Sunday, June 25, 2006

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Capitalism 1, Nationalism 0

One of the great things about capitalism is that when there is enough money at stake, national prejudices fall by the wayside.

Which brings us to Mittal Steel's latest acquisition. Heather Timmons and Anand Giridharadas explain in the New York Times:

A new steel giant is being created out of a bitter battle, after Arcelor agreed today to a merger with its rival Mittal Steel in a deal valued at 26.8 billion euros, or $33.5 billion.

The merger combines Arcelor a symbol of successful, pan-European cooperation and economic revival, with operations that span Belgium, France, Luxembourg and Spain with a fast-growing conglomerate founded by the India-born Lakshmi Mittal, who built a fortune turning around troubled steel plants in expanding markets from Trinidad to Kazakhstan.

The deal is the latest sign that shareholder activism is reaching into the once staid boardrooms of Europe. The agreement to pair with Mittal caps a wrenching turnaround for Arcelor's board and its management, who once dismissed the idea of a merger with a "company of Indians" but were forced to backtrack after shareholders threatened to revolt.

It has also silenced politicians in Europe who once criticized Mittal, raising hope that protectionist barriers may be softening in Europe....

In the end, Arcelor's foot-dragging has led to expensive concessions from Mr. Mittal. The agreed offer is nearly 40 percent higher than his initial offer in January, which was 27 percent higher than Arcelor's stock price at the time. The sale price also represents a hefty premium to Mr. Mittal's last offer of about 36 euros a share, and to Arcelor's last trading price of 35.02 euros a share.

Timmons and Giridharadas also raise The Big Question in the closing paragraphs:
The fight for Arcelor was closely watched around the world, as it evolved into a clash between two major forces shaping the world economy: the ascendancy of India and China as sources of new business models and ambitious new companies, and a rising tide of protectionism in the West, fueled by anxiety that new competition will erode a way of life.

"These are all tremors of the fact that the world system, which has been maintained by the United States and Europe, has suddenly got to adjust to the rise of China and India, and it ain't going to be easy," said Kishore Mahbubani, a former Singaporean ambassador to the United Nations.

Business leaders have watched the deal closely as a bellwether for emerging-market companies seeking to acquire their slower-growing Western counterparts. Once this deal is completed, analysts expect a surge of acquisitions attempts by multinationals rooted in the developing world.

"The emerging markets are running the big surpluses, they are accumulating capital and they will be spending abroad," said Daniel Gros, director of the Center for European Policy Studies in Brussels.

The situation also spotlighted changing standards of corporate governance in Europe, where boards and management are being forced to pay attention to a growing number of activist shareholders, after decades of running companies as they pleased.

The deal will "make a very powerful statement that no matter what the games, shenanigans and interventions, at the end of the day if you're determined enough the best price will prevail," Mr. Ross said. "That is a message that has not always been clear" in European deal-making, he said.

posted by Dan on 06.25.06 at 05:16 PM


Well, except that no one I know in the steel industry can figure out exactly what Mittal are going to DO with all their acquisitions. Operating in third world countries is one thing, but you can't just improve your results by turning off all of your pollution control equipment in Belgium. Nor can you just assume that a $60 billion steel company will be more efficient than two $30 billion companies; experience says it might well be LESS efficient.


posted by: Cranky Observer on 06.25.06 at 05:16 PM [permalink]

Another way of looking at this deal: one can often convince someone with too much money to pay too much. The only sensible thing Mittal can do with Arcelor is shut it down. That may very well work out quite well for Mittal.

Of course net exporters with surpluses will make direct investments in net importers. But let's not kid ourselves that the process will be elegant or pleasant.

One might want to consider the substrates of global capitalist triumphalism: Calvinist elitism, teleological corruptions of evolutionary theory, and so on. Lots of people seem to be underestimating the number of dead ends globalization will entail.

And Singaporese diploids saying "ain't" for pithy emphasis doesn't help.

posted by: CS on 06.25.06 at 05:16 PM [permalink]

Cranky Observer,
Are you speaking from knowledge of Mittal Steel's operations or making random cracks about pollution controls? It is rather insulting if it is the latter, and something that Mr Dolle would have said before the merger.

Mittal steel's strategy is to enable the consolidation of the steel industry, and this merger might just about stimulate this consolidation. Steel is risky business because of the highly fragmented nature of the industry, which means steel companies have little control. Further mergers and acquisitions of this kind would ensure greater stability.

posted by: vkri on 06.25.06 at 05:16 PM [permalink]

I'm sure Mittal's strategy is "consolidation" of the steel industry, leading to greater "control" and "stability" for leading suppliers. Sounds like a pending antitrust train wreck.

posted by: CS on 06.25.06 at 05:16 PM [permalink]

yes, this is greater stability and price control for the steel companies-i.e more money for Mr Mittal, among others. He is clearly in this for the money after all.

posted by: vkri on 06.25.06 at 05:16 PM [permalink]

Um, right. And the impulse to "greater stability and price control" is exactly why the US, EU nations, etc have well-developed antitrust law. The intent is to limit any seller's, or group of sellers', price control. Globalization is deemed good when it increases competition and decreases price control by sellers. Attempts at global consolidation of sectors will collide with national antitrust doctrine.

posted by: CS on 06.25.06 at 05:16 PM [permalink]

Correct me if I'm wrong, what connection does he actually have with India or its economy. I'd venture to say nothing. Much ado about nothing. And by all appearences it was a bad deal for Mittal. Some might argue that the score board should read Nationalism 1, Capitalism 0

posted by: Jav on 06.25.06 at 05:16 PM [permalink]

Actually, Nationalism 0, Capitalism 0.

posted by: CS on 06.25.06 at 05:16 PM [permalink]

And meanwhile, a Russian oligarch, Alexei Mordashov, walks off with $140 million of Arcelor's money as a kiss-off from their failed deal.

Hats off to the Arcelor managers. They may have sounded like a bunch racists, but in the end they got a really good deal for their shareholders.

posted by: SteinVT on 06.25.06 at 05:16 PM [permalink]

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