Mittal grimly hangs on in Arcelor
bid By Siddharth Srivastava
NEW DELHI - In January, Arcelor SA
rejected a US$22 billion hostile and unsolicited
bid by Mittal Steel, instigating a ferocious
controversy involving every hot-button topic from
patriotism and nationalism to accusations of
racism. The flap has been characterized as a
question of free competition versus protectionism
and even as a clash of cultures, civilizations and
continents.
After several weeks of
often-vitriolic media warfare and backroom
maneuvering, the world's two biggest steelmakers
are not done
yet,
and the saga is far from over. While Mittal's bid
is still "live" and its hopes are still intact,
Arcelor is doing its best to fight off the bid.
If Mittal were to take over Arcelor, the
deal would create a giant that would produce three
and a half times as much steel as its closest
rival. Mittal-Arcelor would control more than 10%
of the world's steel production (more than 100
million tonnes and $70 billion in annual sales),
with 320,000 workers in four continents, 32,000 of
whom would be in France and Luxembourg. Arcelor
has a strong presence in Western Europe, while
Mittal already operates in 16 countries in Eastern
Europe, North America, Africa and Asia. The merger
would thus give the combine a much larger
geographical presence.
While Mittal has
been under fierce attack from France, Luxembourg,
Spain and Belgium, India and the European Union
have criticized politicians for trying to prevent
the takeover, arguing that shareholders should be
the final arbiters. In his latest diatribe,
Arcelor chief executive Guy Dolle was quoted by
London's Daily Telegraph newspaper as saying that
Mittal is trying to inflame political opinion
against Arcelor. But Dolle's statements followed
reports that Arcelor managers would be willing to
discuss the proposed takeover with Mittal
executives.
Mittal's camp, for its part,
has blamed the protectionist rhetoric from
politicians who have talked about free competition
being compromised, exhorted trade unions against
job losses and spoken about cultural
incompatibilities regarding Dolle, who was accused
of referring to Mittal as a "moneyed monkey".
Employment is a sensitive subject because the
global steel workforce has declined by 30% every
10 years since the 1970s, with opponents of Mittal
saying that the company would lay off 45,000
workers in Europe.
This week MEPS, a
leading global steel consulting company based in
the United Kingdom, said the proposed merger would
not "seriously" affect steel prices.
"MEPS
analysis shows that the combined company would
gain very little additional market power," it said
in a news release. "This is partly because the two
businesses are largely complementary in terms of
geography and product. Arcelor's operations have
little overlap with Mittal's. In most of the
markets they serve, there are plenty of
alternative suppliers."
Also this week,
billionaire financier and Mittal board member
Wilbur Ross said the takeover would not only
benefit stakeholders, but also prompt higher
investment ratings for the industry. "The market
has already intimated that if the Mittal-Arcelor
merger goes through then there will be a re-rating
of the stock; indeed, some analysts' target prices
have already increased by 50%," Ross was quoted as
saying by the Reuters news agency.
"A
combination of Mittal and Arcelor would take
consolidation to a new level and bring about
further considerable benefits to all
stakeholders," he said.
Ross sold
International Steel Group (ISG), a collection of
several steelmakers, to Rotterdam-based Mittal for
$4.5 billion last year. According to Ross, new
demand will arise from developing countries and
"combining with Mittal will accomplish Arcelor's
stated plan in the most efficient way,
simultaneously creating a much stronger, more
balanced company that should act as the catalyst
for a revised rating of the sector".
Both
sides are bracing for the battle ahead. Arcelor,
which reportedly plans to cross the
100-million-tonne annual-sales mark individually
in the next five years, has announced a strategic
plan to prevent the merger by promising stronger
returns to shareholders. Arcelor has said it plans
to increase profit by at least 24% over the next
three years, with a share price target of $43 as
against the Mittal offer of $28.
While
Dolle has almost doubled the company's dividend,
last month Arcelor bought Canada's Dofasco for
$4.8 billion, providing it a 10% slice of the
North American market supplying steel to auto
makers such as Ford and Toyota. Arcelor has also
said it may expand in Latin America and Central
and Eastern Europe.
Arcelor chief
financial officer Gonzalo Urquijo said the company
may consider selling off its stainless-steel
operations in an attempt to maximize benefit to
shareholders from cost cuts made due to economies
from recent acquisitions and job cuts. Job losses
would be dealt with "in a social and responsible
way".
Mittal Steel, on the other hand, has
prepared a bulky 100-page "industrial plan" for
the Arcelor bid, which will be submitted to
concerned European governments next week. It will
detail investment, growth prospects, status of
staff and facilities, integration plans and the
strategic rationale for the takeover. French
Finance Minister Thierry Breton has, however,
already said that the outlines of Mittal Steel's
industrial project, which arrived as a six-page
fax, is too "thin". Breton has asked for more
details.
One of the strong arguments being
propounded by Mittal is that future production is
going to move east, with the largest demand for
steel coming from countries such as India. In such
a scenario, consolidation is a must. In a "charm
offensive" to win over shareholders, CEO Laxmi
Mittal has noted that Arcelor's share price rose
6% on January 27 when the takeover bid was
announced. By February 14, it was 11% higher and,
at 30.12 euros ($36.20), was 36% higher than the
all-time high of 22.22 euros last year.
Mittal Steel president and finance
director Aditya Mittal has said: "There has been a
reduction in the negative reaction, as the
governments [begin to] understand the logic and
the rationale of our bid. Sometimes it takes time
for people to realize that an idea is good."
The Indian media as well as Commerce
Minister Kamal Nath have been backing Mittal.
The Economic Times commented: "Western
countries, which have been advocating integration
of global economies and markets, seem to have
taken a step backwards when it comes to their own
companies being taken over. The recent takeover of
Britain's P&O Ports by Arab company DP World
has run into problems in the US due to security
concerns. Last year, the US government finally
gave domestic oil and gas major Chevron its
approval to buy Unocal, despite its bid being way
below that of Chinese oil and gas major China
National Offshore Oil Corp (CNOOC).
"This
is just the beginning of a new trend. With India
and China looking for more global takeovers, they
could face more such opposition in the future."
To conclude, it would seem that the best
bet for the long-term interests of the steel
industry, shareholders and workers would be for
the respective stakeholders in the two steel
companies to decide what is the best course.
Politicians, including Indian ones, should keep
out of it. Both Mittal and Arcelor are perfectly
capable of fending for themselves.
Siddharth Srivastava is a New
Delhi-based journalist.
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2006 Asia Times Online Ltd. All rights reserved.
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