The competitive advantages of the new enterprise are the following -- Financial
strength, unmatched scale and scope, very high margins, very low cost
production, geographic and product diversity, integrated business model, a
strong financial profile which uniquely positions us for future growth and best
of all, a proven management team.
Now I will turn it over to Aditya Mittal to give you an overview at this time.
Aditya Mittal - Mittal Steel Company - President & CFO
Good morning and good afternoon to everybody on the line. My name is Aditya
Mittal. I am going to start with an overview of Ispat International. Most of you
should be familiar with this Company. This is the surviving entity of the 3-way
merger and will be renamed as Mittal Steel Company towards the end of the year.
Today, this Company has a production capacity of over 18 million tons before
this transaction. It has steel making operations in 6 countries, primarily in
North America and Western Europe. The countries are listed on the slides in
front of you. The 9-month shipment is approximately 12.4 million tons, revenues
are $6.3 billion, and operating earning of $1.4 billion for 9 months. The
Company also issued earnings this morning and had an EPS of $3.91 for the third
quarter 2004. This Company is also traded on The New York Stock Exchange and
Amsterdam Euronext under the ticker symbol IST.
Let me now begin with an overview of LNM. LNM is the private company which is
being acquired by Ispat International for 525 million shares. I am going to try
and spend some more time on LNM as it is an entity, which is relatively unknown
due to its private nature. LNM is among the top 5 steel producers in the world
on its own. It has a production capacity of over 32 million tons with a
diversified portfolio of flat and long products. It has steel making operations
in 7 emerging market countries. The countries are listed on the presentation as
well, but primarily they are Poland, The Czech Republic, and Romania - we
consider that as being part of Europe - Kazakhstan, and then in Africa, South
Africa, and Algeria. We also list Bosnia, but that transaction is still pending
and is expected to close in the next 3 weeks.
If we look at the overall steel making capacity, we are roughly equally divided
between Europe and rest of the world, which is 50 percent Europe and the other
50 percent in the rest of the world. The other key feature of the LNM Group is
its vertical integration through the ownership of coal and iron ore mines, coke
making facilities, engineering workshops, and various infrastructure facilities.
Early on in the presentation, our Chairman discussed the actual mining capacity
of iron ore, coal as well as its reserves, and I'm will not get into the details
at this point in time. The company has 9 month 2004 shipments of approximately
19 million tons, revenues of $9.9 billion, and operating earnings of $3.2
billion. As part of the release, which discussed the merger agreements this
morning, we've attached LNM Holdings financials as well.
Let's get to the transaction. The overall 3-way merger is a 2-step process. The
first step in this transaction is the acquisition by Ispat International N.V. of
LNM Holdings N.V. The acquisition is a share transaction and the consideration
is 525 million shares issued to the Mittal family. These shares are issued in
the same proportion as existing Mittal family ownership of Ispat International.
And it will result in an additional issuance of approximately 385 million Class
B shares and 140 million Class A shares.
Let me try and put this acquisition in perspective. Based on Friday's close, the
market capitalization -- based on market capitalization of Ispat International
N.V. on Friday, the aggregate consideration for LNM Holdings is 13.3 billion. As
I mentioned earlier, the operating
income is $3.2 billion, and third quarter operating income itself is about $1.25
billion. Let's annualize these numbers, add depreciation, and we'll get an
EBITDA number of $5 billion. The Company post a dividend payment of $2 billion
and will have a net cash position at the end of December 31, 2004. Therefore if
you are looking at an EBITDA multiple, based on Friday's close, the multiple is
pretty attractive. Therefore we believe this acquisition is in the interest of
Ispat International shareholders and it's a pleasure for Mittal to find on that.
Furthermore, since this is a share deal, all the assets and liabilities of LNM
are being assumed. The total pro forma outstanding shares post this acquisition
is 643 million shares, and the company will be renamed Mittal Steel.
Let me walk you through the next slide, which talks about the pro forma combined
Ispat/LNM companies, which is really the pro forma combined of Mittal Steel. Let
me add, these are pro forma numbers, they are unaudited numbers, and therefore
should be treated as estimates. The shipment numbers are evident from the
slides, but let me just repeat it. 10.8 million tons for the third quarter
leading to a number of 31.4 million tons for 9 months, and expected shipment
number of 42 million tons for this full year.
The important take-aways from the slide are the following. Let us first focus on
the superior operating performance of LNM. As we can see, LNM Holdings has a
significant operating margin of 31.8 percent. That margin is among the best in
the global steel industry, and it's reflective of its low-cost steel making base
and its vertical integration. Furthermore, as I mentioned earlier, LNM operates
in primarily high-growth economies, and therefore has future potential of
growing its revenue line and to certain degree maintaining its operating margin.
Let us also talk about the gearing levels of the combined entity. As you can see
on a pro forma combined basis, the company has a net debt position of about $500
million. This will grow to about $1 billion towards the end of the year post the
dividend. This demonstrates that the pro forma group of Mittal Steel has
substantial debt raising capability, has a low-grade (ph) balance sheet, and as
mentioned earlier, investment-grade specific.
