Should Shareholders Be Kings?

The story takes place in France, in Belgium, and in Luxemburg. But it is really a pan-European story, and in economic terms it encompasses the entire world. Mittal, the biggest steelmaker in the world, has successfully gained control of Arcelor, the second biggest, through what initially was a hostile takeover bid.

This is no mere corporate takeover; it is a conflict between business and social models. Arcelor, originally French and Luxemburguese but now predominantly Belgian, has a strong base in Brazil and operates throughout much of the world. It specializes in high-quality, special steel products designed for the most complicated uses. These high-quality products are purchased on middle- and long-term contracts, mainly by long-time customers. Arcelor, one of the oldest steel manufacturers in the world, depends very little on the highly speculative world market for raw steel, and its workforce is (on average) highly qualified and stable.

Mittal, by contrast, is a conglomerate that has come out of nowhere to become the world’s leading steel company in a mere two decades. It did so by brilliantly consolidating and rationalizing steel plants throughout the world. Its president is Indian, but it has no factory in India. Mittal is mainly based in Eastern Europe, but also has a strong presence in Asia (South Korea) and Latin America.

Mittal is a strong but fragile company, for it is highly subject to the speculative waves of the global market for raw steel. It tightens costs, and outsources work as much as possible, so its workforce is paid less than Arcelor’s employees and is less stable. Moreover, Arcelor represented a perfect takeover target: most of its capital belongs to diverse shareholders. The opposite is true of Mittal, where the Lakshmi Mittal and his family own more than 60% of the shares. This explains why Mittal’s shares are traded in Amsterdam, one of the few stock markets in the world that allows for the listing of companies with so little free-floating capital. Thus, there is no reciprocity: Mittal could bid for Arcelor, but Arcelor could not bid for Mittal.