The Hindu Business Line : Arcelor-Mittal, headed high?

The Mittal family would have 43.5 per cent of thenew company's shares. But it has agreed not to increase its shareholding beyond 45 per cent for five years. The current Arcelor Chairman would be the Chairman of the combined company and when he retires next year, he would be succeeded by Mr Mittal.

After a prolonged drama with all the attendant theatrics, the Indian-born London-based entrepreneur, Mr L. N. Mittal, has finally clinched the European steel giant Arcelor. The new company, to be called Arcelor-Mittal (mind you, not Mittal-Arcelor), would have a production capacity thrice that of Nippon Steel, its nearest rival. Its capacity would be double the quantity of steel that all the automobile makers in the world put together use today. With 61 plants across 27 countries employing 320,000 people, the combine's global market share would be 10 per cent. Surely, Mr Mittal is the world's No 1 steel maker.

Major implications

The first question: Is it a big victory for Mr Mittal? The Mittal family would have 43.5 per cent of the new company's shares. Clearly, the family would have veto power on all major decisions. But the family has agreed not to increase its shareholding beyond 45 per cent for five years. The current Arcelor Chairman, Mr Joseph Kinsch, will continue in the post and, when he retires next year, he will be succeeded by Mr Mittal.

The final offer is nearly 40 per cent higher than Mr Mittal's initial offer in January. Even the January bid was 27 per cent higher than Arcelor's stock price at the time. Mr Mittal had to make the hefty concessions to win over the shareholders of Arcelor, whose management tried looking to the Russian company, Severstal, as a sort of white knight.

Shareholders' gain

Clearly, the shareholders of Arcelor have gained much. Mr Mittal had to win the battle, as a Arcelor-Severstal combine could have put paid to his ambitions; the concessions had to be made to win the bid. Mr Mittal's gain would be more in the long run as he would be able to move the world's biggest steel company in the directions he wants to in pursuit of his global vision.

Apart from the distribution of gains between Mr Mittal and the shareholders of Arcelor and Mittal Steel, the event may be highly significant for a variety of reasons.

One, this is another big pointer to the rise of emerging economies, China and India in particular, on the global economic landscape. Many business firms (both private and state-owned) from these economies have huge surpluses, with which they would be able to take over businesses in other parts of the world.

Gradual takeover process

In fact, Mr Mittal built up his global steel empire gradually, by taking over sick steel companies all over the world and restructuring them by infusing fresh capital and management. This event would further strengthen the current trend of companies from the emerging economies going global and turning into multinational companies.

In fact, this is not an isolated incident. It is part of an ongoing trend. Just a few random examples: Tata Motors acquired Daewoo's truck business in Korea, a bus company in Spain and has worked out a joint venture with a Brazilian major. Dubai-based Emirates is likely to become the world's biggest airline in the near future. Lenovo, a Chinese company, has bought up the personal computer business of IBM. Ranbaxy sells more drugs in the US than in India. Jindal Steel has won the right to mine iron ore and covert it into steel in Bolivia. Bharat Forge has acquired six plants abroad and is the second largest maker of forgings in the world.

(The author is a Professor of Economics, Indian Institute of Management, Calcutta. He can be contacted at alokray15@yahoo.com)

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