The last point I wanted to mention on this Slide, which is not evident, is the
low tax environment, which LNM Holdings operates in. The 5 principle facilities,
let's take Poland and the Czech Republic, they are in low tax environments of 19
and 25 percent respectively. In Algeria, there is a tax holiday for about 10
years. In Romania, there is a tax holiday for 5 years. In Kazakhstan, there is
an investment tax agreement till 2009. And there is significant annuals at our
subsidiary in South Africa called Saldanha. Therefore the low-tax environment
leads to high point of earnings going forward.
Let us now focus on the pro forma combined including ISG. Clearly, these
financials are outstanding; that speak for themselves vis-a-vis the global steel
industry. The pro forma revenues for 9 months is $22.5 billion and operating
income of about $5 billion for the 9 months. If we add back the depreciation, we
are looking at $5.5 billion EBITDA for 9 months. If you focus on the third
quarter itself, which has been a record quarter for LNM, Ispat, and ISG, we can
see that the shipment level of about 15 million tons, revenues of $9 billion and
operating income of $2.2
billion. If you were to add depreciation and get to EBITDA, we'll get $2.4
billion of EBITDA for the combined entity with a net debt of $573 million as of
Q3 2004. We expect this number, as I mentioned earlier, to increase marginally
to about 700 to $800 million towards the end of the year.
Let me now talk about 2004 full-year outlook. In the fourth quarter, we see
selling prices increasing marginally. We see quantity is declining due to
seasonal factors. We see some increases in raw material costs and an increase in
working capital. We expect for 2004 to have shipments of approximately 57
million tons. Revenue expected to be $31.5 billion and operating earnings
between 6.8 to $7 billion representing an operating margin of over 20 percent.
The earnings per share is expected to be in the range of $7.20 to $7.40.
Depreciation, as I mentioned earlier, is approximately $800 million for the
year. The pro forma net debt calculation is done based on adding the
consideration for the purchase of ISG and we get to a pro forma net debt
position of $3.2 billion. All these pro forma numbers assuming the maximum
issuance of shares and the figures do not include any purchase accounting
adjustments.
Therefore, to conclude, the outlook is positive, generally flat based on third
quarter results, and on a combined basis, the balance sheet of Mittal Steel
Company along with ISG is very strong, investment-grade statistic, and has
high-growth potential going forward. With that I hand it back to our Chairman
for concluding remarks. Thank you.
Lakshmi Mittal - Mittal Steel Company - Chairman & CEO
Thank you, Adit. Now, it's time that we open for questions and answers, and
Christy, please go ahead.
QUESTION AND ANSWER
Operator
(OPERATOR INSTRUCTIONS). Wayne Cooperman, Cobalt Capital.
Wayne Cooperman - Cobalt Capital Management - Analyst
Actually I was just dialing in to tell you that there is lot of noise on the
line, but you took care of that, thanks. But Congratulations on a great deal.
Operator
(OPERATOR INSTRUCTIONS) Wayne Atwell, Morgan Stanley.
Wayne Atwell - Morgan Stanley - Analyst
Good morning and congratulations on a very accretive deal. Could you discuss
synergies between the Inland and the ISG assets. My understanding is that first
and probably the most exciting area of synergies would be the 2 mills in
Chicago, but could you explain cost cutting and such between these entities?
Lakshmi Mittal - Mittal Steel Company - Chairman & CEO
Rodney?
Rodney Mott - International Steel Group Inc. - President & CEO
We are looking forward to merging the operations as much as we can there in the
Indiana area. The first stop there though is to push through with our new labor
agreement into the Inland facilities. That should increase the productivity in
that plant. Also it will allow us to go through with some job reductions through
attrition and of course through the combination of the corporate staffs; we
should pick up some other synergies there. Additionally, we'll be looking at
moving iron around between the plants in order to optimize production on each of
the facilities. Of course, we'll also go through, again, minimize our CapEx
expenditures by looking forward to combining the operations, not duplicating
CapEx, and use the strength of the Ispat Group in order to do the raw material
buying for those plants. Overall, there should be numerous synergies. We have
yet to put together the teams to analyze those. That should be happening over
the next couple of weeks.
Aditya Mittal - Mittal Steel Company - President & CFO
Wayne, could I just add one point that Rodney touched on which is significant?
As part of this transaction, we have also signed a letter of agreement with the
USWA, which Rodney covered, in terms of trying to achieve the productivity norms
at ISG facilities -- at our facility in Chicago at Ispat Inland.
Wayne Atwell - Morgan Stanley - Analyst
Would you be interested in going upstream in buying some coal assets or are you
going to concentrate on steel?
Aditya Mittal - Mittal Steel Company - President & CFO
In which market?
Wayne Atwell - Morgan Stanley - Analyst
In any market.
Aditya Mittal - Mittal Steel Company - President & CFO
The idea of the group is always to increase its vertical integration and
therefore to the extent that opportunities are available in low-cost areas to
increase our vertical integrations in terms iron ore or coal, metallurgical
coal, we will look in to that, definitely.
Wayne Atwell - Morgan Stanley - Analyst
Well, with your assets in so many different countries, I guess, you'll have a
lot of options in terms of where you can buy coal, you can move coke around.
Lakshmi Mittal - Mittal Steel Company - Chairman & CEO
We always look at this, Wayne, very carefully. And we have coal operations in 2
countries, and as Aditya said, we will continue to look at opportunities for
further increasing our coal mining capacity and as you might have known from
ISG, they are also going to start mining, one of the coal mining operations very
soon and they are -- Rodney, would you like to say about your coal mining
operations?
