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Usinor SA

Usinor SA

11-13, cours Valmy
La Défense 7
92070 Puteaux
La Défense Cedex
France
Telephone: (+33) 1-41-25-9898
Fax: (+33) 1-41-25-9780
Web site: http://www.usinor.com

Public Company
Incorporated: 1986 as Usinor Sacilor
Employees: 60,521
Sales: EUR 15.7 billion ($13.73 billion) (2000)
Stock Exchanges: Euronext Paris
Ticker Symbol: USI
NAIC: 331111 Iron and Steel Mills

Leading French steelmaker Usinor SA is getting set to capture the leading position in the worlds steel industry. Usinors February 2001 proposal to acquire Luxembourgs Arbed and Spains Aceralia promised to create a steel powerhouse capable of producing more than 46 million tons of steel per year. This would place Usinoras the largest of the yet unnamed groupahead of rivals Nippon Steel of Japan and Pohang Iron and Steel of South Korea, as well as its primary European rivals Thyssen Krupp of Germany and Anglo-Dutch concern Coms Group. The new company would see its headquarters transferred to Luxembourg and would be co-chaired, at least at the beginning, by Usinor Chairman Francis Mer and Joseph Kinsch of Arbed. The merger was expected to pass EU monopolies commission scrutinywhich struck down a similar merger attempt among aluminum producers Pechiney, Alcan, and Algroup in 2000by the end of 2001. The deal, worth more than EUR 3 billion, was expected to create a global giant with sales of more than EUR 30 billion per year and a total workforce of 100,000. The merger was also expected to kick off a new round of steel industry consolidation in the new century.

Steelmakers in the 18th Century

Usinor stemmed from the 1986 merger of the two major French iron and steel groups, Usinor and Sacilor. Usinor had existed for over 150 years in the north of France. Sacilor had been incorporated in 1973, but could trace its history back to 1704, when Jean Martin de Wendel bought the ironworks of Hayange in French Lorraine.

The Sacilor group had deep roots in Frances industrial history. It had been associated with the Lorraine region and the de Wendel family since the early 18th century, when Jean Martin de Wendel acquired the ironworks of Hayange in Lorraine. Under de Wendel, the ironworks became one of the largest in France. In 1794, during the French Revolution, the ironworks were able to produce as many as 848 cannonballs, 84 bombshells, and 4,000 bullets per day. In 1822, the de Wendel iron works gained Frances first coke blast furnace. The de Wendel factories increased production at a considerable rate during the industrial boom of Frances Second Empire: whereas the plants produced about 20,000 tons of cast iron and a little less basic iron in 1850, by 1869 more than 130,000 tons of cast iron and 110,000 tons of iron were obtained from the 15 blast furnaces.

De Wendel, now the foremost ironmaster in France, employed a workforce of 4,000 to fabricate rails, iron bars, iron sheets, tin, and wire. In 1870, however, the Lorraine region was annexed by Germany as a result of its victory over France and the company was split in two until 1918. The factories that were given back after World War I had been run efficiently by the Germans and the company was able to return to 1914s production level by 1924. De Wendel achieved record production levels in 1929, with 1.66 million tons of cast iron and 1.63 million tons of steel. The shock of the 1929 Great Depression, which reached France in 193031, followed by World War II, prevented the company from investing capital in modernization during the 1930s and 1940s. In 1948, Sollac (Société Lorraine de Laminage Continu) was formed as a cooperative company by nine different steelmakers, including de Wendel. Sollac was intended to fill the technological gap that had developed during the last 20 years between the French and U.S. steel industries. Sollac began by setting up to produce steel sheets, then added a Kaldo steel plant using pure oxygen in 1960the Thomas and Martin processes were still predominant in the professionand finally introduced cold rolling mills and tin-making units.

The year 1948 also saw the creation of Usinor, through the merger of the two largest steel-producing groups of northern France, Denain-Anzin and Nord-Est. The two groups had complementary product lines, with Denain-Anzin oriented toward steel sheets and Nord-Est favoring shaped products. Both companies originated from small plants dating from the 19th century. The Société des Hauts Fourneaux et Forges de Denain-Anzin had been formed in 1849 from the ironworks of Denain, founded in 1835 by François Dumont with the permission of King Louis Philippe, and a similar plant created the same year by Benoit-Auguste Vasseur and located in Anzin. The Société des Forges et Aciéries du Nord-Est had been founded in 1882. It combined the Mines et Usines du Nord et de 1Est and Steinbach and Company, another iron and steel company. The former, created in 1873, was the result of the merger of the blast furnaces of Jarville; the iron factory of Trith Saint Léger, an old factory founded in 1828; and interests in the Houdemont mines. Nord-Est increased its size considerably after World War I through acquisitions and mergers in the mining and iron and steel industries. In 1919 it took over the Usines de lEspérance, established in Louvroil in 1858 by Victor Dumont. In 1933 it absorbed the Société des Hauts Fourneaux et Laminoirs de la Sambre, a blast furnaces and rolling mills company that originated from the merger of the Hautmont factory, founded in 1871 by Michel Helson, and the Société des Forges et Fonderies de Montataire, established in 1840.

