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For quite a while now, we have been told that ''the world
is flat''. That globalisation and the dismantling of
national regulations have created an international sphere
of open competition in which the best - that is, the
fittest, the most efficient, the strongest - will survive,
independent of nationality, race, creed, etc. That in
this brave new world, only talent and effectiveness
matter, because global capitalism has finally created
the possibilities of anyone breaking free of all the
barriers posed by geography, social structure and the
dead weight of tradition.
Of
course, even the votaries of this brave new world have
usually conceded that there will be winners and losers
in this process, and have grudgingly allowed for the
possibility of exclusion of the benefits for some. This
is how there has been some passing recognition (even
if not much concern) about agrarian crisis across the
developing world, or massive increases in unemployment
among workers in most countries, or problems faced by
citizens facing reduced provision of public goods and
services and constrained access to resources such as
fuel, wood and water.
But these are after all the less dynamic (if more numerous)
sections of the world economy, and for the international
financial press this has been so much less exciting
to watch than the action on the economic football field
of high flying capitalist players. The emergence not
only of ''emerging markets'' but of their own home-grown
capitalists, on the international arena, has been touted
as final proof of the levelling tendencies of the new
globalisation. Tata Tea can buy Tetleys of England;
Infosys can search for workers and locations in China;
Bollywood can become the second largest film exporter;
so we - or at least our own people - can conquer the
world.
This is why the international rise of a company like
Mittal Steel was watched with such a combination of
fascination and pride in India. Lakshmi Mittal appeared
to exemplify this new tendency of levelling among the
international haute bourgeoisie: the local steel magnate
and owner of Ispat Steel who first stepped abroad in
1989 to acquire a steel company in Trinidad and Tobago,
and subsequently, through a series of acquisitions,
built up what is now the world's largest and most global
steel company.
Mittal Steel had shipments of nearly 50 million tonnes
and revenues of over $28 billion in 2005. It owns steel-making
facilities in 16 countries, spanning four continents.
It employs 224,000 people spanning 49 different nationalities.
Its shares are listed on the New York and Amsterdam
stock exchanges. So at least some Indian could look
upon Lakshmi Mittal's success and forget about the millions
of farmers and workers adversely affected by corporate
globalisation: among the corporates that were benefiting
from the process, which was of course one of concentration
and centralisation of control, there were some of our
own.
And it was interpreted as yet more proof of the flatness
of the world - the ability of any capitalist from any
country to enter the international domain and become
the biggest player of all in a particular sector, and
the perception that arms-length transactions had enabled
all this to happen without reference to the national
origins of the player.
This is why the recent story of the Mittal Group's bid
for the French steel company Arcelor is so instructive.
In continuation of the almost obsessive drive for expansion
through acquisition that has characterised corporate
strategy in this company, in January this year Mittal
Steel revealed its unsolicited bid of $22.7 billion
for taking over Arcelor, a French company registered
in Luxembourg. This was a hostile bid, because a previous
friendly bid had already been rejected by the Arcelor
management.
Arcelor is among the biggest steel manufacturers in
the world, with the largest turnover (at more than $35
billion in 2005) and 94,000 employees in over 60 countries.
A takeover of Arcelor by Mittal would have created a
massive behemoth: far and away the largest steel company
in the world, with close to monopoly power in several
major markets. The share price of Arcelor shot up dramatically.
But not everyone was impressed, especially the Chief
Executive of Arcelor, Guy Dollé. He dismissed
Mittal Steel as ''a company of Indians'' even though
it is officially registered in the Netherlands and is
therefore Dutch, and Mittal himself is a citizen of
the U.K. Dollé declared that European steel was
"perfume" to Mittal's "eau de cologne."
The governments of France, Luxembourg and Spain quickly
declared their strong opposition to the deal. The French
press raised questions about Mittal Steel as a ''family
run business'' (Lakshmi Mittal's son is Chief Financial
Officer and his daughter is a member of the board) with
correspondingly murky management.
In early May, Mittal raised the offer by 34 per cent,
valuing Arcelor at $32.9 billion. It became apparent
that this deal would be hard to prevent since it was
seen as very attractive by Arcelor's shareholders (85
per cent of shares are held by relatively small investors).
The response by the Arcelor management has been nothing
short of remarkable. On 26 May, Arcelor announced that
it would merge with the Russian steelmaker Severstal,
one of the giants created by the problematic privatisation
process, owned and controlled by the 40 year old tycoon
Alexey Mordashov.
Arcelor agreed to pay €13 billion for the Russian steel
group, even though according to the German Commerzbank,
Severstal is worth no more than around €10 billion.
This also implicitly reduced the value of Arcelor's
shares, which had been raised by the Mittal offer. Shareholders
will vote on this deal at the end of June, but they
have been told that more than 50 per cent of them must
oppose it to prevent the deal, in contravention of normal
practice.
Interestingly, all the concerns about personal control
and management opacity do not seem to bother Arcelor
as far as Severstal is concerned, even though the young
Russian oligarch with a 32 per cent holding will become
the main shareholder of the worldwide number one steel
group, with eventual control. Even Mordashov's known
proximity to Russian leader Vladimir Putin was accepted,
since this deal would mean that ''Arcelor remains a
European company'' in the words of its bosses.
The London newspaper the Independent of 27 May had this
to say of the proposed deal: ''The Arcelor board appears
so appalled at the prospect of takeover by the Indian-born
steel magnate, Lakshmi Mittal, that it will do almost
anything to avoid his clutches - right down to surrendering
control to the Kremlin… The Arcelor board seems to think
it better to sell its soul to the devil than sup with
Mittal…What have these people got against him that they
are willing virtually to burn the place to the ground
rather than let him have the keys to the citadel?''
But why should we be interested at all in these games
played by international tycoons? Forget for a moment
the (legitimate) concerns about the concentration of
power and the threats to competition from such merger
activity. The really interesting lessons from this episode
are both economic and sociological, and they tell us
that the world is nowhere near as flat as we might like
to think even for the very very rich and very very powerful.
Finally, the pure arms length transactions unsullied
by social and cultural differences do not exist, and
capitalism continues to be shaped by, and rely upon,
those very differences.
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