Cross-border mergers: Heavy Mittal

Nothing raises the hackles like cross-border bids

"THE price which society pays for the law of competition...is great; but the advantages of this law are also greater still than its cost--for it is to this law that we owe our wonderful material development." If Lakshmi Mittal, an Indian-born entrepreneur who is putting together history's greatest steel empire, follows the vision of Andrew Carnegie, then the hope is that the rest of the world returns the compliment by heeding the 19th-century industrialist's arguments.

Yet right now that hope seems a vain one. Mr Mittal's euro18.6 billion ($23 billion) hostile bid for Arcelor, Europe's champion steelmaker (formed, in turn, from the champions of France, Spain and Luxembourg in 2002) has Carnegie's sweep and audacity. Shocking in its abrupt timing--Arcelor had only a day earlier declared victory in its own hostile bid for Canada's Dofasco--this is a deal that promises to transform its industry ()see page 61. If Mr Mittal succeeds, he will have created a producer more than three times the size of its nearest rival and as big as the entire Japanese steel business.

Mr Mittal's trouble is that his bid has aroused a chorus of patriotic outrage. Luxembourg's prime minister, Jean-Claude Juncker, scorned the offer as incomprehensible and vowed to use "all necessary means" to fight it. But at least Luxembourg, as the owner of 5.6% of Arcelor, is directly involved. Thierry Breton, France's finance minister--and, as a former businessman, supposedly a liberal--cannot claim even that excuse. That did not stop him voicing "profound concerns" and lecturing Mr Mittal about his takeover etiquette. French socialists said that in Europe's "hour of truth" Arcelor had to be protected "even if it couldn't be protected legally".

In a land where protecting the "culture" has come to mean saving the national yoghurt from PepsiCo, all this is an inevitable piece of theatre, you might think. But it is worse than that. The angry response to "foreign" bids is limited neither to France nor to steel. Furthermore, the sort of nationalism that begets it corrodes the very globalisation that Carnegie would have recognised as a source of the greater prosperity.

Bessemer unconverted

Almost everywhere you look, some government or other is moaning about nasty "foreign" takeovers. (Canada is an honourable exception, see page 52.) In Europe, Italy schemed against the bids of Spanish and Dutch banks. German politicians have sounded alarms about private equity "locusts", mainly American ones. Even America has occasionally fallen for it, fretting about Lenovo, of China, buying IBM's PC division and sending state-owned China National Offshore Oil Corporation (CNOOC) off with a flea in its ear for having even thought about buying Unocal.

The arguments against foreign bidders tend to boil down to three: we don't trust them with our strategic industries; we don't trust them with our jobs; and we don't like the look of them. (For an example of the last of these, look no further than Guy Dolle, head of Arcelor, who this week played on how Mittal, with a Dutch listing and run out of London by someone of Indian extraction, is not really European.)

Chauvinism is easy to dismiss. But what of the other two arguments--security and employment? The steel industry itself illustrates how slippery such ideas are. There was an age of battleships and tanks when steel was indeed strategic in the proper military sense. Most of the time, however, the claim is looser and more flimsy. Arcelor's steel, like Unocal's oil, can be bought on the open market. And three decades of disastrous state entanglement in the steel industry show how successfully you can safeguard jobs through subsidies and barriers.

If they were wise, European politicians would now be letting Mr Mittal's bid succeed or fail purely on its business merits. An eager buyer while prices are high: surely this is the ideal chance to get European steel out of politics, once and for all.

Editorial feature.

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