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Who has the most respectable billionaires?

by Jerome a Paris Mon May 29th, 2006 at 06:45:15 AM EST

Mittal, the steel group founded, run and owned by the eponymous Indain billionaire, has formally launched its takeover of Arcelor, the European steel group. Arcelor has now announced its parade, in the form of a merger with Severstal, the largest Russian company in the sector, giving Mr Mordachov, the main owner of that company, 32% of the merged entity.

When Mittal first announced its bid earlier this year, there were hints of racism in the mostly hostile European reactions to the bid, which were skillfully played up by Mittal himself. There was also a lot of support for the industrial logic of the deal, as well as a surprisingly positive reaction from the trade unions, some of which clearly saw Mittal as a decent owner, and Arcelor as a faithful follower of global capitalist rules.

Now that Arcelor's proposed riposte opens the perspective that Europe's biggest steel owner will be de facto (if not, contractually, for the first 5 years) controlled by a Russian billionaire, this begs the question of which foreign billionaire appears more acceptable to the Europeans.

The answer, is actually not that simple. A number of hostile reactions have come up to criticize the deal with Severstal, on the argument that Mordachov hardly represents progress in terms of transparency and corporate governance, and that he will be more clearly associated with his country than Mr Mittal (and that country, like others, but more than India, has a history of using economic levers in its international relations).

On the other hand, both Messrs Mittal and Mordashov are "real" industrialists who have built good companies in a tough sector and seem keen to continue on that road - so neither is in for a quick buck. and Arcelor's defense against Mittal at times seems more like a desperate attempt, targetted purely at financial investors, to keep the existing management in place.

Could the lesson here be that while our companies outdo themselves to please the financial markets, the real industrialists (i.e. the people most likely to actually to build factories and create jobs other than financial analysts or burger flippers) are to be found in the emerging economies and we should welcome them with open arms?

As Michelin mourns the death of its eponymous boss (and owner) Edouard Michelin and reminds us that some of Europe's biggest industrial groups are still firmly family-owned and managed - and seem to be thriving, could the debate turn to industrial vs financial investors rather than to brown vs white investors?

I haven't followed this, mostly due to ignorance...but have heard the names...so at this point, which company has the upper hand in the bidding, and more impprtantly, who would be better for the people working in Arcelor?

"Once in awhile we get shown the light, in the strangest of places, if we look at it right" - Hunter/Garcia
by whataboutbob on Mon May 29th, 2006 at 06:51:45 AM EST
The merger with Severstal would appear to give Arcelor the upper hand against Mittal, and thus bring Mordashow in.

But there are attemtps by some shareholder to block this:

Arcelor investors urged to thwart Russian deal

The prospect of a shareholder revolt against moves to create the world's biggest steelmaker gathered pace on Sunday as several investors in Luxembourg-based Arcelor spoke out against a proposed merger with Severstal of Russia.

Goldman Sachs, the US investment bank, sought to co-ordinate resistance to the deal by circulating a draft letter to Arcelor directors that criticised the arrangements for agreeing to the merger.

A banker involved with the letter - due to be sent to Joseph Kinsch, Arcelor chairman, in the next few days - said it had been posted to 30 to 50 shareholders of Arcelor, most of whom had indicated their support.


The letter drafted by Goldman Sachs asks shareholders to press Arcelor's management to agree to an extraordinary shareholders' meeting in a month's time. They would be asked at the meeting to approve the plan by a two-thirds majority of those present or represented.

That would be in place of the arrangement Arcelor suggested on Friday for the matter to be deemed agreed unless more than half the company's entire shareholder base voted against it at a meeting scheduled for June 28.

The support of more than 20 per cent of shareholders is needed to call an extraordinary general meeting.

So the triggers are simple:

  • if 20% of shareholders ask for it, there will be an Extraordinary Assembly. In that case, the Severstal deal will require 66% approval, something pretty unlikely in the circumstances. Then it's back to the Mittal offer, which may or may not be accepted by shareholders.

