Sucheta Dalal :Mittal versus Arcelor: The hypocrisy within
Sucheta Dalal

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Mittal versus Arcelor: The hypocrisy within  

Mar 6, 2006

Lakshmi Mittal is the kind of guy who makes India proud. He represents the new, confident and successful face of India that is able to give the jitters to businessmen and governments around the world. It is a heady feeling after half-a-century of insular policies, ridiculous protectionism and suffocating red-tape.


Mittal is the world’s largest steel producer and we feel proud of his global empire and his wealth (he is supposed to be the third-richest man in the world); although he has carefully stayed away from India after a default to Indian financial institutions several decades ago. In fact, his success outside India only seems to confirm how the license-permit raj killed entrepreneurship. Mittal lives out of a $128 million home in London and has his headquarters in the Netherlands but we don’t mind that since he proudly carries an Indian passport.


That is why, when Lakshmi Mittal made an audacious, $22-billion hostile bid for Arcelor, Europe’s largest steel-maker, all thinking Indians cheered (the reaction of tens of thousand bloggers are a good indication). Time magazine wrote that Mittal’s bid “roiled markets and infuriated governments”, but the India media was all gush and praise when he made a high-profile, whistle-stop visit to attend the wedding of another powerful global Indian and quietly canvassed national support.


When Europe’s objection to the Mittal bid acquired a racist hue, Indians wanted the government to support him more overtly. Newspaper headlines and bloggers again spewed anger when the Prime Minister of Luxembourg, Jean-Claude Juncker, declared: ‘‘This hostile bid by Mittal Steel calls for a reaction that is at least as hostile.’’ If Spain and Luxembourg officially opposed the bid, we expected the Indian government to respond suitably.


Consequently, Commerce Minister Kamal Nath warned his European Union counterpart against a politically-motivated effort to block Mittal’s bid based on his skin colour. Even Prime Minister Manmohan Singh raised the Arcelor issue with the French President Jacques Chirac in an official meeting.


This is all very well. But now that we have waved our national flags and supported Lakshmi Mittal, can we apply our minds to whether the government will behave differently if and when a foreign company makes a hostile bid for any of our Indian bluechips?


A quick look at the history of Indian hostile takeovers would show that none of them have succeeded against an entrenched, family-owned company. It is politicial muscle alone that has kept BAT out of the management of ITC Ltd inspite of being its largest shareholder. So much so, that the UTI Specified Undertaking held on to a crucial 10 per cent stake to block BAT acquiring management control, instead of collecting a handsome premium by selling the shares. BAT had no say in ITC’s change in business profile from a cigarette maker to a hotel, FMCG and agro-based company. ITC has also blocked BAT from taking a 51 per cent stake in VST.


Starting from Swaraj Paul’s attempt to take over H.P. Nanda’s Escorts, hostile bids have always caused a stink in India. When Manu Chhabria went on an acquisition spree in the 1980s—Hindustan Dorr Oliver, Shaw Wallace, Gammon India, Mather & Platt, Falcon Tyres, Gordon Woodroffe, Genele and Tezpur Tea—he carefully ousted ‘professional’ managements or multinationals not family controlled Indian companies. The fight was tough but often successful, even though the government frequently backed the ‘professionals’ who behaved like owners.


When Reliance acquired BSES through a long ten-year process, it worked through the management and the government to ensure a smooth transition. Forget foreigners, even Indian industrialists stay away from hostile bids, because they are too messy and political. The rare hostile bid in recent years (the A.H. Dalmia bid for Gesco Corp) has invariably fizzled off, or turned out to be mere attempts at driving up stock prices or greenmail. In Gesco, the management preferred to hand over the company to the Mahindras rather than allow an upstart raider to get the better of them.


When Arun Bajoria attempted a raid on Bombay Dyeing by acquiring a 14 per cent stake, it caused Ratan Tata and Keshub Mahindra to rush to Nusli Wadia’s aid; they even met the Sebi chairman to plead his case. The worry then was that Bajoria was backed by a big industry house.


Will Manmohan Singh and Kamal Nath take a consistent stand if a French or American company were to bid for Grasim (Birla holding is officially below 25 per cent)? Here, one must remember that the BJP government has given Indian companies plenty of opportunity to shore up the promoters’ holding and protect ownership.


Would we not be outraged if their government’s told us not to be racist? If the bid is at a substantial premium to market price, will government-controlled institutions have the freedom to tender their shares and book profits? Nationalised banks and financial institutions are the vehicle through which government has always intervened to block hostile takeovers.


Aren’t we also being hypocritical about Foreign Direct Investment? We expect Europe not to look at business in ‘national’ terms. But we don’t practice what we preach. So much so that FDI in the retail sector did not even find mention in the Budget speech even though Indian acquisitions abroad in the technology space have made frequent headlines. FDI in the print media is also blocked under pressure from some ‘nationalist’ media barons.


Neither those newspapers nor the government is embarrassed at our diametrically different attitude when it comes to domestic policy. If our official stand on the Lakshmi Mittal bid leads to a reconsideration of domestic policies, the global Indian would have made an important contribution. He has already shown that the fear of foreigners is completely unwarranted now that Indians are ready to take on the world.


-- Sucheta Dalal