Opinion - News Analysis   

When the shareholder held all the aces

Vaiju Naravane

Shareholder revolt obliged the Arcelor management to enter into negotiations with Mittal

ALTHOUGH VERY heavy on the pocket, Lakshmi Mittal's acquisition of Arcelor constitutes a stunning tactical victory for the Indian. There has been a deafening silence in government circles, especially in France and Spain where officials swore to "give a hostile response to a hostile bid." Mittal's victory is likely to change a mindset that has so far tended to equate Third World capitalism with third-rate capitalism.

The management of Arcelor, led by its irascible CEO, Frenchman Guy Dolle and Chairman Joseph Kinsch, has been hoist by its own petard.

Mr. Dolle's strategy to avoid an "Indian" takeover at all costs, by entering into a hasty merger with the Russian oligarch Alexei Mordashov's Severstal severely backfired. A shareholders' revolt obliged the Board to consider Lakshmi Mittal's offer, which Mr. Dolle had earlier described as "150 per cent hostile".

All did not go as planned for Lakshmi Mittal either. The possibility of a merger between Arcelor and Severstal obliged Mittal Steel to substantially increase its offer from 18.6 billion euros to a hefty 26.9 billion euros. Arcelor's share price, as a consequence, went up from 23 euros a share to the 40.40 euros agreed upon by the two managements. And today, as a result of the merger there was another 6.7 per cent spurt in the Arcelor share value. Clearly, the shareholder has emerged the main victor.

The final decision to go ahead with the merger will, of course, be taken at Arcelor's Extraordinary General Meeting on June 30th, and it is widely assumed that shareholder approval is now merely a procedural issue.

More twists expected

Analysts, however, do not rule out a few other twists and turns over the next four days in the five-month-long takeover saga. The Russians, for one, have reacted most negatively to these developments, and Severstal boss Alexei Mordashov is threatening to launch a legal challenge on the grounds that his revised second offer was not even considered by the Arcelor Board before they threw in the towel to Mittal.

It now appears that Russia's richest man Roman Abramovich, who holds a 41 per cent stake in Evraz, one of Russia's leading steel companies, is getting ready to finance a final, raised bid by Alexei Mordashov in order to stymie the agreement with Mittal. Such a proposal could be placed before the Arcelor Board by Friday. The Russians are, understandably, feeling used and manipulated. Comments in major Russian dailies said Arcelor had been in secret negotiations with both sides and the proposed marriage with Severstal had been used to jack up Arcelor's selling price.

In the aftermath of the agreement with Mittal, Arcelor's CEO Guy Dolle has kept a low profile. He is the author of such illuminating phrases as "Mittal plans to pay us in monkey money", "we make perfume, Mittal makes eau de cologne" or "Mittal is a company of Indians specialising in buying up obsolete installations at a cheap price". It will be interesting to monitor Mr. Dolle's next moves. In a recorded interview with The Hindu he had sworn he would "never serve under or alongside Mittal" in the event of a takeover. It now appears he would be willing to stay on in his present position until his retirement next year.

Precipitate deal

Indeed, it appeared often that Mr. Dolle's choices and decisions were driven more by his desire to keep the Indian, Lakshmi Mittal, out, than by the overall interests of the company and its shareholders. The attempt to procure a white knight in the form of Severstal was a bad idea from the start. The deal was hurriedly pencilled in and announced as a fait accompli to shareholders, allowing the agreement to be automatically approved unless an unprecedented number of shareholders voted it down. It would have given the Russian oligarch almost 38 per cent of the company's capital holding without having to make a formal takeover offer.

The ensuing shareholder revolt — hedge funds, small shareholders and institutional investors were all planning to oust the Arcelor management and sue its Board members — obliged management to enter into top level secret negotiations with Mittal.

The merger has also created steel industry history. With 320,000 employees worldwide, and a capacity of making some 116 million tonnes of steel annually, Arcelor Mittal will far overtake its closest rival, Japan's Nippon Steel.

The shareholder revolt also points to a new direction in European mergers and acquisitions policy. Unlike in the United States, European shareholders were usually a meek lot. Their combined attack against the Arcelor management will definitely influence how future mergers take shape in Europe.

Printer friendly page  
Send this article to Friends by E-Mail

Stories in this Section

Mittal and the art of deal-making
Autonomy as shield
Animals, agriculture, and city planning
Stirring the Hudood pot
Corrections and clarifications
Another step forward in strengthening ties
When the shareholder held all the aces
More questions than answers
Persistence pays
Deplorable
Rajiv remembered
On PSEs
Shocking finding

Copyright © 2006, The Hindu. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu