Mittal pushes takeover despite
opposition By Michael Piskur
Editor's note: Authorities in
Luxembourg, where Arcelor SA is based, have denied
that a takeover law to be enacted next month is in
any way aimed at halting Mittal Steel's bid for
Arcelor: "The government will have no role in
impeding the bid. We intend to bring the
[takeover] bill in May to put in the best
international practices [to] our economy." Mittal
head Lakshmi Mittal had said in mid-March that he
was "really worried" about what appeared to
be a legal attempt to
block the deal. The following article is an
analytic overview of the Mittal-Arcelor saga. -
ATol
Mittal Steel, the world's largest
steel producer, put forth a hostile bid on January
27 to purchase the second-largest steel firm,
Arcelor SA, for US$22.4 billion. If the deal
succeeds, the resulting enterprise would account
for about $70 billion in sales and 10% of world
steel production, nearly quadruple that of the
closest competitor, Japan's Nippon Steel Corp, and
would employ 320,000 workers on four continents.
Luxembourg holds a 5.6% share in Arcelor,
which is a major employer in France and Spain.
Conversely, Mittal is based in Rotterdam, operated
in London and largely owned by the family of
Indian-born tycoon Lakshmi Mittal. As such, both
Paris and Arcelor chief executive officer Guy
Dolle suggested that Mittal Steel is "too
foreign".
Arcelor shareholders have called
on Lakshmi Mittal to surrender two votes for each
share he will own. According to the January 27
offer, Mittal's family will control 50.7% of the
merged company and possess nearly two-thirds of
the voting rights. However, Mittal has offered to
operate the firm out of Luxembourg and pledged not
to cut jobs at Arcelor "as a result of this
merger". Mittal filed registration documents for
the takeover with the Luxembourg Securities and
Exchange Commission on March 23.
Mittal
Steel came about through the consolidation of the
industry, beginning when Ispat International NV
acquired LNM Holdings NV and merged with
International Steel Group Inc. It comprises
acquisitions in Mexico, Canada, Germany,
Kazakhstan and Ukraine. Arcelor was created when
Spain's Aceralia, Luxembourg's Arbed and France's
Usinor merged; Arcelor sought to purchase US Steel
prior to Mittal's takeover bid.
European opposition to the
takeover Dolle has made every effort to
block the Mittal takeover, including appeals to
major investors and ordinary shareholders. When
the bid was first announced, Dolle proclaimed that
Mittal's takeover would result in "a massive
destruction" of value for the stockholders and
present "a threat" to workers in Europe. He has
also stressed the distinction in quality of
product, comparing Arcelor's steel to high-quality
perfume and Mittal's to lower-grade eau de
cologne.
Luxembourg went about drafting
legislation to block the takeover. Prime Minister
Jean-Claude Juncker originally suggested that the
new rules would require takeovers to be paid in
cash unless 25% of the bidder's shares are liquid;
with roughly half that amount, Mittal would be
prohibited. However, the legislation that
Luxembourg's Finance Ministry put forward is less
restrictive. The change would prevent a bidder
from resubmitting a hostile bid for 12 months,
which could allow Arcelor to fend off the takeover
by issuing more shares, and thereby compelling
Mittal to resubmit its offer.
In recent
weeks, Luxembourg sent a delegation to New Delhi
to persuade the Indian government not to support
Mittal, despite the fact that India has previously
stated that European opposition to the deal
violates World Trade Organization norms. Yet
Juncker has retreated from his protectionist
position by stating that the government would not
take steps to block the deal and leave the
decision to shareholders, stating, "Legal
prohibiting is not the Luxembourg way."
After Mittal announced its bid, France
passed measures that would allow companies to
thwart takeovers by employing a poison-pill
defense, which allows shareholders to purchase
newly issued stock, thereby reducing share value.
Mittal said use of a poison pill would be "so much
against the interest of shareholders that it would
be unwise to do it".
In addition to
European resistance to the deal, other offers have
been put forth to foil Mittal's aims. Most
notably, Nippon Steel and Arcelor have discussed a
merger that would kill Mittal's takeover bid and
thus create a new major player in the industry.
Also of interest, both Arcelor and Mittal are
competing to buy Brazil's Companhia Siderurgica
Nacional (CSN), which is worth a potential $10
billion.
Mittal's consolidation of
steel Lakshmi Mittal remains confident in
the deal, stating that he would own Arcelor in
"three months' time" and that "this deal is not
about power or money, it is about the
consolidation of the industry. Consolidation means
improving sustainability." He has focused on the
financial aspect of the deal, citing the fact that
Arcelor's share price has increased significantly
since the bid was announced and boosted the firm's
value by $7 billion.
Mittal continues to
criticize politicians for interfering in the
marketplace, and has declared that shareholders
ultimately should make the decision. The firm
responded to Luxembourg's attempts to block the
takeover by stating, "We believe these proposals
were exclusively intended to thwart the Mittal
Steel offer, and are against EU principles."
Mittal sees his bid as the only method by
which to create a European firm large enough to
compete with China's burgeoning steel industry.
Another key argument is that production and demand
are moving eastward, and the combination of
Arcelor's high-grade technology and Mittal's
low-cost labor will greatly enhance their ability
to compete in Asia.
"This is about two
concerns merging to become a European champion
with global aspirations, nothing more, nothing
less," he said. "I don't see anything in this that
contradicts the European spirit."
Conclusion The proposed Mittal
takeover is the latest stage of the resurgence of
economic nationalism among Western governments.
The European Commission is pushing European Union
states to drop national barriers to boost Europe's
competitiveness in the global market and has
threatened to force the opening of markets by
reprimanding countries that violate the principles
of the EU internal market.
In refusing to
abandon economic nationalism, Juncker told the EU
summit, "Sometimes governments have good
arguments."
Following in the wake of the
Unocal and Dubai Ports deals in the US and
coinciding with the contested Eon takeover of
Spain's Endesa, Italian and Belgian objection to
the Suez-Gaz de France merger, and the public
opposition to proposed French labor-law changes,
Mittal finds itself caught in the clash between
protectionism and neo-liberalism.
(China's
$18 billion bid for Unocal, the ninth-largest US
oil company, fell apart in the US Congress; Dubai
World Ports' $6.8 billion takeover of British firm
Peninsular and Oriental drew protest in the US and
ended with the United Arab Emirates company
selling the operation to a US firm.)
European states are feeling the pinch from
the rapidly expanding industries of India and
China, and are seeking to insulate themselves from
the realities of the free market. The
protectionist traditions of Luxembourg and France
stand in opposition to the neo-liberal economic
policies espoused by the European Commission and
adopted by emerging industrial countries.
As the current of consolidation moves
forward, giant firms will dominate the steel
industry for years to come. If Mittal's takeover
of Arcelor passes, look for the new firm to make
further major acquisitions, such as US Steel, in
coming months. If the bid fails, the decision will
have been made by shareholders rather than
governments, as the latter will be forced to side
with market forces.
Despite the urge to
revert to protectionist policies, the global drive
toward open markets and the emergence of new
economic powers may force the hand of hesitant
states.
Published with permission of
thePower and Interest News
Report, an analysis-based
publication that seeks to provide insight into
various conflicts, regions and points of interest
around the globe. All comments should be directed
tocontent@pinr.com
.
