The Indian Skunk at the Lily-White European Party....
Guess who's coming to dinner?
Salil Tripathi International Herald Tribune
THURSDAY, FEBRUARY 2, 2006
LONDON According to Guy Dollé, chief executive of Arcelor, the world's second-largest steel group, which is the target of a $23 billion takeover bid, his company is like a perfume, whereas the predator, Mittal, the world's biggest steel group, is like a cheap eau de cologne.
Jean-Claude Juncker, Luxembourg's prime minister, has already promised to use "all necessary means" to prevent the merger from taking place, as if he is talking about an imminent war. The French finance minister, Thierry Breton, is concerned about Mittal's methods, and calls its plans "badly prepared." Others, sympathetic to Arcelor, are questioning Mittal's corporate governance.
Arcelor is based in Luxembourg and Mittal in Rotterdam. Why would European officials get so worked up over a merger between two groups based in Europe? At heart the European elite objects because Mittal's founder and chief executive, Lakshmi Mittal is, well, different; he is not "one of us."
Mittal is an immigrant in Fortress Europe, and they resent the idea of a man from the Orient gate-crashing a carefully laid-out garden party, in which a precise pecking order used to determine who sat where.
Mittal does not follow those rules. The Mittal group is family-owned, and Lakshmi Mittal is a peripatetic Indian who has moved around the world with the ease that globalization promises.
Born into a family that owned a steel mill, Mittal first went to Indonesia and then, in the 1980s and 1990s, in countries of limited interest to bigger companies, slowly set about acquiring and making viable steel plants that would have otherwise gone under.
By carefully pursuing his vision and remaining focused, he built the world's biggest steel company, and became, according to Forbes magazine, the world's third-richest person.
Criticism naturally followed, but it had less to do with his business plan and more with his tastes. Tabloids across Europe gleefully reported his purchase of a palatial 12-bedroom home in London's Kensington Palace Gardens for $127 million, a record price for a private home; or the lavish, $78-million wedding of his daughter over five days of festivities in a 17th-century French chateau; and the £125,000 he donated to Britain's Labour Party.
If a pedigreed European count or British lord had done any of this, it would have been taken for granted, perhaps even termed charmingly eccentric. But when a man who grew up in rural India does it, questions are raised suddenly about Mittal's "methods."
Mittal's method is exactly what globalization brings about. It changes the presumed natural order of doing business as it pursues efficiency. That means factories don't always remain in Europe and America; young men and women in Asia don't work only on the farm; and the value of your currency is not something your government alone can control.
Mittal's is a textbook strategy: Seek competitive advantage by consolidating the industry; build economies of scale to shield it from sudden spurts and collapses in prices. The bigger you are, the more costs you can squeeze from suppliers of iron ore. With demand increasing in China and India, a steel producer must aim for efficiency if prices are to be kept stable.
Arcelor may indeed have sound reasons to reject the Mittal bid, but so far it has reacted emotionally, not rationally. Market analysts have already said why the merger makes sense: The two groups' plants do not overlap much; their markets are also largely separate, making any antitrust inquiry a fishing expedition.
Corporate governance, however, is a legitimate issue to debate. Arcelor has made much of the fact that its 18-member board has several nationalities (although 17 of those directors are drawn from five contiguous European Union countries, the 18th being a Brazilian). And the Mittal family is well represented on Mittal's nine-member board, which includes Mittal's son, a senior executive, and daughter. There are two other distinguished financiers of Indian origin. But the other four board members include two Americans (the former head of International Steel Group and a senior counsel in a leading U.S. law firm), a Mexican diplomat and a European financier.
The objectors seem to want to say that although Mittal may be based in Europe, it is not of Europe - but they cannot say so in our politically correct times, hence the coded words. A better response would be to look at the numbers and let the best man win.
(Salil Tripathi, a former economics correspondent in Asia for The Far Eastern Economic Review, is a writer based in London.)
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