Ugine S.A.

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Ugine S.A.

Immeuble Pacific
13, cours Valmy
92070 La Défense 7 Cedex
France
(33) 01 41 25 60 20
Fax: (33) 01 41 25 60 07
Web site: http://www.ugine.fr

Wholly Owned Subsidiary of Usinor S.A.
Incorporated: 1985
Employees: 12,055
Sales: FFr 16.33 billion (1996)
SICs: 331 Basic Steel Products; 3312 Blast Furnaces and Steel Mills

Ugine S.A. is the stainless steel and special alloys division of French steel giant Usinor S.A. (formerly Usinor-Sacilor) and is one of the world’s leading producers of specialty steels. Major manufacturing subsidiaries grouped under the Ugine branch and owned wholly or in part by the company include Ugine, Ugine-Savoie, and Imphy S.A., in France (all 100 percent owned); J&L, in the United States (53.6 percent); and Thainox, in Thailand (28 percent).

Ugine operates 31 manufacturing plants through 13 industrial subsidiaries in France, elsewhere in Europe, in the United States, and in Asia. The company also operates four research facilities in France: at Ugine, in the Savoie, concentrated on stainless steel; at Guegnon (stainless steel); at Isbergues (stainless steel and electrical steel); and at Imphy (stainless steel and special alloys). In addition to its production and research facilities, the company operates a worldwide network of sales, trading, and finishing units through nearly 30 marketing subsidiaries. In 1996, the company’s payroll topped 12,000 employees. Ugine’s FFr 16 billion in sales for that year represented nearly one-quarter of parent company Usinor’s total sales.

Ugine’s manufacturing concentration is on stainless steels— alloys of iron and chromium, with a chromium content of at least 10.5 percent. The chromium reacts with air and water during the manufacturing process, creating a thin layer of chromium oxide that acts as a protective film. This film provides resistance to rust and corrosion, and protection against other environmental exposures. The addition of other substances, such as nickel or molybdenum, provide additional resistant and protective properties, such as retaining form at extremely high temperatures, or maintaining ductility at extremely low temperatures. Ugine’s stainless steel production falls into five major product categories: stainless steel flat products; stainless steel long products; special alloys; electrical steel; and welded stainless steel and carbon steel tubes.

Produced by Ugine in France, J&L in the United States, and Thainox in Thailand, each of which concentrates on a specific range of stainless steel grades, Ugine’s stainless steel flat products include martenistic steels, which have high carbon and chromium content, but which contain no nickel. These steels are chiefly used for silverware and other cutlery products. The company’s ferritic steels, which have a low carbon content and contain no nickel, are used for such diverse products as household appliances, automobile parts, heat exchangers, containers, and decorative trim products. The third type of stainless steel flat product produced by Ugine and its subsidiaries are its iron-rich austenitic steels, which contain nickel in addition to chromium and are used in the food, chemicals, nuclear power, and construction industries, as well as for sinks and cooking utensils. In addition, the company produces super ferritic, super-astenitic, and austeno-ferritic duplex or hardened steels. Ugine is the world’s second-largest producer of stainless steel flat products. Sales of flat products represented 64 percent of Ugine’s total sales in 1996.

Ugine is the world leader in stainless steel long products manufacturing. These are stainless steel grades formed into bars, wire rods, and billets, and which are further processed by Ugine customers into a wide range of products, including valves, faucets, pumps, tubes, turbine and reactor components, and fittings for ship superstructures. Long products produced 21 percent of Ugine’s sales in 1996.

Through its Imphy S.A. subsidiary, Ugine is also a world leader in special alloy production. These alloys, which include such metals as nickel, molybdenum, chromium, cobalt, and others, are used for high-tech applications in the electronics, aerospace, telecommunications, and data processing industries. The company produces special alloys in various forms, such as wire, thin strips, and forged segments. Special alloys contribute more than 8.5 percent of Ugine’s annual sales.

Ugine is also a leading European producer of electrical steels—which feature high magnetic properties and are used especially for the production of electrical transformers—for Usinor Aciers Electriques. Electrical steels formed more than six percent of Ugine’s 1996 sales. The company’s La Meusienne subsidiary also produces welded stainless steel and carbon steel tubes, put to a variety of uses, including automotive exhaust fittings, store and showroom fixtures, furniture, medical equipment, and in the construction, food, railroad, and chemicals industries.

