FROM BUSINESS WORLD OF 26 JUNE 2006
An Indian abducts a Martian
When Lakshmi Mittal made a hostile bid for Arcelor in
January, he made powerful enemies. The foremost was Guy Dollé, Arcelor’s patron
– to use the French term – the man who joined Usinor of France in 1980 and orchestrated
its merger in 2002 with Aceralia of
Spain and Arbed of Luxembourg to create the world’s biggest steel producer.
According to him, Mittal Steel and Arcelor belonged to different planets: he
did not have a son on Arcelor’s board. Arcelor made perfume while Mittal made
eau de cologne. Mittal wanted to pay for Arcelor in monkey money – Dollé’s term
for shares of Mittal Steel. Behind Dollé were ranged Thierry Breton and Jeannot
Krecké, the economic ministers of France and Luxembourg respectively, who announced
their intention to change laws to stop Mittal. Behind Mittal stood Kamal Nath,
India’s commerce minister, who appeared neither to have any business to
interfere nor any fire power to contribute. Initially at any rate, Dollé seemed
set to win the game, set and match.
In the sequel, Dollé is about the only one who lost out;
in the dispensation that emerges, he and his board of directors have been
booted out. Why did he suffer such a comprehensive defeat? It was because his
counter-move misfired. He worked out a deal which would have given Alexei
Mordashov 32 per cent of Arcelor’s equity, rising later to 38 per cent. In
theory, this would have been in exchange for the equity of Severstal,
Mordashov’s Russian steel company, which had assets of €13 billion on its
books. But his accounts were suspect; outsiders put the value closer to €10
billion. Mordashov did not want to pay any cash. So to oblige him, Arcelor was
to reduce its share capital through a share buy-back, financed by a bank loan
of €4.8 billion. If Mittal’s was monkey money, Mordashov’s was donkey money.
And for it he would have got two of the four seats on a proposed steering
committee, and thereby a veto on all Arcelor’s decisions.
Why did Dollé choose such an unattractive bridegroom? The
only explanation that makes sense is that after the merger, the resulting
company would have been so offputting that Mittal would have lost interest in
it. The only problem with such a strategy was that the proposed merger was
anathema not only to Mittal but to Arcelor’s best friends. Luxembourg was loth
to hand over control over its crown jewel to a Russian wheeler dealer. The
Walloon government in Belgium, which held some shares in Arcelor, veered over
to the view that Mittal was the lesser evil. Mittal’s offer had been vigorously
opposed by ABVV, the Arcelor trade union. But Herwig Jorissen, its chief, had
horrifying reports from steelworkers in Severstal. He thought a takeover by
Mordashov would be a disaster. One by one, all Dollé’s allies abandoned him and
jumped on the Mittal bandwagon.
Not that Mittal justed waited for them to jump. He mounted
a strident campaign against the merger of Arcelor with Severstal. He approached
all the major shareholders. He took out full-page advertisements in major
newspapers; he printed the Arcelor proxy form in them, and asked shareholders
to cut it out and send it to Arcelor rejecting the merger. And in negotiations
with Arcelor, he raised his offer to € 40.37 a share. Initially he had made an
offer which was 26 per cent above market price. He later improved that offer by
34 per cent; in other words, he is now offering a 70 per cent premium on the
mid-January price of Arcelor shares. Earlier he wanted a majority in the merged
company; now he is reported to be ready to take 43 per cent. Mittal Steel is
essentially a family company; Arcelor Mittal will have a majority of
independent directors. The exact figures may be somewhat different in the deal
that emerges; but to acquire Arcelor, Mittal has given up the core values of
his company – those that the Europeans considered peculiarly Indian and
unacceptable.
Why did he pay such a high price? For the monopoly power.
He has himself said that he wanted to consolidate the steel industry. The world
has few substantial sources of coal and iron ore, and the companies that
control them squeeze steel companies. Mittal wants to equalize his bargaining
power with the coal and ore companies. And steel is a bulky product; a large
company has control over local markets. These gains in market power will make
the high price of Arcelor worth while.
