INDIA BUSINESS WORLD - JUNE 2006
THE MONTH THAT WAS...

MITTAL STEELS A GLOBAL MARCH

   FOR INDIA , it's a harbinger of things to come — economic superstardom. An Indian braves the odds and a belligerent Arcelor board to come out on top of the global league tables — be it in terms of personal wealth (only recently he was number three in the list of the world's Richie Rich) or stature in global business. Bill Gates did well to step down. Bulge-bracket investor Warren Buffett, well, does he have a chance?

As Lakshmi Niwas Mittal is set to step into his new role as board president of Arcelor-Mittal, with a comfortable family holding of 43.5% in the combined entity, it marks a new chapter in the rise and rise of the global Indian. Long before Indian media sensed what CK Prahalad calls the rise of the Indian multinational.

Did we see it coming? Well, we did well to repose our faith in Mittal last year by giving out our prestigious Global Indian award at the ET Awards for Corporate Excellence to him. And he wowed a high-powered gathering of 500 CEOs by giving them tips on going global. The way he walks — a tall sixfeet plus and even taller after this merger — suggests the man means business.

When we asked him a few months back — at his princely 22, Aurangzeb Road mansion in Lutyens' Delhi – what he planned to do if this acquisition didn't go through, he smiled. “I don't think like this,” he said, the glint in his eyes seeming to suggest that he'd tied it all up, at least in his mind. How can shareholders not endorse what King Mittal thinks is best for them. Very soon, he will lord over 10% of the global steel market. Mittal Steel and Arcelor have agreed on an € 27-billion merger, ending months of resistance by Arcelor management and parts of the European establishment. The merger will create a company with combined sales of $72 billion and combined capacity of 130 mt.

Call it the victory of the Indian ‘eau de cologne' over the finest European ‘perfume', a phrase made popular by Arcelor's feisty CEO Guy Dolle when he compared the quality of steel being produced by the two companies (Arcelor, of course, in his view was superior and hence the perfume compared to Mittal Steel's downmarket cologne). Indian chests have swelled up with pride. Listen to finance minister P Chidambaram: “We are happy and proud that an Indian-born entrepreneur is the biggest steel maker in the world.” Commerce and industry minister Kamal Nath, who did his bit to throw his voice behind Mittal in his hour of need, has this to say: “I am happy that some countries have finally realised that globalisation is not a one-way street. They are realising that Indian companies and people of Indian origin are creating employment and economic activity in their countries.” Corporate India , too, is cheering, as is evident from Bharti group chairman Sunil Mittal's remark: “This is a proud moment for India . It will open the door for many more such deals for Indian companies in the international market.''

According to reports, LN Mittal will hold a 44% stake in the merged entity, which will be called Arcelor-Mittal. Mittal Steel is expected to revise its offer to over € 40.4 per share from the € 37.73 offer it announced last month. Arcelor's current chairman, Joseph Kinsch, and Mr Mittal are tipped to be co-chairmen of the company, and the majority of the directors on the merged company's board are likely to be Arcelor representatives. Russian steel company SeverStal, with whom Arcelor had announced a merger last month, is expected to be paid € 130 million as compensation for the failure of the merger. It is also understood that Canadian steel manufacturer Dofasco, which Mittal Steel wanted to sell post-acquisition, will now remain with the merged company.

Not only will the merger result in the creation of the world's first 100-million-tonne plus steel company, but its total capacity of 130 million tonne will be three times more than its nearest competitor — Nippon Steel. The combined company will have 61 plants across 27 countries and the employee strength of the combined company will be around 320,000. It will be a market leader in five of the nine major markets, including the US and western Europe. Besides being an important landmark in the global steel industry's move towards consolidation, the strength of the proposed merger lies in the fact that it will combine the geographical footprints of both the companies. While Mittal Steel is strong in North America , Africa , and East Europe and Central Asia , Arcelor's strength lies in West Europe and South America . The move by both the companies to merge in an amicable manner appeared impossible a month ago when it appeared that Arcelor had found a white knight in SeverStal. Since then, however, the tide shifted in Mittal Steel's favour as the Arcelor management realised that its shareholders saw greater value in the Mittal offer and were upset at the way the SeverStal merger was being pushed through.

Of course, the deal does not come for cheap for Mittal. The final offer price may be at a 50% premium over its original € 27 bid in January this year. Moreover, it appears that LN Mittal will have to settle for less than a 50% stake in the company. Over the last five months, the Arcelor management, led by Dolle, had waged a bitter war, with thinly disguised racial tones against Mittal Steel and Mr Mittal. While business compulsions may have brought them to the negotiating table and even forced an amicable merger, it is possible that the integration process is hampered by the bitterness of the past. After all, “the company full of Indians” (that's how Dolle referred to Mittal Steel soon after the hostile takeover bid) will now run the largest steel corporation in the world.