The Colour of Steel

First of all many thanks to the kind folk of Afoe offering me the possibility of expressing my views on some European reactions to the Mittal Steel bid for the European steel giant Arcelor. By now most of you must have heard about this sitation. Mittal Steel is the world’s largest steelmaker and was founded (and is still currently run) by the Indian-born steel maker Lakshmi Nivas Mittal, the third richest man in the world.

Mittal himself is based in London and he has headquartered his company in Rotterdam. Arcelor is a Europe based global company – it is registered in Luxembourg and was created in 2001 by a merger of the Spanish Aceralia, the French Usinor and the Luxembourg based company Arbed. So what has happened? Well here is a summary from Daniel Gross on Slate in his aptly titled article Indian Steel and Egyptian Cell Phones.

The good folks in the West are generally happy to sell real estate to nouveau riche Arabs and Asians. After all, cash-flush foreigners generally pay top dollar. In 2004, Lakshmi Mittal, the acquisitive Indian steel baron, dished out $128 million for a residence in London. (And few of the bienpensant clucked when Mittal rented out Versailles for his daughter’s wedding.) There’s no clash of cultures and civilizations when it comes to real estate. Would you like to buy Pebble Beach? How about Rockefeller Center?

But when the purchase involves a corporation that produces an essential industrial product, that we-are-the-world comity disappears. Since January, when Mittal announced a hostile bid for Luxembourg-based steel company Arcelor, the French and Luxembourgians (Luxembourgeoisie?) have reacted harshly. On Jan. 29, Arcelor’s board rejected Mittal’s offer as unacceptable in every way. Arcelor’s Runyonesque CEO, Guy Dolle, has sniffed that his steel is “perfume” while Mittal’s product is like “eau de cologne.” Thierry Breton, France’s finance minister, fretted over the potential clash of civilizations that would ensue if Mittal were to emerge victorious. (Never mind that Mittal’s company has its headquarters in Rotterdam, is owned by a man whose primary residence is in London, and has steel-making operations in the United States and Germany—but not in India.) In response, India’s minister of commerce and industry, Kamal Nath, flung back: “This is an era of globalization, cross-border investment and liberalization, not one in which investors are judged by the color of their skin.” Touché!

That is the crux of the story. The European side seems to be worried about job losses whilst never actually providing any substantial reasoning to back up why this will happen when Mittal has promised the contrary. Curiously, even though Mittal himself does not have a single investment in India, he has been receiving a lot of support from inside India, from the press, India Inc and the government.

The reasons why this is happening are not hard to find, you only have to look at the comments made by Arcelor’s chief Guy Dolle who talks about a ‘company of Indians’, ‘monkey money’ and how Arcelor is perfume and Mittal Steel is Eau De Cologne.

On a European-based list I participate in, one of the posters made the following point.

The hostile bid by Mittal for Arcelor, the big European steel conglomerate, has set a lot of feathers ruffling over in Europe.we will be doing a piece on this trying to put it in the context of globalisation and the changing balance of global economic power though Mittal is strictly speaking a Dutch company, in fact everyone here perceives it as Indian.

As this poster rightly mentioned the Mittal debate is about globalization and the balance of power. If Western companies want to enter India and China, want to outsource their manufacturing and services to these countries, and generally talk about the greatness and goodness of globalization and open markets then they should start getting ready for the process to also run the other way round.

I believe this whole issue comes down to the belief, in this case on the part of many Europeans, that third world countries and their people in general are just not capable. After all, if they were, they would be rich, now would’nt they?

This is a valid question if based on the misplaced assumption that poor countries have incapable people. It is related to the idea that poor people are somehow less able than rich people. I think that this is a gross oversimplification of the process of economic development. The development of economies is a complex social phenomenon, and it cannot simply be reduced to any one event or any particular component.

Poor countries and poor people both are immensely capable. The reason for the lack of economic development and wealth is a systemic issue and not an individual one. If that was not true, then it would be hard to explain the progress enjoyed by the millions of Indian and Chinese people currently living in the US, the UK and to some extent in the Middle East, Africa and Australia.

