The Telegraph
Since 1st March, 1999
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- The fate of Mittal's bid would be decided by its attractiveness

Annapurna (a reader of Business Week) says, 'I think Europeans, especially the French, are being small minded and racist (as usual) in protesting the attempted takeover. Their problem is not the takeover bid but the fact that an Indian (read black/ brown/Asian) is trying to take over a white symbol of nationalism. Grow up! Enough has been done by you and yours to screw this world, don't add to the stupidity.' Who is the stupidest of them all'

As Annapurna implies, Mittal is visually Indian. He shares our brown eyes, black hair and wheatish complexion. He is culturally Indian. He spent Rs 250 crore on his daughter's wedding; when it comes to ostentation, he can beat Dhirubhai Ambani, Subroto Roy and Sant Singh Chatwal. He is probably linguistically Indian: it is unlikely that he has forgotten Indian ' I guess I mean Hindi ' in the two decades since he left India. He is entrepreneurially Indian: he leverages the businesses he buys, and obtains control of enterprises with as little money of his own as possible. And he is politically Indian: he gives generous contributions to political parties.

He has, however, been living in London for decades; that is where he built up his steel empire from. He has not invested in India. He did recently show interest in setting up a steel mill in Jharkhand; but that has nothing to do with his love of India. Orissa has some of the best iron ore in the world. Good iron ore is scarce; Posco too wanted to set up a steel plant there, and many other foreigners would try if they thought they could get past the Indian government. Posco certainly has not yet.

So it is difficult to understand Kamal Nath's strident support for Mittal, unless it is due to Mittal's political Indianness. Kamal Nath made a case for Mittal's takeover of Arcelor in terms of national treatment, which he said industrial countries always preached. National treatment is a term used in international negotiations; it means that a government should treat foreign enterprises as it does domestic enterprises. It is a strange argument coming from a country where major investments or acquisitions by foreigners require approval of the foreign investment promotion board, and where foreign direct investment is subject to so many percentages to ensure that foreigners come escorted by an Indian gatekeeper. Just ask the Chinese how obstructive they find the Indian government when their companies try to invest in something as innocuous as tyres or software. If the prime minister were rash enough to talk of national treatment when he meets President Chirac, Chirac would ask him, 'How about practising what you preach, Mr Prime Minister'

Kamal Nath has also been making threats. In a letter to Peter Mandelson, he wrote that if Mittal was not allowed to take control of Arcelor, India would make things difficult for the European Union in negotiations on trade, investment and so on. Such threats should be used confidentially, not publicly, for if publicized, they would simply put up the backs of the governments whom Mandelson serves.

And why is Kamal Nath wasting his political capital on an entrepreneur who has invested everywhere except in India' People are bound to wonder about a nexus. The prime minister has sensibly kept his own counsel, but he should ask himself whether his usual circumspection is appropriate for the occasion. It is the Indian government's political capital that Kamal Nath is expending, and relations with France are more important to India than the fate of Mittal's bid or the fortunes of Kamal Nath.

And if Guy Doll', the managing director of Arcelor, wants to persuade its shareholders not to sell their shares to Mittal, he should take out full-page advertisements displaying photographs of Mittal's Indian supporters with the following line underneath: 'These are the men behind Mittal.'

So outbursts of Indian nationalism, however righteous, however eloquent, will not win the battle for Mittal. European nationalism is equally unlikely to be able to stop him. If Mittal were to buy a majority of Arcelor's shares from its shareholders, I do not think the European governments would be able to prevent control from passing to him for long, whatever laws they may make. In particular, Luxembourg's threat of giving power to the board of a company to thwart takeovers is stupid. If Mittal obtained a majority of Arcelor's equity, the board would not be able to function independently of him. Equally stupid is the Indian government's threat not to sign a double taxation agreement with Luxembourg. Luxembourgeois have little interest in investing in India; after this threat which shows India to be an unreliable country, they will be even more wary. They will find China more attractive. So nationalism may give each side an emotional kick to start with, but will eventually only give them a kick on their own backsides.

The fate of Mittal's bid would be decided by its attractiveness. He has offered four-fifths of a share in Mittal Steel plus 7.05 euros for every share of Arcelor; at pre-bid market prices, it worked out to be a 27 per cent premium on an Arcelor share. The cash was a quarter of the offer; the other three-quarters were offered in the form of shares in Mittal Steel. Arcelor shares have already risen to the value of the offer, so it makes no difference to a shareholder whether he sells to Mittal or in the market. Hence Mittal's offer is likely to fail. He probably meant it to be an opening move in any case, and will improve it.

Can the Arcelor management match it' A white knight is not in sight. The steel industry is not a darling of investors. Only experienced aficionados of the industry would be interested, and none is bigger than Mittal. The only match for Mittal is the French government. It has a deep pocket; it could make a counter offer. That would mean nationalization of Arcelor. It is unlikely.

How much more would Mittal have to pay' Doll' has mentioned one limit price: instead of paying three-quarters of the price in Mittal Steel shares, Mittal should make a fully cash offer. But Mittal does not have, or does not want to shell out, cash. If he raises the cash component, he will borrow it. He has designed a leveraged buy-out; but the greater the leverage, the higher its cost. Beyond a point he will judge it not to be worthwhile.

So what may happen is a compromise. Mittal may take a minority share, reassure the Arcelor management, and build a cooperative relationship. He may learn to speak French; he may rename his company Vive La France. Just as the British accepted him as an honorary Englishman, the Europeans may come to accept him as an honorary Frenchman after a while. Then they will not care if he takes over Arcelor and merges it with his own. It is not race, stupid! It is culture; and an intelligent man can change cultures as he changes clothes.

The only thing that could stand between that solution and him is his Indianness ' it may hurt his ego.

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