Lakshmi Mittal is a man with a vision for the global steel industry, and his place in it--at the center. That makes Mittal Steel's 18.6 billion euro hostile bid for France's Arcelor, its next biggest rival in the global steel industry, a lot less audacious than it looks.
Nevertheless, it would be the biggest by far of the series of takeovers by which he has built the company from the small West Bengal steel mill his father owned in the 1970s into the world's largest steelmaker.
That has vaulted him to No. 3 on Forbes' 2005 list of the world's richest people, behind only Microsoft co-founder Bill Gates and Berkshire Hathaway's Warren Buffet, with a fortune of $25 billion.
Mittal's strategy is to consolidate the global steel industry to better protect it against the vicious boom-and-bust cycles that have marked its history. Sheer size, he believes, will give steelmakers more ability to control prices and more sway over their costs, as they will hold a stronger bargaining hand against their iron-ore and coal suppliers.
The time for all this is now, because over the next decade global demand for steel is likely to be driven by fast-industrializing India and China.
Combining Mittal Steel with Arcelor would create a metals giant larger than the next three largest steelmakers -- the Asian trio of JFE Holdings, Nippon Steel and Posco -- combined. With annual sales of $70 billion (10% of the world steel market), Mittal-Arcelor would rank in the top 40 of global corporations by sales, on a par with such multinationals as Nestle, Ahold and Deutsche Telekom, and only a billion or two off such household names as Sony, Nissan Motor and Verizon Communications.
The cash and shares deal will also, if successful, dilute the family holding of the Indian billionaire, who is chairman and majority owner of the New York-listed, Netherlands-based company, from 88% to just over half.
Arcelor rejected Mittal's bid as hostile as soon as it was made last Friday. On Tuesday, it said in a formal statement, "The board has swiftly concluded that Arcelor and Mittal Steel do not share the same strategic vision, business model and values."
Arcelor Chief Executive Guy Dollé flatly rejects Mittal's argument that there is industrial logic in putting the two companies together. Mittal is mainly concentrated in eastern Europe and North America while Arcelor is strong in western Europe and Latin America.
The idea was first raised in a brief conversation between the two men at a private dinner at Mittal's home on Jan. 13 but was dismissed by Dollé, who was subsequently reported to say, "I think a deal of this size merits more than four minutes after the aperitif."
But while Dollé and his board have been surprised that a discursive chat has turned into a hostile bid so quickly, there is also clearly little meeting of minds between the self-made Mittal and the European who runs the merged successor of three state-owned steel companies, France's Usinor, the Belgo-Luxemburgeois Arbed and Spain's Aceralia. Arcelor has to be defended, Dollé says, as the "Airbus of the European steel industry."
Playing the patriotic card looks to be Dollé's best opening in a game he needs to play long if he is to see off Mittal. The initial bid valued each Arcelor share at 28.21 euros, a 27% premium to its closing share price before the bid was made.
However, Arcelor's shares have subsequently traded above the bid price, suggesting investors don't see Mittal having delivered a knockout blow.
The Luxembourg government, Arcelor's largest shareholder, with a 5.6% stake, has already rejected the bid. The French government, too, with Finance Minister Thierry Breton, as its spokesman, is standing in Dollé's corner.
Even though the government no longer has a shareholding in the steelmaker, Arcelor is one of France's largest employers with a workforce there of 23,000 people, about 30% of the steelmakers' total workforce. France's labor unions stand ready to defend those jobs.
Mittal, who has met Breton since making his bid, has promised that there would be no job cuts or factory closures should his bid succeed. But as a measure of the temperature of the French government's agenda of "economic patriotism," Breton headed into the meeting by advising Mittal to consider last year's bid by CNOOC, the state-backed Chinese oil company, to take over the US-based oil corporation Unocal, a hostile bid that floundered on the shores of misguided patriotism. Unocal was subsequently bought by Chevron.
France has rules that allow the government to block foreign takeovers of certain strategic sectors, including defense, but steel is not on that list. However, with France facing presidential elections next year, the bid seems destined to become a political football.
And as Arcelor also has Spanish, Belgian and Luxembourg roots, one to be kicked around much of Europe as well. Mittal will be engaged in shuttle diplomacy between Madrid, Luxembourg and Brussels as well as Paris.
The provincial Wallonian government in Belgium, where Arcelor employs 12,500 workers, is a shareholder. And Spain's economy minister, Pedro Solbes, has already asked Mittal for an explanation of the bid meant for Spanish workers.
The European Union's competition commissioner, Neelie Kroes, has already said the bid falls within her purview to review on antitrust grounds. However, Europe's top financial regulator, Internal Market Commissioner Charlie McCreevy, urged EU member states on Tuesday not to succumb to protectionism in cross-border mergers.
For all France's ruffled national amour propre over Mittal's bid, one should remember that Arcelor is a Luxembourg-, not France-based company, and that it itself has just won a hostile takeover battle for Canadian steelmaker Dofasco in a $4.7 billion bidding war with Germany's ThyssenKrupp, a deal Mittal would unwind if it wins Arcelor by selling Dofasco to ThyssenKrupp.
That makes French railing against foreign hostile takeovers ring hollow. And Dollé has already said that Arcelor might need to seek a white knight.
Mittal's offer to sell Dofasco to ThyssenKrupp is probably sufficient to head off any thoughts at ThyssenKrupp about riding to Arcelor's defense. Dollé said in an interview with La Tribune that he might seek a non-European alliance. That might open the door for one of the Asian big three -- Arcelor already has a joint venture with Nippon Steel -- or with China's Baosteel. Nucor, the American steelmaker, is another potential suitor.
The Mittal family's 88% stake precludes Arcelor turning round and making a counter bid for Mittal Steel. Returning cash to shareholders through a share buyback or special dividend is a play available to Dollé if he wants to stay independent. That might require asset sales to generate the cash, though Arcelor is well funded.
All of which may leave his best and maybe only option to be wringing out a better price. At the moment, Dollé said on Monday, the price offered by Mittal Steel was "light years away" from an acceptable price. But as Mittal has shown, when it comes to the steel business, he has the vision to see vast distances.
