By Swapan Dasgupta
For reasons that have as much to do with ethnicity as with national pride, Lakshmi Mittal’s doughty success in effecting the merger of the Luxembourg-registered Arcelor SA with his Mittal Steel has been widely celebrated in India. Apart from being seen as a glorious chapter in the annals of Indian entrepreneurship, Mittal’s triumph is also perceived as a successful assault on European prejudices. The gripping story of an Indian entrepreneur, who dared take on an entrenched establishment and win, is the stuff legends are made of.
The five month saga that began with Mittal’s hostile bid for the European steel giant Arcelor on January 27 was in many ways akin to a clash of civilisations. It is not that Mittal’s credentials in the steel industry were in any doubt—even before the bid for Arcelor his Rotterdam-registered company had already made a mark as the largest producer of steel in the world. Nor was it the case that Mittal’s earlier experience was confined to turning around dilapidated steel plants acquired at knock-down prices in countries of the erstwhile Warsaw Pact. Mittal Steel has a substantial stake in the United States too.
As the richest man in Britain, and the third richest in Europe, with a net worth of some £14.9 billion, Mittal was already a known figure in the European Union. His generous donations to the British Labour Party, his acquisition of a mansion in London’s Kensington Palace Gardens and the lavish reception he hosted in the Palace of Versailles for his daughter’s wedding had already made him a celebrity. To those with old money, Mittal may have seemed a trifle too flashy and comparable to some of the louder Texan billionaires who are routinely denied entry into some of the snootier gentleman’s clubs in Pall Mall and St James’, but at least he was not an unknown entity. Neither was Mittal some lesser-known Arab sheikh and nor was he mysteriously low-profile like the Barclay brothers who took over The Ritz in London and The Daily Telegraph. If analogies are to hold, Mittal was almost in the same league as the then Australian Rupert Murdoch when he bought The Times from the Thompson family.
Guy Dolle, the outspoken CEO of Arcelor, who led the robust resistance to the takeover of Arcelor was indiscreet enough to identify the problem with Mittal Steel as being too “full of Indians” but the fact remains that race was only a subliminal factor in the ugly corporate battle. Regardless of his assertion that Mittal was blessed with “monkey money” and was “incompatible with European cultural values”—a disqualification which did not hold true for Alexey Mordashov, the Russian owner of Severstal, the suitor favoured by the old Arselor management—political correctness ruled out dwelling too much on Mittal’s national origins and the colour of his skin. In any case, as President Jacques Chirac discovered during a visit to India last February where he was dogged by the Mittal controversy, the collateral damage of playing the race card was too much for the French economy to digest. With France hoping to sell commercial aircraft and nuclear reactors to India, screaming “bloody Indians” was plain untenable.
The fear of Mittal was actually centred on management style. Arcelor was in many ways one of the last vestiges of what is called “gentlemanly capitalism”. Blessed with a fine wine cellar and its own resident cheese expert in its Luxembourg headquarters, Arcelor epitomised the relaxed, high-cost and protectionist style of traditional European business. The Arcelor management viewed Mittal’s low-cost style of steel production—unlike Arcelor, Mittal Steel operates out of rented accommodation in London’s Berkeley Square—as a threat to a languid way of life. Dolle’s assertion on January 30 comparing the “perfume” produced by Arcelor with the “Eau de Cologne” churned out by Mittal was an evocative expression of the sharply contrasting styles. His reacted in exactly the same way as the pampered printers of Fleet Street and the clubbable journalists to Murdoch’s acquisition of The Times.
It is a tribute to the business environment of Europe that neither political pressure from the governments of France, Luxembourg and Spain nor contrived xenophobia could ward off the cold logic of capitalism. The Arcelor management tried many tricks—from announcing a company buyback of shares to proposing a merger with Russia’s Severstal—to beat back Mittal. They failed, not least because of a revolt of ordinary shareholders—a rebellion that was said to have been orchestrated by both Adam, an organisation of small French investors, and Goldman Sachs, one of the advisers to Mittal Steel. Finally, after Mittal raised his bid from the original 18.6 billion Euros to 26 billion Euros and lowered his family stakes to 43.5 per cent in the merged entity, even the Arcelor management succumbed, leaving only the Russians crying foul.
Of course, there was a final diplomatic compromise by Mittal. The new entity, which will control some 10 per cent of the world’s steel output will be known as Arcelor Mittal, rather than Mittal Arcelor. As one commentator put it, for the man who has travelled a long way from a Rajasthan village and Kolkata, “it was not worth risking the derailment of a world-domination strategy because of quibbles over whose name comes first.”
Viewed in totality, Mittal’s achievement is awesome and India is right to feel very proud of him. Yet, the question remains: is this India’s achievement or the achievement of an Indian? The answer seems clear-cut. Mittal’s meteoric rise in the world of steel began from the day he branched away from his family’s steel business in India. Mittal could leap into the big league and dream of global domination only after he extracted himself away from the suffocating business environment of India. He could achieve in a decade what the Tatas haven’t been able to manage in a century, not because his business acumen was more formidable, but because he wasn’t dragged down by an environment where there is a glass ceiling put on entrepreneurship and growth. He could succeed because he was not hemmed in by protectionism and could operate globally.
It is indeed ironic that the triumph of Mittal, who still holds an Indian passport, constitutes an indictment of India and a ringing endorsement of the West. Why is it that despite its high taxes and class biases, an immigrant entrepreneur can end up as the third richest man in Europe? Why is Indian entrepreneurial talent unable to find full expression in India? Why are there limits to the growth of Indian corporate houses operating from India?
The answers, without doubt, lie in the business environment of the West. Mittal had to fight prejudice and stomach a lot of gratuitous insults from native Europeans. In addition, he had to counter the resistance of a powerful section of the political class. He could overcome these because at the end of the day Europe allows full play, much more than, say, the US, to the logic of capitalism. Would a hostile takeover that encounters political resistance be allowed to succeed in India? Can India overcome its own xenophobic instincts as effortlessly as the European did?
These are questions that Indians need to mull over in the wake of Mittal’s spectacular business success. By gloating over Mittal showing the white man his place, India will be clutching at the wrong end of the stick. For India, the Mittal story suggests that Indians can come into their own—outside India.
(Published in The Telegraph, Calcutta, June 30, 2006)