FINANCE: French Resistance Fails to Find a Name

By Sanjay Suri Reprint | | Print |

Sanjay Suri

LONDON, Feb 28 2006 (IPS) - Indian steel magnate Laxmi Mittal’s bid to acquire the giant European steel company Arcelor has run into strong French resistance. But it is becoming difficult to say exactly where that resistance comes from.

Mittal’s Ispat group, run by the man who has come to be called the wonder-boy of the steel industry made what Arcelor saw as a hostile bid to acquire the company last month. Arcelor has many shareholders across Europe. Most of its 30,000 workers are French.

Mittal, the world’s number one steel producer has offered 23 billion dollars for Arcelor, the second largest.

The Arcelor management is resisting the hostile bid. The French government has not officially taken a final position for or against the acquisition move, but French leaders have been strongly critical about it. Some have described the French resistance as racist.

But that may not be necessarily so, says Mel Wilde, managing director of Britain-based steel trader Metalloyd which has a turnover of about one billion dollars a year.

”The resistance in France is not racist in any shape or form,” Wilde told IPS. ”It is more strategic. They would want a large steel producer like Arcelor to remain in French hands for national security in case of any unexpected events.”

That may be for future military needs, he said. ”The French government may need to produce large amounts of steel in a security situation. Steel is used in tanks, ships, tubes for guns, for instance.”

But there is more than preparing for war options behind the French reluctance to see the takeover. ”The French are very nationalistic,” Wilde said. ”And they would prefer to see a large company like this remaining in French hands.”

Manny experts in the steel business believe Mittal will finally succeed in acquiring Arcelor. The value of shares has risen 36 percent since prospects arose of a Mittal takeover, the Mittal group claims.

”The general view is that Mittal will get Arcelor, though our view is that it will take a lot longer than he has said,” Roger Manser from Steel Business Briefing, an industry publication, told IPS. ”Mittal has said he hopes to complete the deal by the end of the second quarter. We feel it will take the whole year for the deal to go through.”

The Arcelor defence against the takeover has come largely from governments which Arcelor is operating, Manser said. ”I do think though that at the end of the day its defence is going to be that strong.”

Manser believes the final decision will not rest on the fact that Mittal is Indian.

”I don’t think there will be any resistance to the fact that he is Indian,” he said. But there are serious management concerns, he said. ”I do think there are concerns within Arcelor’s middle and senior management as to how Mittal could organise such a large company.”

At the moment Mittal in London and Rotterdam has only a couple of hundred people in its staff. The company is based in Rotterdam in the Netherlands. Mittal lives in London.

”It (Mittal’s company) is already having to digest new acquisitions it made in Ukraine and acquisitions it made in the United States,” Manser said. ”To make an extra acquisition on top of that, namely Arcelor, would be very, very difficult for Mittal to handle with such a small staff.”

The acquisition would mean Mittal would have to make heavy management changes, Manser said.

”Mittal would have to restructure quite strongly, think through its management structures, think through how it’s going to handle the commercial side of selling steel,” he said. ”Mittal’s strength is in the production side of steel. Everyone accepts that he’s done a great job with reducing costs in the acquisitions he’s made in central and eastern Europe, but he’s not seen as so strong in his sales and distribution and commercial operations.”

Wilde says the need of the Arcelor management is to keep the company in European hands. In the face of the takeover bid ”they will try any tactic that they can within company law to resist it.”

But a takeover would be good for the steel industry, he said. ”I think that the steel industry as a whole internationally needs rationalisation. I think it will help stabilise prices.”

Steel prices fell 35 percent last year and in the face of the ups and downs a consolidation of control of steel production in only a few hands would help maintain prices at levels good for the industry, he said.

”The Russians and most emerging market steel producers have seen a dip in steel prices, and this affected them greatly,” Wilde said. ”The Ispat group are not cheap sellers, they’re always trying to get a reasonable price for their steel. They never undersell. The Russians have been following that, and the Ukrainians and other third world countries. I think they will notice the prices Ispat are putting out in the market and they are following.”