  • if they don't get these 20% to ask for the EA, then the Severstal merger will go through unless 50% of all shareholders (something impossible with presence in the 30% usually) vote against it.

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Mon May 29th, 2006 at 07:12:18 AM EST
[ Parent ]
Sorry to say Bob, that as far as I can tell, there will be little good news for Arcelor employees as a result of either bid.

My logic:

a) I think it was Tsarrio? that has pointed out Arcelor is hardly a model employer around the world, so neither bid is truly a large intrinsic loss for employees.


b) All the evidence about industrial mergers of this kind suggests that except in cases where the new giant clearly has market share advantages far beyond the old companies then there is little immediate shareholder value to the merger.

as a result

c) To placate the stock markets, management of the new conglomerate will have to make some symbolic sacrifices. These usually take the form of "sweating the organisation" and downsizing a percentage of the new workforce. This is probably not good news for Arcelor employees (or even those of the other company.)

by Metatone (metatone [a|t] gmail (dot) com) on Mon May 29th, 2006 at 07:36:39 AM EST
[ Parent ]
The theme of industrial creation is worthy of further examination. Rupert Murdoch has created a large, profitable and powerful enterprise, mostly by ignoring the "short termism" of the investment markets and making a whole host of long term investments.

I don't think there has been a definitive study on this, but there are small evidences that creating new enterprises mostly happens where management resists investor logic, at least in the growing phase.

Given all the horse-feathers that is spouted about "free-market" dynamism as the true virtue, one would think this would make us more suspicious of all those stock analysts who seem to make up the majority of the "economic commentator" class.

One would think...

by Metatone (metatone [a|t] gmail (dot) com) on Mon May 29th, 2006 at 07:40:21 AM EST
My impression is that Western banks find Mr Mittal more respectable, not because his corporate governance record is really so much better, but because he's been a client of them for quite a few years now.

Better the devil you know...

by Metatone (metatone [a|t] gmail (dot) com) on Mon May 29th, 2006 at 07:41:47 AM EST
Good point... The narrow interests of the banks that provide most of the "analysts" who comment on these things, and that get the biggest fees from these big deals, are not to be forgotten in this debate.

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Mon May 29th, 2006 at 09:46:28 AM EST
[ Parent ]
It is interesting from this vantage point.  

Personally I think they are all up to no good...  Billionaires, that is.  

But America def. has a double standard when it comes to whom we'd rather do business with.  Heck, much of our business is done in India.  Doesn't matter what the business ethics are.  It's India.  It's our new best friend.  Give em all the nukes & jobs they want.  Anyway, I'd be impressed if we gave a Russian company a gigantic stake in one of our largest companies, or at least if it were all over the news.  Or if they did, it would be analyzed politically, whereas with India it's good old fashioned capitalism & globalization at work.  (Not to mention that I don't think our gov't would look highly upon one of Putin's cohorts buying control of an American company, bail out or not...  Just speculation...)

Those who can make you believe absurdities can make you commit atrocities. -Voltaire

by p------- on Mon May 29th, 2006 at 10:32:51 AM EST
It's a question of strategy for a number of reasons:

  1. Under this new agreement, Arcelor conrols its own strategy. The new company will be an enlarged Arcelor, not Mittal.

  2. Lakshmi Mittal wanted to have more than 50% of the shares at some point. His latest offer was 45%, which is still hell of a lot more than Mordashev's share.

  3. Beyond those two reasons, there is another big one that we need to consider. Most people perceive Mittal to be very heavy-handed and ruthless in terms of expansion. If you look at his history in the States, it's been quite horrible.

Just to throw my 0.02 in here, working in the steel / automotive industry, I can tell you that any further consolidation would be one of the worst things that could happen to us.

Mikhail from SF
by Tsarrio (dj_tsar@yahoo.com) on Mon May 29th, 2006 at 02:58:52 PM EST

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