Wayne Atwell - Morgan Stanley - Analyst
Yes, again, within the ISG Group, we have just this summer opened up our first
of our coal reserves in Western Pennsylvania, and we have also filed the permits
and made the leased agreement with an operator for additional 2 million tons of
annualized capacity that we will be bringing on late next year. So, again, the
Company's strategies are being vertically integrated, match up very well.
Operator
Aldo Mazzaferro, Goldman Sachs.
Aldo Mazzaferro - Goldman Sachs - Analyst
Hi, Good morning it is Aldo Mazzaferro with Goldman. On the -- 2 questions, I
just wonder if you have any plans on a globally, and in North America could
possibly reduce capacity in a site or any kind of reduction of capacity on a
synergy basis. And then my second question is regarding the shares that would be
outstanding owned by the Mittal family. I was wondering if you have any lock-up
agreements on those shares or whether there would be any comments from the
management as to whether those shares would be freely for sale immediately.
Rodney Mott - International Steel Group Inc. - President & CEO
Aldo, I am -- it is Rodney again. I would like to speak for the North American
operations. Again, we sum up to a lot of synergies between the companies. And
every time we are talking about them we are looking at opportunities to increase
the capacity and the utilization in North America. There is no other facilities
that are being targeted, they are all for reduction or a shutdown. We are really
excited about the ability to grow, now that we have a strong partner working
with us. And to the question about the shares, Aditya?
Aditya Mittal - Mittal Steel Company - President & CFO
No, let me add something more to what Rodney said about the capacity. As we have
said during our presentation that we have a lot of opportunities on the newly
acquired companies, like in Poland and Romania. And we see that opportunities to
grow in both countries. Of course, the markets also in those countries are also
growing.
Rodney Mott - International Steel Group Inc. - President & CEO
In terms of the shares, there are no lock-up agreements or standstill
agreements, either at ISG side or at Ispat International or LNM Holdings side.
Clearly, the family, if it were to sell a large number of shares, would do
through registered offerings, something like that. At this point in time, there
are no such plans, as we believe. The Company has good potentials in terms of
its growth, objectives, and realizing the benefits of the consolidation in the
US steel industry.
In terms of the ownership percentages, as I mentioned earlier, Ispat
International is issuing 525 million shares to LNM Holdings. This is in addition
to Mittal family's existing ownership within Ispat International and then they
will be issuing approximately between 48.5 to 61.5 million shares to ISG
depending on the collar mechanism. Therefore in the presentation, we used about
700 million shares -- 704 million shares as the approximate number for the total
number of shares outstanding post to transaction.
Aldo Mazzaferro - Goldman Sachs - Analyst
Great. Could you tell us of that 704 million, what would be the trading close,
likely I guess there would be million plus, whatever Ispat has at this time.
Aditya Mittal - Mittal Steel Company - President & CFO
It would be about 10, 10.5 percent.
Aldo Mazzaferro - Goldman Sachs - Analyst
10 to 10.5 percent.
Aditya Mittal - Mittal Steel Company - President & CFO
I mean it's 10 to 11.5 percent really in terms of the range.
Aldo Mazzaferro - Goldman Sachs - Analyst
Right, depending on what you issue.
Aditya Mittal - Mittal Steel Company - President & CFO
And depending on where the stock pay is, obviously the total will be dependant
on that. Based on Friday's close it about $2 billion.
Operator
Cavis Venever, Lehman Brothers.
Cavis Vanever Analyst
Good morning and my congratulations first of all. Could you shed some light on
how you arrived at the evaluation for the intermediate step of Mittal merging
with Ispat?
Aditya Mittal - Mittal Steel Company - President & CFO
Sure. As I mentioned in my presentation, we in terms of the operating
performance for 2004, the forecast states EBITDA of around $5.4, $5.5 billion
for LNM Holdings. If you look at the aggregate consideration based on Friday
close of $13.2 billion, we are looking at a relatively low EBITDA to enterprise
those multiples. And then also mentioning that the pro forma net cash number is
$100 million. In terms of the process that was followed, there was an
independent committee or a special committee with independent directors which
reviewed various evaluation
metrics. I am not pretty aware of the evaluation metrics that they utilized as
they were independent, and the Mittal family was excused from all such meetings
either at the board level or at the committee level and the committee was
advised by Credit Suisse First Boston as well as [Inaudible] in arriving at the
consideration value.
Operator
Bruce Klein, CSFB.
Bruce Klein - CSFB - Analyst
Congratulations. If you can help us just -- I think you said the net debt was, I
think, pro forma for the 3-way was 3.2. If you can help us, maybe break it out
-- the bigger pieces of that, how much was cash, that will be helpful. And
secondly, just on a -- I didn't know -- on the -- Inland has the
nine-and-three-quarter percent [Inaudible] . Can I get to know if there is any
flexibility to exercise the equity clawback or that's not going to be applicable
here?