French Steel Industry Consolidation in the 1960s

Concentration continued to take place in Lorraines iron and steel industry during the 1950s and 1960s. In 1950, the Grandsons of François de Wendel company merged with the de Wendel company. The year 1950 also saw the creation of Sidélor, a company in which two Sollac partners, the Rombas and the Homécourt groups, took part. In 1963, another merger brought together the UCPMI, another Sollac partner, and the Knutange company to form the company SMS (Société Mosellane de Sidérurgie). Meanwhile, de Wendel and Sidélor decided to form a joint venture, Sacilor, which built a large modern oxygen steel factory at Gandrange. Finally, in 1967, the de Wendel, Sidélor, and SMS groups decided upon a merger. The new group, de Wendel-Sidélor, thus acquired 65 percent of Sollacs shares and all of Sacilors shares. In 1968, the group companies produced more than 20 million tons of iron mineral, that is 40 percent of total French production, and 7.8 million tons of rough steel, that is two-thirds of Lorraines production and one-third of French production. The workforce amounted to more than 60,000.

In 1971 a conversion plan for the new group was issued. It proposed the closing of all the Martin and Thomas steelworks and generally of all the most obsolete factories, the production of which was to be replaced by that of the leading plant at Gandrange. This policy was intended to enable the company to bridge the increasing competitive gap between Lorraine coal and iron mineral supply and that coming from abroad.

In 1973 the group structures were simplified. De Wendel-Sidélor merged with its own subsidiary Sacilor and its two parent companies, de Wendel and Sidélor Mosellane, to form the new company Sacilor. Close industrial cooperation was achieved between Sacilor and its subsidiary Sollac. In 1975, the first year of the steelmaking crisis in France, the de Wendel and Marine-Firminy groups merged. A holding company, Marine-Wendel, united all the steelmaking interests of the two groups, including their shares in Sollac. Lastly, in 1977, the holding company Marine-Wendel gave to Sacilor those of its industrial interests directly linked to steelmaking.

Usinor had been created in order to set up its own wideband train. The train was constructed in Denain, where the existing blast furnaces and steelworks could supply it with raw materials, and went into operation in 1952. Another decision was even more revolutionary: in 1956, Usinor announced its intention to create a new integrated factory oriented exclusively toward steel sheets. This decision was unusual, in that the plant would not be located in the mainlands, near the coal and iron mines, but by the sea, at Dunkirk. For economical reasons, the new factory was intended to receive raw material supplies from abroad. The preparation lasted for years and the factory, one of the most powerful and modern in the world, officially opened only in 1971.

In 1966 Usinor merged with the company Lorraine-Escaut. Lorraine-Escaut had been created in 1953 with the merger of three ancient steelmaking companies: Senelle-Maubeuge, Longwy, and Escaut et Meuse. It was the last of the great postwar mergers. The merger with Usinor led to the creation of a new holding company, Denain-Nord-Est-Longwy, which controlled about 60 companies through Usinor and Vallourec. Usinor combined the mining, steelmaking, and steel-selling activities while Vallourec controlled all the pipe-making activities.

Company Perspectives:

At Usinor, we believe that our primary resource is the people who work for us. We are committed to being an exemplary corporate citizen and pursue actions to demonstrate that, over and above financial profit, all human activities must ultimately contribute to ensuring better quality of life .

Usinors steel solutions contribute to improving quality of life at multiple levels. We continuously renew and improve our products with the aim of making them safer and easier to use in the countless applications that call for steel. Each day, our plants move closer to achieving the target of zero pollution, and recycled steel accounts for 40 percent of our output .

During the early 1970s, the new group carried out several important projects, such as the construction in Mardyck, near Dunkirk, of a large steel sheet cold mill rolling factory. In 1973, benefiting from the financial difficulties encountered by the de Wendel-Sidélor group as a result of the difficult circumstances prevailing in the steel market and the weight of its restructuring plan in Lorraine, Usinor took a stake of 47.5 percent in Solmer, another 47.5 percent of which was retained by Sollac, the founder of the company. Solmer possessed a large steelmaking unit, in Fos-sur-mer, near Marseilles, that used foreign raw materials.

Privatized Powerhouse in the 1980s

Both Usinor and Sacilor were hit severely by the economic crisis that began in 1975, two years after the first oil shock. While steel prices plummeted because of the diminished demand and the outbreak of the continuous casting, energy and salary costs increased. The two groups kept their workforce intact for the first two years, while their financial results deteriorated considerably, aggravated by the fact that the steelmaking groups were already heavily indebted as a result of the modernization plans launched at the beginning of the 1970s.

