Steel wheels

The success of arguably one of the most bitterly-fought takeover attempts in recent memory has far-reaching implications, not only for the world?s steel sector, but also for India Inc.

Laxmi Niwas Mittal’s successful $ 32.5 billion bid for Arcelor has taken him to the top of the world steel production heap. The merged entity, Arcelor Mittal, will control a tenth of the world’s crude steel production and span nearly two dozen countries. The success of arguably one of the most bitterly-fought takeover attempts in recent memory has far-reaching implications, not only for the world’s steel sector, but also for India Inc.’s emerging global ambitions. Admittedly, it’s an uplifting moment for India in general and Indian business in particular. But there are several lessons to be learnt from the way the bid unfolded and the different levels at which it was fought. These offer important takeaways for Indian lawmakers, the bureaucracy, businessmen and, most importantly, Indian investors.

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First, this was not an ‘us against them’ affair, although both sides played the ‘nationalist’ card at certain stages. Fundamentally, the differences were over value -- both perceived and real. When these two eventually intersected, the deal was done, creating a whole which was greater than the sum of its parts. To quote but one example, synergies in supplies and greater leverage with buyers are estimated to immediately benefit Arcelor Mittal by $ 1.25 billion. Both stakeholders have already benefited.

Second, shareholder democracy has also emerged the winner. Although the controlling shareholders in Arcelor tried their best to block the deal, minority shareholders, who had no personal involvement in the company apart from enhancing the value of their investments, managed to prevail over the emotive concerns raised by the majority. Corporate India needs to take note of this. As Indian companies get larger, more globalised and more widely held, genuine corporate governance will have to replace lip service. It’s no coincidence that political opposition to the bid in France and Luxembourg decreased after Mittal managed to convince the powerful Arcelor unions that jobs would not be axed. The biggest lesson though, is for our politico-administrative framework. The deal offers an object lesson to our policy on how not to react to foreign bidders -- jingoism is not the jargon of the new global marketplace. It has also galvanised the global steel market and increased the valuations of all steelmakers. This is the right time to accelerate reforms in the steel sector and unlock the hidden value of India’s PSU steel firms. The key lies in negotiation, in creating wealth while preserving the interests of all stakeholders.