A big current international business story is the attempted takeover of Arcelor, a Luxembourg-based steel manufacturer, by London-based, desi-owned Mittal Steel, the voraciously successful family business of Lakshmi Mittal. Arcelor is itself the result of a merger of European steel firms, a logical consolidation in its day since steel is a sunset industry in Western Europe and many firms enjoyed protections of state ownership or subsidies that EU rules no longer permit. However, European politicians have retained a bit of a proprietary cultural interest, as it were, in firms like Arcelor, since even without state ownership they possess a sort of vestigial patriotic value as “national champions,” and they still employ a fair number of people, if far fewer than before, in depressed industrial areas.
Well, ever since Mittal made his first overtures to Arcelor shareholders (which Manish blogged here in January), followed by a formal takeover bid once he got permission from competitive authorities, Arcelor has done everything possible to wriggle away from its suitor. Fair enough – that’s what companies threatened by hostile takeovers do, especially when it becomes clear that their management don’t enter into the buyer’s plans for the future. But with investment analysts lining up in favor of the Mittal bid, there’s also been, of course, speculation that even though Mittal is a London-based, London-quoted firm, it may just be a little too brown for the comfort of the European industrial bourgeoisie.
All this could be dismissed as reading-ethnicity-into-everything, and to some extent probably is. (Though…) Still, itÂ’s remarkable to see that this week the board of Arcelor found themselves rushing into the arms of what is known in business lingo as an, ahem, white knight, in the form of a Russian firm of the new-oligarch variety. The merger deal with Severstal is framed as a purchase by ArcelorÂ… except that it is funded by an increase in ArcelorÂ’s capital via investment by Alexei Mordachov, SeverstalÂ’s 38-year-old chairman. By funding ArcelorÂ’s purchase of his firm, Mordachov takes a 32 percent interest in the merged firm, which would become the worldÂ’s largest steel producer, ahead of Mittal.
The London business writers are having a field day with this one. “The putrid stink of hypocrisy hangs in the air,” says The Observer‘s Richard Wachman, noting that Arcelor, having criticized Mittal for non-transparency in past business dealings, has found its savior in the land where opaqueness and favoritism are essential components of business success. And The IndependentÂ’s business columnist Jeremy Warner cold lays down the card:
Is it cos I’s brown? The Arcelor board appears so appaled at the prospect of takeover by the Indian-born steel magnate, Lakshmi Mittal, that it will do almost anything to avoid his clutches – right down to surrendering control to the Kremlin. Okay, so I’m exaggerating to make the point, but only a little.
If yesterday’s takeover of the Russian steel maker, Severstal, goes ahead, its controlling shareholder, Alexey “the tank” Mordashov, ends up with a 32 per cent stake in the combined operation, rising to nearly 40 per cent after the promised €5bn (£3.4bn) Arcelor buyback is enacted.
Despite Arcelor’s protestations that the Mittal offer is without logic, the rationale for the alternative Russian deal is almost exactly the same, combining, as it would, low cost, commodity production of steel with Arcelor’s more value-added output and access to developed markets.
In the end it probably still comes down to ArcelorÂ’s management trying to keep their jobs:
The primary difference between the two is that with Severstal, the Arcelor board remains in the driving seat, whereas with Mr Mittal, they’d be history. Yet even with Severstal, Arcelor surrenders more control than it cares to admit. All key decisions are to approved by a new “strategic committee” consisting of two representatives from Severstal and two independent directors. Mr Mordashov, a close ally of President Vladimir Putin, is in practice able to call all the shots.
Is it entirely wise for Arcelor to be jumping into bed with another 40-something Russian oligarch? You can bet your bottom dollar it wouldn’t be embracing the Russian bear with such passion but for Mr Mittal. The Arcelor board seems to think it better to sell its soul to the devil than sup with Mittal.
