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Mittal deal sets a precedent

The steel tycoon scores over economic nationalists who opposed a take-over of Arcelor

MUCH OF the considerable interest in Mittal Steel's successful merger with Arcelor arises from Lakshmi Mittal's Indian origin. That an Indian born U.K. resident could pull off such an audacious deal after facing stiff resistance for almost five months is no doubt heartening. But what is more revealing is the fact that Mittal Steel, his flagship, was already the world's biggest steel producer and was in a position to mount such a large bid.

Mr. Mittal has had an excellent record in picking up steel mills across the globe. Most of these were in dire straits and located in places such as former Soviet bloc countries. Being relatively new to western capitalism, these previously government owned companies were probably not obvious candidates for take-over. They probably did not enjoy the valuations they would have commanded if they had been in the West or in any other place with a tradition of modern banking and financial systems.

Daring acquisitions

Many other investors would have considered these countries risky to invest in even if the steel mills themselves were suitable for being taken over. In other words, it called for some daring on the part of a would-be acquirer to bid for these units and Mr. Mittal showed that he had that in plenty.

Not only that, his ability to turn them around in a short time — bulk of his fortune was made from acquisitions since 1994 — was bolstered by his long-term vision of presiding over an industry which until recently was considered a "sunset' industry.

He certainly showed that he could assimilate several cultures while integrating the taken over units into his company. Of course, their technological transformation would have posed awesome challenges, taxing the managerial skills of those in charge.

Incidentally, in the early days of his empire building, Mittal Steel had relied on some former senior steel executives from the Indian public sector. Not much has been written on this aspect — of human resources from the Indian public sector rising to take on global challenges while in India they were shackled by bureaucratic rules.

This aspect deserves attention and documentation, certainly as much as what Mr. Mittal's "Indianness'' is getting: somewhat extravagantly his success is seen as a tribute to Indian enterprise but not to the Indian environment.

Because he made his fortunes elsewhere (till date he has only announced plans to set up shop in India) it is said that he could not have replicated his performance if he had remained in India.

These are hypothetical issues that cannot be corroborated either by Mr. Mittal's heady success or by the achievements of numerous tech entrepreneurs in California.

Certainly there are other, highly visible, industrialists of Indian origin who have made good in "old'' industries and have an important place in the public life of their adopted countries as well. Swraj Paul is one and there are others. The question whether they would have done as well in India is only of academic interest. It would be equally difficult to say with certainty that the Reliance empire — now broken into two — could have been replicated in any other country. Or for that matter, the extraordinary performance of Bharti Telecom in the telecom field.

Mr. Lakshmi Mittal ran his businesses from out of Europe and operated under European regulations. The most noteworthy feature of the Mittal-Arcelor deal might well be the inherent fairness — the even handed treatment — given to the target company as well as the acquirer. Arcelor is essentially European and Mittal Steel, though locally domiciled, is predominantly owned by an Asian business family.

Economic nationalism

The fair attitude of the regulators has been an important factor in winning over the early opposition to the deal. Politicians from Spain, France and Luxembourg — the last named country alone has a direct (equity) stake in Arcelor — allied against Mr.Mittal's bid. Although outwardly their apprehensions were over possible downsizing post merger and consequent job losses, they were in fact espousing the currently fashionable "economic nationalism'' under which governments have rushed to forestall iconic national companies from being taken over even by companies located in other parts of the European Union. There are many examples of such economic nationalism not only in Europe but in the U.S. too where it is often seen as an adjunct to protectionism.

Mr. Mittal was able to win the battle against the forces of economic nationalism by making significant compromises. For instance, agreeing to keep the headquarters of the merged company in Luxembourg; by not going for majority stake (although he will be by far the largest single shareholder) by agreeing to name the merged entity Arcelor-Mittal and not the other way round.

Those tactics might of course be part of a winning strategy in any take-over battle. But the ease with which decisions of that nature could be made is a tribute to the management style of Mr. Mittal.

C. R. L. NARASIMHAN

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