Lakshmi Mittal - Mittal Steel Company - Chairman & CEO
Okay. Let's take your first question first. In terms of the net debt numbers,
the -- I'm going to try and break it up by entity, and then give you the
consolidated number. As I mentioned earlier, LNM Holdings towards the end of the
-- post dividend declaration will have a net debt number of negative 100 or net
cash position of $100 million. We expect Ispat International to have net debt
number of about a billion dollars. And therefore the combined Mittal Steel
Company towards the end of the year will have pro forma net debt number for
about $900 million. We then look at ISG's balance sheet, and ISG will have about
200 to $250 million of net debt towards the end of the year. My definition of
net debt is cash and cash equivalents that ables to bank some portion of ST debt
and long-term debt, which will results in about 1.1 to $1.2 billion in terms of
net debt for the combined entities. We then add the purchase consideration,
which is 50 percent cash and based on a $42 price we get to $2.1 billion. That
takes the total net debt number of all the 3 entities to $3.2 billion on a pro
forma basis. As I mentioned earlier, these are estimates.
Bruce Klein - CSFB - Analyst
Okay, and on the second question?
Aditya Mittal - Mittal Steel Company - President & CFO
The second question in terms of the Inland financing, there are no call
provisions in the term debt, but there is some equity clawback provision,
ultimately there is -- it's market based.
Bruce Klein - CSFB - Analyst
Will this transaction trigger that call? Would you be able to use the call?
Aditya Mittal - Mittal Steel Company - President & CFO
No, it would not trigger that call.
Bruce Klein - CSFB - Analyst
It will not trigger?
Aditya Mittal - Mittal Steel Company - President & CFO
Yes.
Bruce Klein - CSFB - Analyst
And then lastly, just on the -- with regards to USWA -- you guys spoke a little
bit quickly in your initial comments, but what are -- what are the thoughts
there with regards to specifically, Inland and then are there any legacy
liabilities at LNM Holdings prior to this transaction?
Rodney Mott - International Steel Group Inc. - President & CEO
We have been in a -- this is Rodney again. We've been in discussions with the
steel workers for the last week or so, regarding this transaction. They are very
comfortable with the transaction, all the way through their organization. We've
also met with the executive team, they are from the Inland local and again they
understand the need to get more aligned with the ISG productivity model. At the
same time, through this group, we are recognizing the workers at Inland and the
need they are continuing with some of the legacy costs. The pensions will be
kept in place, the retiree benefits will be kept in place, and really going
forward that would get them in line with the ISG model and the benefit packages
of ISG.
Lakshmi Mittal - Mittal Steel Company - Chairman & CEO
The existing employees will not be adversely affected.
Aditya Mittal - Mittal Steel Company - President & CFO
If I could address your question on deferred employee benefit. As a group, we
have this philosophy of not having legacy liabilities and that's why we were
attracted to the ISG model, which is relatively free of legacy liabilities. We
see the same thing at LNM Holdings, just based on the balance sheet numbers
year-end -- not year-end, third quarter, we're looking at deferred employee
benefits of $97 million.
Bruce Klein - CSFB - Analyst
That's specifically LNM?
Aditya Mittal - Mittal Steel Company - President & CFO
LNM Holdings?
Bruce Klein - CSFB - Analyst
Yes.
Aditya Mittal - Mittal Steel Company - President & CFO
And therefore clearly, the level of deferred employee benefits at LMN Holdings
is very minimal and there are no plans which are ongoing. These are adopted
plans based on them being in existence when you acquired. Clearly, at Ispat
Inland, we still have the deferred employee benefit obligation for the
[Inaudible] and the pension. And we will work in terms of the labor -- this
letter of agreement with the union to see what we can do with those liabilities.
Bruce Klein - CSFB - Analyst
Okay, and lastly on the rating agencies, you said, you guys met or got any
weaker -- you mentioned a couple of times, investment grade type metrics. Have
you anything -- any thoughts from where they are coming out?
Aditya Mittal - Mittal Steel Company - President & CFO
We have just informed the rating agencies this morning of the transaction. We
expect that when they review our financials and the growth prospects of the
combined entities, looking at the credit statistics, they will move forward to
review their ratings and provide us with what we think that the Company
deserves.
Operator
Julien Onillion, HSBC Securities.
Julien Onillion - HSBC Securities - Analyst
I've got 4 questions. First question is concerning the US Steel activities.
Today's steel market is extremely strong in the US, it is going down a little,
but still remaining extremely strong. If tomorrow, we have a major collapse of
the market or downturn, how you will react to that in the US? And my question
behind that because with the new group, you have a lot of possibilities, I was
thinking about Mexicana. Are you thinking that in the future or long-term you
could sell directly from Mexico slabs to the US within the group? Is it
something you are thinking about? Second question, still in the US concerning
now your new market position. First question, do you
believe you'll have problem with the regulators because of your new market
position in the US, you think the deal will go on without any problems? And do
you think you have still some space to make small acquisition in the US or do
you think now you are too big, I would say to have any merger/acquisition in the
US? Third question is concerning Europe. You spoke about a little synergy you
could develop in the US. In East Europe and West Europe, with Ispat and LNM
Group, do you think there is any synergies? I know Germany is far from Poland,
but do you think that there is something synergy you can also do in Europe in
terms of organization, and could you quantify that if it's possible? And final
question I would say, which is more a strategy question, is concerning China.