At the beginning of 1977, the French steelmaking groups made public a plan that called for reduced steel production, concentration on the leading factories, and the closing of the less modern units. That same year, the steelmaking profession signed a ten-year agreement on job cuts, the Steelmaking Profession Social Protection Covenant, with the government. The agreement allowed the firms to put workers into early retirement from the age of 58 years and eight months and in some cases, 54 years. The cost was shared between the firms and, for the major part, the state.

In 1979, another merger occurred at the governments initiative, between Denain-Nord-Est-Longwy (DNEL-Usinor) and Chiers-Chatillon-Neuves Maisons. The latter was a somewhat smaller group, also the result of multiple mergers between longestablished steelmaking firmsits oldest factory, Chatillon, dated from the 18th century and had belonged to the marshall-duke of Marmont, a Napoleon general. Also in 1979, Usinor took over the Rehon factory from the Cockerill group, while Sacilor became the major shareholder of another old steelmaker, Pompey. Finally, in 1981 the Socialist government decided to make the firmssituation clearer. Sacilor was nationalized by conversion of the state loans while Usinor was controlled up to 90 percent by the state and nationalized companies.

During the 1980s, FFr 100 billion ($16 billion) was poured by the state into the abyss of the steel industry crisis. About 100,000 jobs were lost, even if the redundant workers benefited from the Steelmaking Profession Social Protection Covenant. Production capacities were reduced by 20 percent for flat products and 36 percent for long products, those most affected by the demand slump. Many of the ancient steelworks, such as Trith-Saint-Léger, Pompey, Vireux-Molhain, Decazeville, and Longwy, had to be closed down. Most of the others, such as Les Dunes, Denain, Hautmont, Gandrange, Hagondange, Homécourt, Neuves-Maisons, and Joeuf, saw their activity reduced. A series of state-monitored mergers, intended to accelerate the restructuring of the French steel industry, began in 1982 when Ugine Steels was integrated into the Sacilor group and Sacilor took a majority stake in the Société Metallurgique de Normandie. Another crash, prompted by a decline in demand, occurred on the steel market in 1983, which led to a much more decisive step: the creation in 1984, as part of the Socialist governments restructuring plan for the steel industry, of Unimetal and Ascometal. Both companies combined entire departments from the rival groups Usinor and Sacilor: Unimetal grouped all the current long products and Ascometal all the special long products. Meanwhile, job cuts became effective from 1984, meeting fierce union resistance initially.

Global Leader for the 21st Century

In 1986, the year in which state subsidies for the steel industry were stopped by the European Commission, steel prices broke down again. The merger between the two French giant steelmakers was announced in September 1986 by the Chirac right wing government, with Francis Mer, former number two at Saint-Gobain Pont-à-Mousson, being appointed president of the two companies and then of Usinor Sacilor. In 1986, Usinor achieved sales of FFr 33.7 billion with a workforce of 41,000 and lost FFr 5 billion. Sacilor achieved sales of FFr 42.6 billion with a workforce of 61,000 and lost FFr 7.5 billion. The new president set up a drastic plan aimed at boosting productivity in the group: two years later, in 1988, the group employed 80,000 and had sales of FFr 78.9 billion. Benefiting from this tremendous effort and from the strengthened demand for steel, in particular flat steel, in the world, Usinor Sacilor made a recovery. From that moment on, Francis Mer felt free to conduct an ambitious international strategy that soon led the group to the second position in world steel-production volume, just behind Nippon Steel, with 23 billion tons compared with Nippon Steels 28 billion.

Key Dates:

1948:
Usinor is formed through the merger of the two largest steel-producing groups in northern France, Denain-Anzin and Nord-Est.
1950:
Sidélor is launched.
1963:
Sacilor is created.
1966:
Usinor merges with Lorraine-Escaut.
1967:
Sidélor, de Wendel, and SMS groups merge to form de Wendel-Sidélor.
1973:
De Wendel-Sidélor and Sacilor merge to form Sacilor.
1981:
French government takes over control of Sacilor and Usinor.
1986:
Usinor and Sacilor merge.
1995:
French government, faced with falling steel prices, cashes out of the steel industry and allows Usinor Sacilor to be privatized.
1997:
Company changes name to Usinor.
1998:
Company acquires 54 percent stake (later raised to 75 percent) in Belgian steel producer Cockerill Sambre; company enters South America with purchase of top Brazilian steel producer CST.
2001:
Usinor announces merger agreement with Luxembourgs Arbed and Spains Aceralia; if approved, the deal would create a new worldwide leader in steel production.