Forged in the 1980s

With roots stretching back to the mid-19th century, Ugine, in one form or another, held a central place in France’s steel industry, centered in the Savoy region. During the early part of the 20th century, Ugine combined with Kuhlmann, to form the chemicals and steel alloys concern Ugine-Kuhlmann. But the company’s modern form began to take shape especially during the French government’s industrial interventionist drives in the late 1960s and 1970s, leading toward the French Socialist government’s nationalization policies of the early 1980s.

In the late 1960s, the French government, then led by Georges Pompidou, sought to boost the country’s relatively small and disparate chemicals industry, encouraging the consolidation of France’s smaller chemicals concerns. This process began in 1968 as Rhóne-Poulenc, at the time a medium-size company focused on textiles and fine chemicals, rebuilt itself into one of the ten largest chemicals companies in the world. The same year saw the formation of another French chemicals giant, CdF Chimie, followed by the ATO Chimie joint plastics venture by oil companies Elf and Total. Ugine-Kuhlmann soon joined the government-inspired consolidation drive, when it was merged into Pechiney S.A., then Europe’s leading aluminum producer, which itself had been founded in 1855, and which operated extensive mining activities both in France and around the world. The new company, called Pechiney Ugine Kuhlmann (PUK), became France’s largest private company, employing some 104,000 workers worldwide, and posting US$4.7 billion in sales by 1974. In 1972, the chemicals operations of Ugine-Kuhlmann were reformed into a new division, called Produits Chimiques Ugine-Kuhlman (PCUK). By the mid-1970s, PCUK joined Rhóne-Poulenc, ATO Chimie, CdF Chimie, and L’Air Liquide in France’s top five chemicals producers. Ugine-Kuhlmann’s specialty steels activities were reformed as a separate division of PUK as well, operating as Ugine Aciers, and completing PUK’s production range in aluminum, chemicals, nuclear fuels, and specialty steels.

The PUK merger, however, quickly proved ill-inspired and ill-timed. The oil crisis of 1973 led to a worldwide economic slump, cutting into PUK’s aluminum, chemicals, and steel activities. By 1975, PUK saw its sales shrink back to US$3.9 billion, and posted a loss of as much as US$144 million. While the company’s aluminum arm recovered in the second half of the decade, its specialty steels division continued to struggle, as did PCUK, which, together with much of the French chemicals industry, found itself burdened by over-capacity, France’s low level of domestic natural resources, and an underdeveloped investment program. Both PCUK and the Ugine Aciers specialty steels division would continue to drag on PUK’s profits, with both divisions posting heavy losses through the end of the 1970s. Only PUK’s U.S. aluminum operations, which included Howmet Corp. and its subsidiaries, and Intsel Corp., a metals trading and marketing arm set up by Pechiney in the 1920s, enabled PUK to eke return to profitability, accounting for some 98 percent of the company’s 1978 net income of FFr 261 million (US$64 million), on sales of more than US$6 billion. In that year, the specialty steels division alone posted a loss of nearly FFr 524 million. By the late 1970s, the French government again began encouraging a reshuffling of the country’s chemicals and steel industries. PUK began restructuring its chemicals and aluminum operations, selling off a number of its smaller divisions, and cutting back on its workforce. Meanwhile, it began eyeing exiting the specialty steels business altogether.

PUK’s restructuring efforts became more urgent as the next decade began. Struggling with building losses in its aluminum division, as this industry began feeling the effects of a new worldwide recession, PUK faced a threat of a different sort: the French national elections of 1981. Led by Francois Mitterand, the Socialist Party had, since the early 1970s, made no secret of its desire to nationalize many of France’s largest financial and industrial companies—with PUK featuring prominently on the list of proposed companies. The nationalization drive was inspired in part by a desire to boost employment levels—a mood which would restrict PUK’s and other companies’ flexibility in their restructuring and international expansion efforts. As the May 1981 election loomed, PUK began making plans to dissolve its already pared-down chemicals operations, which had managed to post profits in 1979, but had again slipped into the red by 1980. At the same time, the company had been working on finalizing the sale of Ugine Aciers to Sacilor S.A., then France’s second-largest steelmaker and itself a primary target for nationalization.

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The agreement to sell Ugine Aciers, which had been in the works since the late 1970s, nearly floundered by 1981, as the steel division, which had lost some FFr 855 million over the previous three years, was heading for fresh losses. By the end of 1981, the steels division accounted for much of PUK’s total losses of FFr 1.75 billion on that year’s revenues of FFr 41 billion. After continued government prodding—including the promise of financial support to absorb the costs of the acquisition—Sacilor agreed to take over Ugine Aciers. The move completed the consolidation of the French steel industry into just two companies: Sacilor and Usinor. In the late 1980s, these two companies themselves merged, forming Usinor-Sacilor. PCUK, meanwhile, was dissolved in 1983, when its assets and operations were divided up among Rhone-Poulenc, EdF Chimie, and Entreprise Miniere et Chimique (EMC).