You -- I mean is it now the leading market in the world, it's a growing market
also. I know that LNM had some talks -- you had some talk with Bahi Iron and
Steel, you are also sending a lot in China's from Kazakhstan. But do you think
with the new size of the plant -- you new size of the group tomorrow, you will
have a more aggressive strategy in China, and that there is possibility for you
to have a real big industrial position in China in a long term? Thank you.
Aditya Mittal - Mittal Steel Company - President & CFO
Rodney?
Rodney Mott - International Steel Group Inc. - President & CEO
That's a lot of questions there to answer in a hurry. I'll go through the first
-- I'll do the first couple of ones related to the United States. Certainly in
the United States, we'll have a very large market share. We do recognize that
our market does cycle some but it's much similar to what we've done within ISG.
We'll go through as a combined group, identify a way to flex as with the
marketplace. We'll flex the operations. And certainly having more facilities, in
this case it'll be up to 12 blast furnaces, it'll be much easier for us to
schedule our outages to try to match up with the market cycles, or to identify
which is the higher cost facility and reduce those first when the market goes
slow. We'll also be working with the Steelworkers Union on a way to reassign the
workers during those times when the market is slow, where we may pick people
from one area put them to another so that our employees will have their
security, while we are still adjusting to the marketplace. The second part of
the question regarding the slabs in Mexico. It would be our intent to use those
slabs where we can to increase our capacity. We wouldn't be using those in any
place to displace our own steel making, but rather use that to gain in the
market share. We do see some possible synergy there. It is exciting to think
that we could increase the utilization where we have the additional hot mill
capacity throughout our organization. But at this time, again, that will be
coming through our studies over the next few weeks.
Lakshmi Mittal - Mittal Steel Company - Chairman & CEO
Regarding synergies in the Central and Eastern Europe, perhaps you recall that
all the LNM Holdings, operations and business was managed by Ispat
International. A lot of exercise has been done for synergies, capturing those
synergies. And though as I mentioned that we still opportunities to grow in
Central and Eastern Europe. As far as China is concerned, we have
already announced a project in China for the downstream facilities, and we
normally do not comment on our acquisition activities. But as a group, I
definitely believe that as a global leader in the steel industry we must have
our footprints in China.
Aditya Mittal - Mittal Steel Company - President & CFO
The last comment on the regulators, we do not expect to see any difficulty, I
think Wilbur can add to this point in terms of his experience of [Inaudible]
there exist in the US.
Wilbur Ross - International Steel Group Inc. - Chairman
Yes, we have not so far, in any of our acquisitions, gotten a request for
further information and we are optimistic that we would get very prompt
treatment here. We believe the concentration ratios are such that there should
not be any substance to problem here and I'm told that we also don't expect any
with the EU.
Operator
Brett Levy, Jefferies & Company.
Brett Levy - Jefferies & Company, Inc. - Analyst
Hi guys, congratulations. Let's see, first up, based on the way the earnings
power seems to be going for all your entities, it would seem that especially if
the ISG transaction closes in February of next year that the pro forma number
could be lower on the debt side. I guess, I was wondering as you guys look at
this transaction, where does all the excess cash go between now and February 1?
Aditya Mittal - Mittal Steel Company - President & CFO
Well some of that excess cash will be used to finance the transaction though
ideally we would not be taking on additional debt facilities to finance this
transaction. That's in terms of the sources of some of this cash. As a business
philosophy, as you have seen LNM Holdings balance sheet, we have been very
focused on reducing the total leverage as we believe, to be the leader in the
steel industry, we have to have a lowly geared balance sheet. We see the same
thing at ISG and now due to the result of this combination of all the 3
companies on a combined basis the whole Company will have a lowly geared balance
sheet. We think that is the model for the steel industry going forward and we
are committed to that model and 9therefore we've got to pair down debt further
and perhaps build up some cash for further acquisitions.
Brett Levy - Jefferies & Company, Inc. - Analyst
In terms of some other subsidiary debt and specifically the Ispat Inland debt
will that be recourse to any entity beyond that all the way up to Mittal Steel
or is that strictly going to be at the guarantor level of Ispat Inland?
Aditya Mittal - Mittal Steel Company - President & CFO
The Ispat Inland debt, we are talking of the main bond financing out there that
is guaranteed by the parent, which will now be renamed as Mittal Steel Company.
So this will have a guarantee of the combined entity.
Brett Levy - Jefferies & Company, Inc. - Analyst
And the last one relates to sort of the landscape of automotive and contract
negotiations at this point, can you guys talk, it would be the question
generally asked of both Ispat Inland and of ISG, how are those negotiations
going -- sort of there has been talk around of sort of a 20 to 25 percent
increase and obviously that we are getting close to the finish line on those and
then there is also some sort of variable cost elements and also talk about the
whether the trend is towards more 1-year contracts. Just generally if can give
some color on the contract discussions thus far.
Rodney Mott - International Steel Group Inc. - President & CEO
Yes, certainly if we go through this type of transaction and this is something
that we have to be very careful talking about and really we don't have the
opportunity yet to talk about the different negotiations within the Company and
I think you really ought to refer back to what you've heard from the Inland
presentations previously or from ISG separately on anything regarding the market
place.
Brett Levy - Jefferies & Company, Inc. - Analyst
Okay, thanks guys and congrats again.
Operator
Anthony Rizzuto, Bear Stearns.
