Mittal steeled for another foray on
Arcelor By Siddharth Srivastava
NEW DELHI - The last has not been heard of
this saga, but the plan of India-born steel
billionaire Lakshmi N Mittal to pull off the
biggest merger deal in the history of the steel
industry has been scuttled for now.
This week Luxembourg-based giant
Arcelor SA rejected a US$22 billion hostile
takeover by Mittal Steel, the world's largest
steel producer, saying that it would hurt the
company, shareholders and customers of Arcelor,
which is the second-largest global steel company.
"The board has swiftly concluded that
Arcelor and Mittal Steel do not share the same
strategic vision, business model and values,''
Arcelor said in a statement
issued after the board meeting in Luxembourg.
Arcelor asked shareholders not to tender their
shares in the offer. Arcelor chief executive Guy
Dolle warned in a newspaper interview that the
takeover would have "dramatic consequences for
shareholders and especially for workers".
The combination of Mittal Steel and
Arcelor would have given London-based Mittal a
hold on more than 10% of the global steel market,
with annual revenues of about $70 billion
and an output of 100 million tons of steel, three
times that of the biggest rivals together,
Nippon Steel and JFE of Japan and South Korea's
Posco.
The bid was a result
of Mittal Steel's quest to strengthen the
global steel industry against the vicious boom-and-bust cycles
that in turn affect commodities. Mittal's aim is
to be able to compete and control prices better
with demand for steel likely to be driven by India
and China over the next decade.
Mittal has
said the merger would also allow him to expand in
China, the world's largest steel market, even as
he expects more combinations between steelmakers
in order to cut costs and enhance bargaining power
with customers and iron-ore and coal suppliers.
The battle lines were clearly drawn when
Mittal met with French Finance Minister Thierry Breton
on Monday and allayed fears that the bid would
lead to job cuts, a point he reiterated later at a
widely televised press conference.
Indeed,
going by the reputation of Mittal, he meant what
he said. Mittal has been labeled as a "turnaround
specialist" who has built his empire by buying
decrepit steel mills in remote parts of the world
and turning them into winners. This is quite
different from Arcelor, a top-down construction
formed by merging and restructuring previously
state-owned French, Spanish and other European
steel companies.
In the 1970s, Mittal's
father, Mohan Lal, who ran small rolling mills in
Howrah, West Bengal, became frustrated with state
controls that barred private investment in large
steel projects. Mittal senior went to Indonesia,
where he set up his first steel venture with an
investment of $15 million.
In 1994, when
liberalization and a projected steel shortage led
Mohan Lal to shift his focus back to India, son
Lakshmi took over the overseas businesses. He
expanded his father's acquisitions dramatically,
with purchases in the West Indies, Mexico, Canada,
Germany, Eastern Europe and Ireland, and
remarkably now controls steel production of about
double India's total.
The pace
of expansion accelerated dramatically in the
past decade. In 1994, the capacity of Mittal's
steel mills was only 5 million tons, but is now
70 million tons. The steel-industry crisis of
2001-04, caused by a global economic slowdown,
became a huge opportunity for Mittal, who bought
ailing plants in Romania, Algeria, South Africa,
the Czech Republic and Poland at virtually
throwaway prices and turned them around. The rest
is history.
In 2004, Mittal
became the world's largest steelmaker,
overtaking Arcelor with the acquisition of American Wilbur
Ross's International Steel Group (ISG), which enabled
the Mittal Steel Co to straddle four
continents and 14 countries with sales of more than $30 billion
this year. Its shares are listed on the New York
and Amsterdam stock exchanges.
Analysts said Mittal's move to acquire ISG and
restructure his own assets enabled him to win a
crucial "virility'' test. In the past, Mittal has
been in the news for buying Kensington Place in
London, the former residence of Formula 1 magnate
Bernie Ecclestone, for $105 million, and spending
$50 million on the wedding of his daughter
(including a reported $3.2 million for 5,000
bottles of Mouton Rothschild and $567,000 for a
half-hour performance by Kylie Minogue). He is the
richest Indian in the world, the most affluent person in
Britain and No 3 globally, according to Forbes,
behind only Bill Gates and Warren Buffett.
All of this, however, did not mean
success with the Arcelor bid, which reportedly caught
the company's board and the French government
off guard. After the meeting with Mittal, Breton
said the proposed merger "lacked evidence of
industrial logic" and that "cultural and
employment issues were central".
Breton
said that so far Mittal Steel had not put forward
an industrial plan and while the "steel group was
free to pursue its bid, at some stage it would
have to discuss concrete projects". He said "there
was no information ... That the cultures of the
two groups could function and live together" and
no "analysis to know if the group that could
result from the operation would have [a]
compatible governance system".
There is no
doubt that the management styles differ, but the
question that is being asked is whether the rebuff
to Mittal has been due to business logic, or
political matters rooted in nationalism.
In a sharp comment, The Times of London
said, "Having hinted heavily that Mr Mittal should
first have sought Arcelor's hand in marriage, even
though France has no stakeholding in the company,
the minister headed into a meeting with Mr Mittal
saying that he would tell him to 'look carefully'
at last year's abortive bid by CNOOC, the
state-backed Chinese oil company, to secure
ownership of the US-based oil corporation Unocal.
"The response to that bid was full of
noxious nationalism and very light on logic. Mr
Mittal's bid, one of the most tangible signs yet
that globalization works in all directions at
once, should be judged not on the nationality of
the bidder but on the worth of the bid. India is
no longer the permit-ridden economic laggard that,
for many decades, it was. The country is growing
at rates that are already not far off those of
China."
However, the last has not
been heard yet of Mittal-Arcelor. Mittal has lined
up meetings with Luxembourg Prime Minister
Jean-Claude Juncker and Belgian Prime Minister Guy
Verhofstadt and is expected to fly to Spain as
well. While the European labor unions seem to be
preparing for a showdown, The Times of India
quotes sources linked to Mittal as saying:
"Ultimately, it is the [Arcelor] shareholders who
have to vote and Mittal Steel is confident it has
made a strong and fair bid for Arcelor and the
shareholders will see a merger is a good business
fit."
Siddharth Srivastava is a
New Delhi-based journalist.
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2006 Asia Times Online Ltd. All rights reserved.
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