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 Â“national champions,Â” 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 Â– thatÂ’s what companies threatened by hostile takeovers do, especially when it becomes clear that their management donÂ’t enter into the buyerÂ’s plans for the future. But with investment analysts lining up in favor of the Mittal bid, thereÂ’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.