The über-rich Mittal, who’s been a subject of some controversy himself, comes out of this one smelling like roses:
You almost begin to feel sorry for Mr Mittal. What have these people got against him that they are willing virtually to burn the place to the ground rather than let him have the keys to the citadel? Mr Mittal’s offer is a good and credible one, though he may need to go a little bit higher still to be sure of success. Yet whatever doubts investors might have had about Mr Mittal, nothing could be worse than the collective hysteria which seems to have seized the Arcelor board. In striking this deal with Mr Mordashov, directors seem fair to have taken leave of their senses.
The story isn’t over – Mittal says he’ll pursue his bid, and there are rumblings that some Arcelor shareholders will rebel against the Severstal deal. Stay tuned for new developments as the boardroom players of “Old Europe” decide which of globalization’s new business bandwagons they will try to hitch a ride with, no doubt holding their noses all the way.
Sid, great post! The race angle would be clearer I think, if Mittal was not such a controversial figure.
I love the ali g reference.
Mittal is Indian. Not Desi Not brown Not Asian or South Asian 2nd gen…, He is an Indian Citizen, please don’t insult our national identity by narrowing in down to race or geography!
Thank you, “Indian Mutiny.” Your point has been duly noted. Now we here will continue using the terms that we want to use, and you can use the ones you like better.
Man, I love Mittal’s style. Commenting on the Arcelor situation and the “brown angle” he dismissed the notion that his being brown has anything to do with the merger, during an interview. I love that. He knows that there is definately a “brown” angle but he is dealing with the situation politically, which is smart.
The way Mittal is going about grabbing bargain steel producers all over the world, even if the Arcelor deal fails, he will become the larget Steel producer.
Lets stay on topic on this issue. and lets follow the developments. (Not get into tangential and inconsequential semantic discussions)
Siddhartha–great post. Glad you underscored the “reading-ethnicity-into-everything” bit (plus the caveat). I’m usually the first to “sepiate” everything; most times, to not do so is difficult. Having only tangentially followed the makings of empires like Mittal’s, though, I still doubt this has much to do with race. The man himself avers, so what’s the big deal?
(Dig the Randian parallels from that post, btw). Arcelor or no Arcelor–Indian/brown or not Indian/brown–Mittal’s a stone’s throw away from his shiny, steel-clad throne. Question is, will he have to budge to get there?
RC–I agree. Enough semantics. Let’s talk steel.
Great post. I’ve also blogged a followup. The Arcelor CEO’s appeal to racism has been explicit and continuous.
Seeing as the Arcelor CEO referred to Mittal’s bid as “monkey money” (ref. the Economist) would seem to confirm the race angle.
Nice Public Enemy reference, Siddhartha ! It made me laugh.
You know, I have been thinking a lot about the differences between racial integration in North America and Europe. It seems to me that people in Canada and the US have been able to keep a more broad-minded perspective which they bring to various matters of free trade and business, whereas Europe for all its “ooh look at us, we are sooo open-minded” seem to be doing less well in this regard. I guess its obvious considering immigration has only been a recent phenomenon for Europe. What y’all think. Any good examples of desis acquiring big-ass businesses without all this drama and hai-toba?
Not sure I fully agree. Remember a certain proposed big-ass business deal in North America with Arabs that caused a lot of ‘hai-toba’ a few weeks ago?
This is the article referred to by Raji Rao. It mentions Mittal Steel, an empire spanning five continents, was a “company of Indians,” Dollé said, and a “group of less-than-average” businesses that would pay for Arcelor “in monkey money”
Here’s the interesting part :
I am an indian, not desi, not abcd or whatever,and working in India and I would not want Mittal to take over my company. Mittal’s modus operendi is fairly simple-he takes over underperforming mills, sacks a whole lot of pple, replaces them with Indian managers-who get paid less money- and turns them around.So perhaps Arcelor is justified in resisting Mittal ,not because he is brown but he is a Lala at heart..who runs his company as a family run business where his beta, daamaad and beti parachute into management positions….
as far as I know, Mittal is very ruthless as a ‘ruler’. Nino is correct.
mango lassi – here you go – some names to look into via UB
Nino:
Mittal pays market rates and his children are qualified.