This external growth strategy was aimed simultaneously at steel producers, so as to gain weight in the steel world market, and steel merchants, in order to come nearer to the groups clients; Usinor Sacilor came to control the distribution of about 30 percent of its output. Mer then led the company on a series of acquisitions that helped spread its operations beyond France and strengthen its international position. Usinor Sacilor bought 70 percent of Germanys Saarstahl. In the United States, the group took over J&L Specialty Products Corporation, a top U.S. stainless steel maker; Techalloy Co., a stainless steel maker; and Alloy & Stainless, Inc., a specialized trade company; and it set up a joint venture with Bethlehem Steel Corporation, and finalized an alliance with major wiremaker Georgetown Steel Corp. The group also invested in Italy, taking a 24 percent stake in Lutrix, a holding company controlling La Magona dItalia, an important coated steel sheet maker; it also purchased 51 percent of Alessio Tubi. Usinor eventually bought a majority stake in ASD, Britains second largest steel distributor. Finally, the group invested in France in CMB Acier, formerly Carnaud Basse-Indre, a packaging steel producer, thus becoming the co-world leader, with Nippon Steel in this sector.

Mer was also pushing for release from government control. The companys opportunity came in the mid-1990s, when falling steel prices encouraged the French government to cash out of the steel industryin this, France was followed by much of the rest of Europes heavily government-owned and financed steel industry. The dismantling of the European Communitys domestic trade borders in 1992 and then the approach of the single European currency, slated to begin its rollout in 1999, added more encouragement to the privatization of Europes steel industry.

Usinor Sacilor was privatized in 1995, and adopted its simplified name in 1997. The company quickly proved itself a leader in the slowly building wave of steel industry consolidation. In 1998, the company acquired a 54 percent stake in Cockerill Sambre, the former Belgium government-owned steel producer. Usinors position in Cockerill Sambre climbed to 75 percent in 1999, and gave the French company the European leadership in crude steel production. By then, Usinor had entered South America, acquiring the top Brazilian steel producer, CST. Other acquisitions included boosting its position in J&L Specialty Steel to just under 98 percent, and the acquisition of 40 percent of Italian flat steel manufacturer Arvedi. While making these acquisitions, Usinor also sold off a number of noncore assets, including most of its UGO electrical products unit to Thyssen Krupp and its Unimetal, Trefieurope, and SMR units to Ispat International.

Yet Usinors competitors had been busy acquiring size as well. At the end of the century, Usinor ranked only fourth among top European steel producers, behind Luxembourgs Arbed, the newly formed Comsbuilt from the merger of British Steel and Netherlands-based Hoogovensand Thyssen Krupp. By mid-2000, Usinor and Thyssen Krupp were said to be involved in discussions involving a possible merger between the two companies. These talks went nowhere, however.

At the beginning of 2001, Usinor seemed set to continue on its owninking a cooperation agreement with Japans Nippon Steel for the production of automotive grade sheet steel. Then, in February 2001, the steel industry woke up to find a new worldwide leader, when Usinor, Arbed, and Spains Aceraliaitself already partly controlled by Arbedannounced their decision to merge into a new steel production powerhouse with a total production capacity of 46 million tons and estimated revenues expected to top EUR 30 billion. Although the merger faced review by the European mergers and monopolies commission, it was expected to be finalized by the end of the year, at which time the newly formed group, which was to transfer its headquarters to Luxembourg, was expected to adopt a new name to bring Usinor into the new century.

Principal Subsidiaries

Sollac (99.9%) ; Forges et Aciéries de Dilling (Germany; 95.1%) ; GTS Industries; Europipe (Germany; 50%) ; Unimétal; Ascométal; Saarstahl AG (Germany; 70%) ; Ugine SA (96%) ; Ugine-Savoie; Imphy; CLI (Creusot-Loire Industrie) ; Forcast International (66%) ; Fortech (66.1%), GPRI (55.4%) ; Tubeurop Tréfilunion; Techno Saarstahl; Nozal (65.7%) ; IMS (58.7%) ; Saarlux Beteiligung (Germany) ; Valor; Daval; Edgcomb.

Principal Competitors

Acerinox, S.A.; AK Steel Holding Corporation; Allegheny Technologies Incorporated; Shanghai Baosteel Group Corporation; Corus Group plc; Gerdau S.A; Kawasaki Steel Corporation; Nippon Steel Corporation; Outokumpu Oyj; Pohang Iron & Steel Co., Ltd.; Sumitomo Metal Industries, Ltd.; Thyssen Krupp AG; Toyota Tsusho Corporation; USX-U.S. Steel Group.

Further Reading

Marsh, Peter, Arbed and Usinor Forge a Global Tie-Up, Financial Times, February 19, 2001.

, Compelling Logic of a Steel Link-Up, Financial Times, June 13, 2000.

Ratner, Juliana, Usinor Steels Itself for Number-One Slot, Financial Times, February 17, 2001.

Usinor Poised to Reveal Revamp, Financial Times, January 27, 1999.

update: M.L. Cohen

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