Thomas Friedman says ‘The World is Flat’ however, he may need to mention that apart from being flat it is also equipped with a playing pitch which runs in two directions. Globalization makes it easy for emerging countries to invest in the more developed countries. The poor and emerging countries of Asia are already supporting the huge budget deficit being generated by the US.

The strange thing in this case however is that this is one European company bidding for another european company. So what really could the problem be, apart, that is, from the colour of the bidder?

6 thoughts on “The Colour of Steel

  1. “Thierry Breton, France’s finance minister, fretted over the potential clash of civilizations that would ensue if Mittal were to emerge victorious. (Never mind that Mittal’s company has its headquarters in Rotterdam, is owned by a man whose primary residence is in London,”

    london based steel tycoon ? french finance minister ?
    Ahem, I suppose Thierry Breton is entirely right with his comment over a potential clash of civilizations. If there ever was such a thing, then it was between the french and british.

  2. i think you are missing the point :

    – Mittal is producing, cheap commodity steel and is directly in competition with China’ producers and thus in real danger.
    – Acerlore, after lot of investment (from states for a large part), is specialized in special, high value Steel, the future of the industry.

    Do you really thing that Arcelore can gain anything from this kind of takeover/partnership ?

  3. The French reaction has been: we’ve spent billions and billions to restructure our steel industry properly, trying to make sure that the workers were not totally abandoned as they were put out of work, and keeping a smaller but competitive company, and now the result gets bought over for peanuts by someone who will care only about profits and not about the 30,000 workers that remain in France?

    The counter reaction are:

    – fine, you restructured it, so why is it worth so little? (a fair question, and a very complex one, which goes deep into issues of who runs capitalism in France and how privatisation was run);

    – the existing company is just as ruthless with workers as the new buyer is likely to be, so what are you complaining about? (interestingly, the French media has played that angle a lot, interviewing unions reps from Mittal’s existing plants in France, which were saying rather nice things about their employer) Plus Arcelor is no longer French already;

    Agaisnt that, there’s are the following arguments:

    – that Mittal will remain under the absolute control of a family, which is not really conducive to shareholders having any influence on the new company;

    – that Mittal has made its money in low-grade steels and in the restructuring of steel mills in the developing world, taking them over at very low prices and improving their performance via massive layoffs and some investment – these competences are not required here.

    The debate, apart from a few stupid comments by a politician or two (which have been of course played massively), has been of a quite high standard, and touching upon very relevant questions. Mittal has himself played the racism card quite extensively, from what I can understand. Is that appropriate?

  4. I don’t think it has anything to do with indians. the same would happen if American or Japanese would try to buy Arcelor as the French don’t like to see their companies in foreign hands. (Spain and Luxembourg are not really foreign countries for France)

    You are also using American arguments on France, which isn’t exactly known for their believe in capitalisme

  5. Tobias directed me to an article by Tarun Khanna in the IHT which is relevant to the issues. Taurun says:

    On the contrary, my work on developing-world corporations, with Krishna Palepu at Harvard, demonstrates that companies rooted in a particular country are more likely than footloose multinationals to make a nation’s problems their own.

    Indeed, national ownership matters for a reason that Doll̩ ignored: Companies identified strongly with a particular country more often find it in their interest to invest in public goods for the country Рfrom roads to universities to national branding campaigns.

    Now the point it would seem to me here would be that it is one thing to talk about countries in the developing world, and in the LDCs, and another to talk about the situation in countries with ‘mature economies’.

    The needs are different, and in each case should be treated differently. There is not one simple formula. In the same way in the ‘mature economies’ we may want to distinguish between companies in the R&D intensive innovative sectors, and the rest. But even in this former case, the issue should be one of Europe wide projects (as I am indicating in my own post) and not French interests vs say German ones. The EU cannot work in the presence of such silly rivalries, and the euro for sure can’t.

  6. Personally I dount the third richest man in the world tag – the forbes methodology looks a bit dodgy to me. He might have voting rights on 88% but he actually owns just over 50% of the Eu20bn company. And then there is the small matter of the Eu8.5bn of debt. So even if we allow for holdings an an extremely cyclical business, the best we can get, on peak earnings , is a mere Eu6bn – which doesn’t even get him into the top 50

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