Anthony Rizzuto - Bear Stearns - Analyst
Got some follow-up questions here. First of all on the regulatory front, by my
calculations you have approximately 40 percent of the US flat rolled market and
I believe US Steel would have another 25 percent. I am concerned that 65 percent
of the US market by 2 players is going to send up yellow flag and I just would
like to explore that a little more in terms how far gotten with regulators? And
second question, to help us frame global synergies -- certainly I understand
it's on a very preliminary basis -- but if you can help us better understand
what kind of synergies and cost reduction potential there is for the group here,
in this combination?
Wilbur Ross - International Steel Group Inc. - Chairman
On the regulatory aspect there have obviously been no discussions yet with
regulators, we'll been filing the Hart-Scott-Rodino relatively shortly but the
definition of market is a lot more precise than just the broad brush of flat
rolled sheets. And when you analyze the individual sub markets, we feel
comfortable that there are no sub centered (ph) problems.
Anthony Rizzuto - Bear Stearns - Analyst
And the second question about synergies, if --
Lakshmi Mittal - Mittal Steel Company - Chairman & CEO
On the Synergies, Rodney has already described the process, which we are going
to follow and I can only say that we are going to start assessing the synergies
in the next couple of months and we will inform. But as a global group I think
there are a lot of synergies, which will come to the group as a whole arising
out of our knowledge management program, arising out of our global experience,
in terms of our purchasing power, in terms of our marketing knowledge, in terms
our technological experience. So definitely the group as a whole will be
definitely benefited by this transaction.
Anthony Rizzuto - Bear Stearns - Analyst
It's not uncommon for similar mergers in other industries that we've seen in the
metals and mining, the total synergies equating to the levels of maybe 3 to 5
percent of revenues, would this be fair to look at in order of magnitude with
this combined entity?
Aditya Mittal - Mittal Steel Company - President & CFO
I think you should wait for the synergies number, when it is ready we will come
back to you.
Anthony Rizzuto - Bear Stearns - Analyst
Thank you very much.
Operator
Charles Bradford, Bradford Soleil & Research.
Charles Bradford - Bradford Soleil & Research - Analyst
Could you define the timing of this transaction, when we can expect the various
documents and so on?
Aditya Mittal - Mittal Steel Company - President & CFO
Yes, sure. Let us try and divide the transaction in two. Let us just focus on
the first transaction. The first transaction is Ispat International acquiring
LNM Holdings. That transaction is expected to close by December end this year.
The controlling shareholder of both the entities, which is the Mittal family has
already given its voting agreement that is we vote in favor of this transaction.
Therefore, its primarily [Inaudible] for the final requirements, which would
take place but the transactions should close by December 31, '05. The other
transaction is subject to the closing of this transaction. Therefore, the ISG
combination, the merger between Ispat and LNM is a condition precedent. Moving
forward, we expect to receive registry of clearance and other regulatory
clearances during the same time frame and therefore we'd expect to close the ISG
transaction within the first quarter of 2005 as well. And in that transaction as
well, the family has agreed to vote affirmative in the Mittal Steel Board
general meeting which will occur approving that transaction.
Charles Bradford - Bradford Soleil & Research - Analyst
Do you need any approval for the existing non-Mittal family ISG shareholders?
Aditya Mittal - Mittal Steel Company - President & CFO
We need approval for the minority shareholders. We don't need any approvals as
such, but we would -- they have the right to vote at the annual general meeting.
Wilbur Ross - International Steel Group Inc. - Chairman
You meant Ispat, not ISG because ISG will have the shareholder meeting, and
we're quite confident that that will not be controversial.
Operator
Michael Gambardella, JP Morgan.
Michael Gambardella - JP Morgan - Analyst
Congratulations on the deal. Have a couple of questions. In terms of the raw
material position, when you look at the 3 independent groups today, LNM, IST and
ISG, are any of them net sellers of raw materials?
Aditya Mittal - Mittal Steel Company - President & CFO
You have one more question.
Michael Gambardella - JP Morgan - Analyst
When you look at the 3 groups that you have today that you'll be combining on
these 2 transactions, are any of the groups independently net sellers of raw
materials?
Aditya Mittal - Mittal Steel Company - President & CFO
Yes, if you look at the LNM, it is a net seller in coke, metallurgical coke.
Michael Gambardella - JP Morgan - Analyst
How much?
Aditya Mittal - Mittal Steel Company - President & CFO
It is a net seller of 2 million tons of metallurgical coke, which they've been
supplying to some of the local producers as well as within the group. Apart from
this, we are basically consuming our own production.
Michael Gambardella - JP Morgan - Analyst
So, would any of that 2 million tons of coke be diverted to any of the new
companies that are joining Mittal Steel?
Aditya Mittal - Mittal Steel Company - President & CFO
Yes, last year we did supply to Ispat Inland, this year we supplied some
material to Ispat Inland in Chicago and hopefully, we will also supply some
materials to ISG next June.
Michael Gambardella - JP Morgan - Analyst
But in terms of the overall picture, the raw material position of the 3
companies really doesn't change that much on this transaction, is that correct?
Rodney Mott - International Steel Group Inc. - President & CEO
I want to clarify what I think Lakshmi was saying, is that, they have a net
sales that goes to about 2 million tons and ISG is a net buyer that goes to
about 2 million tons as we said in the presentation. We get this off to a
neutral position. According to the [Inaudible] direct shipments, there is sales
out of one area's stock buy into another part of that. We'll lease them out to
-- again a synergy that we will find, we'll be having the availability to raw
material within the group.
