ArcelorMittal’s Mr Fixit pledges not to leave stricken steel
BY NICKY SMITH: 18 December 2015, 06:00
PAUL O’Flaherty, who resigned as the CEO of ArcelorMittal SA on Monday, says all the major interventions he has undertaken in his 18 months at the steel company to arrest its decline will be completed when he leaves in February.
Mr O’Flaherty surprised the market with the announcement of his resignation from the crisis-stricken company he was hired to “fix”, just 18 months into the job.
The share price has fallen 34% since his announcement.
In an interview, he insists that his desire to leave the company for “personal reasons” is not related to any funny business or any relationship breakdowns. Rather, he says, it is “time to do something else”.
“I haven’t got anything lined up and I have a lot of work to finish before I leave.”
He is not “abandoning” the company as he is determined to see implementation of the interventions in which he has invested enormous time.
Lakshmi Mittal, the CEO of ArcelorMittal Group, said he was “not happy” with the decision to resign. Mr O’Flaherty countered by agreeing to stay on to ensure there was continuity at the company.
“I am staying on as a nonexecutive director to make sure that all the work that has been done to fix relationships with regulators and the government is maintained.”
Mr O’Flaherty will leave the CEO position on February 12 and begin as a nonexecutive director in March.
In an interview in October, he appeared worn out and talked frankly about how he had underestimated the scale of the crisis that has gripped the steel maker over the last few years.
“What I didn’t know (when taking the job) was how bad the relationship with government was. Fixing efficiency is one thing; fixing relationships is a completely different animal. That’s been the toughest part,” he said at the time.
ArcelorMittal SA has been making losses for four years and this is expected to continue in the coming two years as well. This year its share price has fallen 88%. The steel maker has been pummelled by high costs, depressed prices caused by the glut in the global steel market and its vulnerability to cheap Chinese steel that has flooded SA’s market. Adding to the pressure has been the lacklustre performance of SA’s economy which has nipped demand for steel in the bud.
Not only ArcelorMittal has been struggling — the steel sector as a whole is at risk, along with about 200,000 jobs that would be affected should the industry collapse.
The government has made the right noises about supporting the industry and has expedited tariff application processes to offer more immediate relief to the market.
The relationship-building has been tortuously slow and the protection the company has needed from supercheap imports has taken longer than expected. Fixing relationships with the government is crucial to reverse the policy decision taken by the Department of Trade and Industry to not provide any tariff support for the industry.
This position had been adopted in response to the steel maker’s past behaviour as a price gouger, with multiple anticompetitive complaints brought against it.
In 2004, LNM Holdings, owned by Mr Mittal, burned its bridges with the state after it let the government believe it had agreed to a “developmental price” for steel in exchange for the state’s approval of acquisition of the company.
Instead, the company offered a variation on its much hated import parity pricing model, which the government wanted dismantled.
Mr O’Flaherty has started a number of fix-it initiatives since joining the company in June last year. Chief among them are the settlement of the Competition Commission’s concerns when the group agreed to pay a fine. This process is close to completion. The developmental price argument is near to settled in that the steel prices will be regulated. ArcelorMittal SA will have to operate with a regulated margin that allows for the company to make profit but will prevent it from gouging the local market.
Applications for import protection have also been made.
Eleven applications, covering 100% of ArcelorMittal’s product portfolio, have been made to the International Trade Administration Commission for a maximum 10% duty to be slapped on all imports.
So far one has been gazetted and seven others have been approved and were awaiting gazetting, Mr O’Flaherty says. This week seven applications were submitted to the International Trade Administration Commission for safeguard measures to be put in place.
XA International Trade Advisors describes safeguards as “an extreme reaction to a surge in imports that presents a serious threat to the domestic industry”. Safeguard measures are “not a response to anything that the exporter or exporting country did. It is simply a response to the surge and the size of the duty is simply enough to reduce the import volumes”.
Mr O’Flaherty is confident the applications will be successful as he has worked closely with the International Trade Administration Commission and PwC on getting the vast amount of paperwork done correctly. Applications are long, complicated and expensive to make.
Finally, the battered balance sheet is also scheduled to get attention and this will take the form of two capital injections that will come from shareholders in a R4.5bn rights offer, which the holding company has fully underwritten.
The second is a black empowerment deal that will lead to at least 20% of the company being sold to black investors.
Mr O’Flaherty says there are three short-listed broad-based consortia that all “either have money or the ability to raise money”, which will make their final presentations to the board on January 6. The empowerment deal and the rights issue are scheduled for conclusion in the first quarter of the new year. Mr O’Flaherty will be hoping that much of the work that remains undone — final settlement with the Competition Commission, which will allow for the related matter of the regulated margin gets done while he is still in the company’s Vanderbijlpark office.
Those he has been dealing with at the Department of Trade and Industry campus in Pretoria are also likely to want to get the work done smartly while they can still work with the man they know
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