Ugine Aciers now operated as a separate division of Usinor-Sacilor. In 1984, Ugine was combined with another Sacilor specialty steel subsidiary—and a longtime partner with Ugine—Forges de Guegnon. The new subsidiary, called Ugine-Guegnon, was placed on the Paris stock exchange, selling 47 percent of the company to private investors. Sacilor, through Ugine Aciers, retained 53 percent of the company. The combined company, which focused on the specialty 430 steel grades, boasted an annual production of some 200,000 tons. In 1985, Sacilor set up a new company, Ugine S.A., to combine all of its specialty steel subsidiaries into one centralized operation.

A Specialty Steel Leader for the 1990s

By then, the French nationalization drive had all but run out of steam, leading to a new period of “de-nationalization,” which would continue into the mid-1990s. In the meantime, by the mid-1980s, and after a cost of some FFr 50 billion buying up 12 of the country’s largest corporations—including Rhóne-Poulenc, Saint Gobain, Usinor, Sacilor, PUK, Thomson-CSF, Dassault, Matra, Roussel Uclaf, and Cie Honeywell Bull—the government-owned sector’s losses had only continued to grow—from FFr 1.9 billion in 1980 to FFr 39 billion in 1982 and FFr 36 billion in 1984. Chief among the state-owned sector’s loss makers were its steel giants, Usinor and Sacilor, which were combined soon after to form Usinor-Sacilor.

By the beginning of the 1990s, the steel industry in general, and Usinor-Sacilor in particular, had recovered strongly from its mid-1980s slump. Led by Francis Mer, who would be given a larger share of the credit for Usinor-Sacilor’s recovery, the parent company had also been engaged on a series of takeovers and cooperation agreements within the European steel industry, enhancing its value-added product lines, such as the specialty steels produced by Ugine. In 1990, Ugine received a fresh boost when Usinor-Sacilor announced the friendly takeover of Pittsburgh’s Jones & Laughlin (J&L), then the second-largest stainless steel producer in the United States. Grouped under Ugine, J&L boosted the company’s share of the stainless steel market to 15 percent, making it the world leader by a wide margin. The takeover agreement, with a purchase price of some US$400 million, also made Ugine the largest U.S. producer of stainless steels, with annual sales of some $2.5 billion.

In March 1990, Ugine added the grained electromagnetic sheet division of Belgium’s Cockerill Sambre S.A., raising its output in that product to 140,000 tons per year. In November 1990, Ugine made a move to increasing its Far Eastern presence when it entered discussions to build a $200 million stainless steel sheet mill in Thailand. That agreement would lead to the formation of Thainox Steel Co., based in Bangkok. Ugine’s participation in the venture, originally slated at 51 percent, would eventually be reduced to a 28 percent holding.

The J&L merger, which added complementary stainless steel grades to Ugine’s line, proved successful enough that Usinor-Sacilor could use its U.S. arm as an investment vehicle (French government-owned companies were not allow to raise capital by selling shares in the parent company). In December 1993, Usinor-Sacilor, through S&L, sold 42 percent of Ugine, taking the subsidiary public by listing J&L on the New York Stock Exchange. By the end of the following year, Ugine’s total sales had risen past FFr 19.9 billion.

Just 18 months after selling shares in its stainless steel subsidiary—and only two months after its own “de-nationalization”—Usinor-Sacilor announced its intention to buy back complete control of the subsidiary, for a purchase price of some FFr 3.7 billion in September 1995. Two months after completing the stock purchase, Usinor-Sacilor merged Ugine into Usinor, restructuring Ugine as the stainless steel division of the parent company. Usinor-Sacilor itself changed its name to simply Usinor in 1997. Meanwhile, Ugine began expanding its Asian presence, planning a stainless steel sheet plant in China, and beginning construction on a US$765 million steel plant in New Delhi, India, in a joint venture, to be called Jindal Uginox Ltd., with that country’s Jindal Strips Ltd.

Principal Subsidiaries

Ugine; J&L (U.S.A.; 56.3%); Thainox (Thailand; 28%); Ugine-Savoie; Imphy S.A.; La Meusienne (99.91%); Mecachim; Sacem; IST (U.S.A.); Trafilierie Bedini (Italy); Sprint Metal (France and Germany); Techalloy (U.S.A.); Mecagis; Hood-Rahns (U.S.A.).