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Sunday, June 25, 2006

L.N.Mittal Gets Arcelor – Finally!!

The world’s largest steel making entity is almost there. The Arcelor board backs its takeover by L.N.Mittal’s Mittal Steel. Arcelor chief executive Guy Dollé has done everything possible in the past five months to fend off the hostile bid from the No. 1 player Mittal. Despite Mr. Dollé's stout resistance, momentum recently shifted Mittal's way. A key reason is that some Arcelor shareholders feel their company's management had gone too far in trying to block Mittal. These shareholders are part of a trend sweeping Europe: activist investors who no longer simply accept management's views. Mr. Dollé rallied prominent politicians to speak out against Mr. Mittal's bid, a chorus that in the past would have chased away a hostile bidder. This time, the political pressure, along with some of Arcelor's own defense strategies, instead angered some Arcelor shareholders.The global circulation of capital is now a well oiled machinery. Day in and day out, the developed world sends dollars and euros to the developing world in exchange for commodities, natural resources, and manufactured goods. And every day, the cash makes a round trip as foreigners buy assets in the United States and Europe. The US debt is to a large extent getting funded by the reserves of the emerging nations. Now slowly the Euro is also becoming a second alternate for the dollar to park national reserves. So as I covered in L.N.Mittal, Arcelor & Changing Mindset the one world camaraderie and free market principles disappear when someone from the developing world wants to buy a huge corporation manufacturing large commodity churning assets. As the WSJ notes, Mr. Mittal always felt that he needs to acquire Arcelor to speed the pace of steel-industry consolidation, particularly since both suppliers to the industry and customers are consolidating. Arcelor and Mittal, being both aggressive consolidators, have often found themselves bidding against each other for assets and driving up the cost. Mr. Mittal has said the combined companies could save more than $1 billion in annual costs but no Arcelor executives would lose their jobs. The whole saga of this acquisition would sure be a case study in future business schools and history books – this is a testimony to the fact that this is an era of globalization, cross-border investment and liberalization, not one in which investors are judged by the color of their skin ( I also point out here that most of asian - that includes the chinese and indian enteprises have significantly benefitted by the capital in the form of equity & the technology that came from the western nations– it is highly doubtful if they would have become so strong without it and the market access provided by them. Also I can't overlook the key positions that Asians hold in several marquee western headquartered firms)- only that it has called for such massive efforts in the case of Mittal steel – all’s well that ends well.

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