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ECONOMY: Arcelor Takeover Bid Tests EU Protectionism

Paranjoy Guha Thakurta

NEW DELHI , Feb 26 2006 (IPS) - Unusually fierce resistance to the bid of India-born steel tycoon, Lakshmi Niwas Mittal, to buy out Europe’s largest steel company, Arcelor, has brought on charges of protectionism of the type heard every time somebody from the third world runs into difficulties in acquiring Western interests.

But, worse, it has also brought on charges of racism by no less a man than India’s vocal trade minister Kamal Nath.

Mittal, head of Mittal Steel, the world’s largest steel maker, will be in Paris this week to ease discomfort over his bid to take over his closest competitor. He is expected to present details of his 22.1 billion US dollar bid to French finance minister Thierry Breton, who had sought the meeting.

”From the first day we have demanded to see an industrial project and I have good news for you… I have been informed this morning that we are going to get this industrial project early next week,” the Financial Times, on Saturday, quoted Breton as saying. Breton claimed that Mittal was unable to confirm the shape of his business, fuelling speculation that the plan might not amount to much more than what is available on the website of Mittal Steel about the proposed Mittal-Arcelor merger.

In the second week of February, Nath had rushed to support Mittal when he told the same newspaper: ”This is an era of globalisation, cross-border investment and liberalisation, not one in which investors are judged by the colour of their skin in breach of national treatment rules.”

Nath even threatened retaliation saying: ”If the colour of the shareholder, the nationality of the shareholder, or the passport of the shareholder is to be looked at, then we will have to give new definitions to national treatment.”

The Indian government, he said, was very concerned at the European reaction to Mittal’s bid and said that he would raise the matter again with European Union trade commissioner Peter Mandelson, having already raised the issue with him on Feb. 1.

Nath’s reaction matched French outrage. Paris was the first to react to Mittal’s bid for Arcelor, expressing ‘deep concern’ at the ‘hostile’ takeover bid that was said to be against the interests of the French workers of Arcelor – a little under one-third of the group’s 78,000 employees in Europe are located in France.

The French reaction triggered allegations that the country was acting in a hypocritical manner, seeking to expand business opportunities for its companies in different countries while protecting its own firms from takeover attempts by international enterprises.

Many in India were unimpressed by minister Nath’s point of view. ”Why is there so much interest in Mittal’s bid? Why is it being linked to patriotism?” asked Nilotpal Basu, leader of the Communist Party of India-Marxist (CPI-M) in the Rajya Sabha, or upper house of India’s parliament.

”Kamal Nath has no legal or even moral excuse for lodging protests on behalf of Mittal,” fumed well-known economic commentator Prem Shankar Jha. ”For, while Mittal is an Indian citizen, his company is not. Mittal Steel is headquartered in Rotterdam and managed out of London. This takeover battle is, therefore, entirely a European affair,” he wrote in his column for the Indian weekly, ‘Outlook’.

Jha, however, added: ”There is sufficient tinge of racism in some of these accounts to give offence to Indians.”

Other Indians were not particularly sympathetic towards Mittal, who has been in the news in this country largely for the lavish wedding party he threw for his daughter, last year, that reportedly cost more than 50 million US dollars and included a banquet at the Palace of Versailles.

Besides, Mittal does not pay taxes in India and most of his business operations are outside the country. The only interest he has shown in India was during a recent trip to the mineral-rich eastern Indian state of Jharkhand when he has promised to make huge investments.

Forbes magazine has named Mittal, who lives in a 12-bedroom mansion in Kensington Palace Gardens, one of the best addresses anywhere, as the world’s third richest man, with a worth of 25 billion dollars.

Mittal has said he would keep open the Luxembourg-based Arcelor’s main plants in western Europe that are regarded as highly competitive to Mittal Steel because of the large investments made in improving production technology over the last few years. Mittal also values Arcelor’s links with European customers, including car makers that are major buyers of the company’s special steels.

Many perceive France’s insistence on Mittal’s detailed business plans as a way of stalling the takeover attempt. Even French President Jacques Chirac said, during his visit to New Delhi this month, that there was no proper plan for the takeover. The undeclared apprehension is that Mittal may sack Arcelor’s top management after the takeover.

Workers’ unions in France, Belgium and Luxembourg are also worried about downsizing. As for Mittal himself, he was playing his cards close to his chest. He told the New Delhi Television (NDTV) channel that it was all up to the shareholders to decide and that he did not see racism in the deal.

Economist Surjit Bhalla, who is principal, Oxus Investments, a Delhi-based hedge fund, told IPS: ”This business has nothing to do with racism; it has everything to do with protectionism and a lot to do with monopoly power. The management of Arcelor would have reacted in exactly the same way it did if the takeover bid had been made by a company headed by a white Englishman instead of a brown Englishman (which Mittal is, since he is based in London much of the time).”

Bhalla is of the view that developed countries, including those in Europe, are ”losing out to the developing world resulting in a rise in protectionism”. ”I’m not surprised at the French response. In certain respects, France is today more protectionist than what even the former Soviet Union used to be during its heydays.”

Ashok Kumar Bhattacharya, managing editor of the ‘Business Standard’, an Indian financial newspaper, said: ”The tragedy is that those who shout the largest about the virtues of globalisation and the free movement of capital don’t want free movement of labour, nor free movement of entrepreneurship.” He told IPS that if one truly believed in globalisation, then one should encourage the free mobility of all factors of production, except land.

Commentator T C A Srinivasa-Raghavan had a sharper reaction: ”The initial French and Luxembourg responses were because of racism. Arcelor’s chief executive Guy Dolle called it monkey money, which in colloquial French apparently means worthless money. It’s time we stopped being nice guys in such matters and talk in a language they understand.”

There has been a history of rivalry between Mittal Steel and Arcelor, that needs to be taken into account. And the fact remains that if the ‘hostile’ takeover bid comes through, it would create a giant international steel monopoly.

In March 2005, Mittal Steel displaced Arcelor as the world’s biggest steel maker. Arcelor has been looking at Asia and Africa, besides central and eastern Europe for acquisitions that would take it back to the top slot among steel companies. Arcelor began to show interest in India’s plans to increase its steel capacity from 36 million tonnes a year to 100 million tonnes by the year 2020.

In April 2005, Arcelor issued a statement that said the group ”could play a role in the setting up of additional steel capacity in India.” The company is also reportedly planning new investments in China.

”Chinese pragmatism in quietly asking the China National Offshore Oil Corporation to move away from the takeover of U.S. oil firm Unocal is perhaps worth emulating,” suggests Rajiv Kumar, chief of the Indian Council for Research in International Economic Relations, a prestigious New Delhi-based think tank. ”In the coming years takeovers like that of IBM’s PC business by (China’s) Lenovo or (that) of Beta Pharma by (India’s) Dr Reddy’s Labs are going to happen anyway.”

Others say the example of the Chinese government backing out of its company’s attempts to take over Unocal may not always be emulated and it was seen as having a strategic dimension unlike, say, the 1989 purchase of Columbia Pictures by Sony Corp. of Japan.

Last week, U.S. President George W. Bush threatened to veto any attempt to block a deal permitting a state-owned company from the United Arab Emirates (UAE) taking over the management of six port terminals in the U.S.