JC So am I dude, I am more “qualified”-whatever that means-then his kids.He is not exactly running around making me a job offer.All I am trying to say is Mittal is the latest in a long tradition of Indian lala businessmen from the Birlas to the Singhanias and the Modis .Some of them are successfull, some are not….and have run the business into the ground
Thats the way the world works Nino…”I am an indian, not desi, not abcd or whatever,and working in India and I would not want Mittal to take over my company. Mittal’s modus operendi is fairly simple-he takes over underperforming mills, sacks a whole lot of pple, replaces them with Indian managers-who get paid less money- and turns them around.So perhaps Arcelor is justified in resisting Mittal ,not because he is brown but he is a Lala at heart..who runs his company as a family run business where his beta, daamaad and beti parachute into management positions….”
Be happy indians are at least getting to become managers.. otherwise they would just be the low paid workers working for these europeans and americans.
I guess its time we indians learnt to support indians…And realise that every one in society cannot be the leader…..
The French are first rate racist scums and Dolle proves he is one of them. Americans, I should say are the most broad minded and respect talent for that matter.
The comments made by Dolle, Kinsch and the Prime minister of Luxembourg Juncker is a direct attack on all self respecting Indians. Did anyone notice that after India refused to sign the double taxation treaty with Luxembourg, their Economy and foreign minister Kreeke rushed to India to pacify India.
What happened to Mallya when he tried to buy taittinger ? There was blog posted by an European scum, that if Mallya took over taittinger, the labels would be in Hindi !
Indians should teach France a lesson, hit them where it hurts economically, Lets buy Boeing instead of Airbus. Do not buy products from any French companies.
If memory serves, back before he became a celebrity of sorts for being the richest indian, etc Mittal tried to take over the leading American steel company. I forget its name but in that case I believe the board of directors would have been happy enough to sell out but the workers unions protested and I remember there being more than a bit of racist muttering involved. Finally Mittal had to back down and settled for second best. Race isnt a card thats only played by the evil corporate types or the evil european nationalists [that term cracks me up]. even today there are tons of people who criticize the american govt for allowing the “foreigners” to buy into american companies.
nice job on the post btw.
“Guy Dolle” is a racist bastard. I hope a bird sh*ts on his bald head! And now he is stepping down from Arcelor. What a loser!
Well hope Mittal does not forget India afterall he got support from us and that too unconditional even though he has not done much for our country and had shown very little interest apart from when holding an Indian passport.
thank you for that piece of thoughtful, considered analysis.
for all you guys who just follow mainstream journalism and “blogs”..here is some news http://www.alertnet.org/thenews/newsdesk/L04610668.htm
just another reason why he is called a “ruthless ruler” in the 21st century..he did the same in india (jharkhand)..established a sports charity just for the heck of it.. one greedy bastard..all i can say. dont care if he is indian blood or caucasian.
and if you following the steel industry, you all know what tata steel did to the town they call jamshedpur..if not read below
http://www.busrep.co.za/index.php?fArticleId=3023281&fSectionId=2510&fSetId=662
well, mittal could also do business that way but he chooses not to..but rather buys the world’s richest house..his son has the most expensive wedding ever..and appoints his son onto the board right after his education.
..here is something about tata steel’s continuing acquisition spree (in its own small way) http://in.today.reuters.com/news/newsArticle.aspx?type=businessNews&storyID=2006-10-05T150311Z_01_NOOTR_RTRJONC_0_India-270829-2.xml
hope it all goes well for tata steel..i dont give a rat’s ass bout Mittal and his greed!!!
and yeah to the author of this post..BAD title and biased. think you should do more research next time around. sorry about that comment but i guess thats the truth
Marwari’s are the most corrupt people you will find on the planet. They are the scum of the society. Anyone who think’s they are making India proud are demented.
They will lure weak minded politicians and corporate officers for their benefit at the expense of the society. Kill a fradulent Marwari and go to heaven.