Lakshmi Mittal makes Indian business nervous too  

March 13, 2006

The Net savvy, educated Indians are thrilled at Lakshmi Mittal’s global clout and his acquisitions, but without getting into the details of the hostile bid. However the Indian industry is neither happy at Mittal’s moves, nor is it comfortable with the government’s interventions on his behalf.

Lakshmi Mittal makes Indian business nervous too

When Lakshmi Mittal, the largest steel producer in the world who lives at London, made a  $ 22 billion hostile bid for Arcelor, Europe’s largest steel-maker it rocked the governments in three European nations.

Arcelor, is a unique organization. While 80 per cent of its shares are held by the public, the French run company has significant investments by the Luxembourg and Walloon region (Belgian) governments.  

It may be recalled that three European governments reacted with anger to the Mittal bid and the Indian media immediately began to attribute racist motives to their objection. Most Indians found it outrageous and our government made its support for Mittal very clear. After all, the third richest man in the world, who lives and works out of various Eurpoean capitals, still carries an Indian passport.

And the Indian Prime Minister as well as Commerce Minister Kamalnath went public about their support for Laksmi Mittal and their desire that he gets a fair deal. Writing elsewhere, I had asked, if the Indian government would behave differently if and when a foreign company makes a hostile bid for any of our Indian bluechips?

The answer is negative. The Indian government, as a policy, has always disapproved of hostile takeovers. The only hostile takeovers that have succeeded in India are against multinational companies with a professional, Indian management. Even here, a powerful company like ITC has managed to keep its largest shareholder BAT of the U.K. out of management control with the government’s blessings and support.

What then would be the reaction if Lakshmi Mittal decides to enter India through the hostile acquisition route? For instance, what if he made a hostile bid for the blue-chip Tisco where the Tata Group shareholding is less than 27 %? Forget about welcoming such a move, will the government even dare to remain neutral?

In fact a better comparison would be with Steel Authority of India (SAIL), which is a public sector giant. One can only imagine the outrage, especially from the UPA government’s communist allies, if Mittal even contemplated such a move. In fact, his bid for Arcelor is rather similar. Arcelor is a sort of professionally managed, public sector company, with three governments holding a stake. However over three-quarters of the shares are publicly held. The Indian government holds over 51 % of SAIL’s equity, so an outright acquisition attempt is impossible, but one can be sure that even a significant strategic stake would make the government uncomfortable and trigger a hue and cry across the country.

Over the last week, I have discovered that most Net savvy, educated Indians are thrilled at Lakshmi Mittal’s global clout and his acquisitions, but without getting into the details of the hostile bid. To them, it is the fascination and pride in an Indian giving a fright to European industry and governments. In fact, it is much like they would cheer Sania Mirza, whether or not they understood the rules of tennis.

But Indian industry is neither happy at Mittal’s moves, nor is it comfortable with the government’s interventions on his behalf. Tata group chairman Ratan Tata has already voiced his apprehensions. But typically, he has chosen to speak to American television anchor Charlie Rose. He reportedly said, “He (Lakshmi  Mittal) is an Indian national but has lived overseas for many years. His company is registered in Rotterdam. The Indian government should ideally not be involved or take sides as it's an issue the Arcelor shareholders have to decide".

I have received emails and calls that suggest that many Indian industrialists have quietly made their unhappiness clear to the government. They have pointed out that he neither lives in India, nor has any business here. In fact Lakshmi Mittal is understood to be looking at investing in some lucrative mines in Jharkhand, which is also not appreciated by rivals in the industry. I am told by industry sources that India is unlikely to make any more statements of support on behalf of Mittal.

The more discerning readers have raised some interesting issues. One says, Indians have no business talking about racist European governments, when Indian private sector companies (listed on stock exchanges) behave like family concerns and the children inherit management control, irrespective of their competence. In contrast, many multinationals have turned truly professional over time. For instance, a Hewlett Packard will not even allow the heirs of the Hewlett family to use the HP name in their personal companies, since the corporate entity guards its identity.

In contrast, Mittal’s vast global empire continues to operate like a private enterprise. The family owns 88 % of the equity; this keeps floating stock low and valuation rather high. This massive steel empire, spanning several continents has Mittal’s 25-year-old son as the Chief Financial Officer; this smacks of a family business rather than a professionally run multinational, no matter how competent Aditya Mittal may be. 

Another reader points out that India has actively discouraged hostile takeovers even among private industrialists and even Foreign Direct Investment (FDI) is kept out only in the name of protectionism. How can we then dictate how international governments must behave?

Funnily enough, former Disinvestment Commission Chairman, G.V.Ramakrishna says that the World Trade Organisation (WTO) in fact allows governments the right to intervene in order to ensure that private investment is conducive to the objective of sustainable development. This gives government plenty of leeway to intervene in situations such as a hostile bid against the nation’s top companies and European nations were well within their rights to react negatively to the Mittal bid. There is nothing racist about that.

But again, it is a typical Indian strategy to colour issues on the basis of caste, religion, or, in this case skin pigmentation, in order to avoid a debate that is based on facts, logic and fairplay.

(This article appeared in The Hindustan -- a hindi daily on March 12,2006)