Lakshmi Mittal - Mittal Steel Company - Chairman & CEO
But what it will mean on a net-to-net basis is that, we have relatively little
exposure to the stock market, which has been so troublesome in the past year.
And for the rest of the supplies, we have already had a long-term contract with
the raw material suppliers CVRD and MBR and other iron ore producers.
Aditya Mittal - Mittal Steel Company - President & CFO
Michael I think what's happening is that, LNM Holdings have a very high degree
of vertical integration. And as you combine the 2 companies, the vertical
integration grows up to 40 percent in iron ore and metallurgical coke. But that
is very significant considering the fact that we expect to ship about 60 to 63
million tons of steel and we're the largest steel company in terms of production
capacity. The message really is that, as such a large company, we have 40
percent vertical integration for iron ore, about 40 percent vertical integration
for met coke and we're generally coke-neutral, which is a very strong position,
vis-a-vis [Inaudible] what appears--
Michael Gambardella - JP Morgan - Analyst
Okay and the second question is in regards to the 2 classes of common stock, was
there any consideration into -- collapsing it into one class, and what are the
differences in the voting rate between Class A and Class B. And when you look at
the Mittal family, what is the economic interest versus the voting interest in
the combined entity at the end of the day?
Aditya Mittal - Mittal Steel Company - President & CFO
As you know Michael, the transaction structure is at Ispat International that
has acquired LNM and subsequent to that acquiring ISG. Therefore, there is no
corporate change at Ispat International and therefore, we do not collapse the
voting structure and the voting structure is continuing as it was. In terms of
the economic interest, it is largely around 88.5 percent to approximately 90
percent. Again, these numbers are pro forma and depend on the number of issuance
of the shares to ISG shareholders and the voting difference, Class A has a
single vote and Class B has 10 votes and you can do the math in terms of that--
Lakshmi Mittal - Mittal Steel Company - Chairman & CEO
From the ISG point of view, we did a very careful study, and we don't find any
perceptible difference particularly where there is a controlling block. No
perceptible difference between 1-vote shares and 10-vote shares in terms of
trading value. So, we do not feel that there is anything adverse from ISG point
of view to taking the 1 vote per share and that also has the added benefit.
Those are the shares that have the most market liquidity and the most slope.
Michael Gambardella - JP Morgan - Analyst
Okay. Last question. Are all 3 entities -- are they on the same accounting
standards in terms of GAAP numbers?
Aditya Mittal - Mittal Steel Company - President & CFO
Yes, they all are US GAAP numbers. Clearly as a European Company, we will have
to file IFRS starting 2005. We will have 2 accounting reports. The only
difference in terms of purchase accounting, which we should all be aware of, is
that there is LIFO at ISG and before the different inventory method and clearly,
there would be some purchase accounting adjustments. So, those issues will be
there. And all the numbers that are there are before any purchase accounting
adjustments.
Michael Gambardella - JP Morgan - Analyst
Okay. Last question. What are you going to do for an encore after this?
Lakshmi Mittal - Mittal Steel Company - Chairman & CEO
What would you suggest--
Michael Gambardella - JP Morgan - Analyst
I am sure I will be surprised in the future as well.
Operator
(Chicagura Snowbec) (ph) , CSFB.
Chicagura Snowbec - CSFB - Analyst
My question is related to total shipments in topline, the 2004 outlook that you
are giving, how much of this actually is the China?
Aditya Mittal - Mittal Steel Company - President & CFO
Going forward, we will not be breaking out shipments to specific countries. I
think there was a slide which talked about how much is Europe, how much is --
just I can repeat that for you, the shipments in terms of North America is about
47 percent, Europe is 31 percent, and the rest of the world is 22 percent, rest
of the world includes our operations in Africa as well as Asia.
Chicagura Snowbec - CSFB - Analyst
Okay, and Asia would be a big portion of it?
Aditya Mittal - Mittal Steel Company - President & CFO
Well, by Asia, we are including Kazakhstan. And clearly Kazakhstan is turning a
significant portion of its tonnage into both the western part of China as well
as eastern part of China.
Chicagura Snowbec - CSFB - Analyst
And in terms of Europe, 31 percent -- I assume it includes the Central and
Eastern Europe, how much of this 31 percent is to the emerging Europe?
Aditya Mittal - Mittal Steel Company - President & CFO
Well, we would then have to exclude Romania, because Poland and the Czech
Republic are part of the EU now. The EU versus the non-EU, the shipment number
is about 4.5 million tons, and therefore, about 30 percent of that number is
non-EU.
Chicagura Snowbec - CSFB - Analyst
Is there any -- I just have a quick question on the North American part, maybe
the question is answered already, I apologize if that's the case. For ISG, we
talked about -- you talked about it in the past -- your strategy of getting to
80 percent contract business, 75 to 80 percent for '05, is there going to be any
change following this merger to the contract strategy?
Aditya Mittal - Mittal Steel Company - President & CFO
Could I just, before you start, make a small clarification. I think I made a
small mistake because I was giving 9 months' versus 3 months' number. That
should be the shipments of Sidex, out of this Europe is probably 7.5 to 8
percent, not the 10 or 11 percent number that I gave.
Chicagura Snowbec - CSFB - Analyst
7.5 to 8 percent -- 8 million tons, you mean?
Aditya Mittal - Mittal Steel Company - President & CFO
No. The other way to read out the numbers, I will just start again. North
America 47 percent. Let's say 23 to 24 percent EU; 8 percent Europe non-EU; 7, 8
percent in Europe non-EU and 22 percent rest of the world. Okay, and your
question regarding the contract business, again we can't talk about our plans
going forward, it is in the marketing area. But as you have just heard during
our ISG presentation, again we do believe that in North America there is a need
to go after substantially large part of your business being contract business.
We are being very successful growing our share on a contract basis and would be
expecting to go somewhere over 75 percent contract business within ISG.
Chicagura Snowbec - CSFB - Analyst
Last question is related to integration issues maybe for '05. One of the
requirements this year, obviously, from an economic standpoint is the
Sarbanes-Oxley 404. And you made some progress on the ISG side, how do this
issue be tackled within 2005 with the integrated entity. In other words Ispat
Inland also had made some progress or is there is any issue that we should be
aware of?
Lakshmi Mittal - Mittal Steel Company - Chairman & CEO
Well, the first point is that as a form filer, our requirement is for the
year-end 2005. So that's -- I think that captures everything. We are -- as Ispat
International and as LNM making significant progress in terms of SOX 404 and we
expect to take from ISG. Now, I'll ask Rodney to elaborate on that.
Wilbur Ross - International Steel Group Inc. - Chairman
You might notice that ISG actually reported it's earnings several days earlier
than it informed.
Chicagura Snowbec - CSFB - Analyst
Yes, I did.
Wilbur Ross - International Steel Group Inc. - Chairman
And you can quite correctly interpret, it is meaning that they were able to pull
everything together even more rapidly either than we had in prior quarters or
than we had originally anticipated. So we feel we are well on the way to what we
need to do.
Lakshmi Mittal - Mittal Steel Company - Chairman & CEO
We will take one more question.
Operator
(Dwayne Tennomer, First Capital Alliance) (ph) .
Lakshmi Mittal - Mittal Steel Company - Chairman & CEO
There is just enough time, we will take one more question.
Dwayne Tennomer - First Capital Alliance - Analyst
Congratulations. I was going to get more details on the history of this
transaction, how did this transaction come together, who approached who and what
have you, and also you may have mentioned this earlier but I -- if so I didn't
hear. What kind of breakup fee is associated with the transaction?
Wilbur Ross - International Steel Group Inc. - Chairman
This is Wilbur Ross, I will give you both. The Mittals and I met some several
weeks ago and we had an immediate love affair. In that we both felt that we each
had more income with the other than either of us did with any of the other steel
companies. In that case, there is a great deal of confidence that the corporate
culture would not be anything very shocking in terms of requiring change. So
that was the start of it and then the obvious synergies between Inland and ISG
and the obvious importance of their very strong raw material supply relative to
some of the issues we have had. And then finally they and we are equally
obsessed with the overall financial strength of the Company and are quite
determined to achieve investment grading. Think that answers both questions. As
to the breakup, see as you know, it is well established practice in the US to
have a 3 percent breakup fee. That's what we have here, it's roughly a $125
million.
Dwayne Tennomer - First Capital Alliance - Analyst
Okay, one last thing, when will Mittal shares begin to -- when they will be
issued?
Wilbur Ross - International Steel Group Inc. - Chairman
Well, it is not Mittal's shares being issued, it is Ispat, which is already
trading. We simply changed its name to Mittal upon the completion of the merger.
Dwayne Tennomer - First Capital Alliance - Analyst
I see. Okay.
Operator
Ladies and gentlemen, that concludes today's conference call. I will now the
turn the call back over to Lakshmi Mittal for any closing remarks. Please
proceed, sir.
Lakshmi Mittal - Mittal Steel Company - Chairman & CEO
Thank you very much and I thank all of you who have participated in this call.
As I said in the beginning of this call that all of us within our Company, in
our group, the management and employees, all of us are very excited about this
transaction. Perhaps to know that this is a very unique transaction, it's a very
global transaction and this is one of the largest transaction steel industry has
ever seen. And it creates a lot of benefit to the whole group in terms of
synergies, in
terms of its leadership, and I believe that it is going to create
a very large, appreciable shareholder value. I will handover to Wilbur for his
final comments.
Wilbur Ross - International Steel Group Inc. - Chairman
We are sorry we had to spring such a complicated thing on you so quickly. But
you'll notice from the preannouncement trading, there was no leakage whatsoever
and we are very, very happy, but that was the case with such a transaction
involving so many entities all around the world. We think that this is the way
that the future powerful companies, vertically integrated, and very strong
financially, that is the way to the future in the steel industry. And we will be
fascinated to see what kind of competitive response that elicits from rest of
the industry.
Lakshmi Mittal - Mittal Steel Company - Chairman & CEO
Finally, I will like to welcome all the shareholders and investors of ISG to
Mittal Steel Company, and I look forward to talking to you very soon. Thank you.
Bye, bye, have a good day.
Operator
Thank you for your participation in today's conference. This concludes the
presentation. You may now disconnect.
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