When one of the richest men in the world invites you to a private dinner at his gorgeous $128 million London home, who would be so churlish as to refuse, even if he is your biggest business competitor? Guy Dollé says he had no reason to suspect that the Jan. 13 invitation from Lakshmi N. Mittal would be the prelude to a hostile takeover bid that last week sent half of Europe into a frenzy.

Dollé, 63, is chief executive of Luxembourg-based Arcelor, Europe's biggest steel company, measured by revenue, which was formed in 2002 out of what was left of the French, Belgian, Luxembourgian and Spanish steel industries. Mittal, 55, is the Indian-born chairman of the world's biggest producer of steel, Mittal Steel, which he built up over the past decade with a slew of acquisitions, in the process making a fortune for himself estimated at $25 billion. The two men have known each other for years and, as board members of the steelmakers' international trade group, meet regularly to discuss industry-wide issues. But on Jan. 13, after predinner drinks in Mittal's Kensington Palace Gardens mansion, the Indian popped the surprise question to his European rival: Why not merge their two companies?

Exactly what happened next is a matter of dispute. Dollé says he gave a noncommittal reply, and the two moved on to dinner and other business, leaving discussion about a possible merger open. "I said neither yes nor no," he recalled last week. "I just said 75% to 80% of mergers fail because of cultural differences." For his part, Mittal says Dollé immediately ruled out a deal. "He gave several reasons why he wasn't interested," he told Time. "I told him I'd get in touch again, and called a few days later to say there was an urgent need to meet." The men never did re-establish contact and on Jan. 26 — less than two weeks later — Mittal called Dollé on his mobile phone at Frankfurt airport while he was checking in for a flight to Toronto. The message: Rotterdam-based Mittal Steel would be announcing the following day a formal $22.6 billion takeover bid for Arcelor, one of the largest hostile bids in European history.

He might as well have dunked a croissant in hot vindaloo curry sauce. In much of Europe, Mittal's move was viewed as a rough attempt by "new" India to take on "old" Europe. France's Finance Minister Thierry Breton accused Mittal of having "a grammar problem" and 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." Dollé worked hard to encourage public opposition, dismissing Mittal as a low-grade operator specializing "in buying up obsolete installations at low cost." Mittal himself insists that the deal amounts to the merger of two European companies to create a stronger one. "The rationale for merging is very strong," he says.

While the rhetoric bounced from side to side, Mittal's onslaught gave many Europeans a high-profile reason to reflect on how globalization is transforming the way their economies work and shifting the balance of power not just from West to East and rich to once-poor, but from government regulation to private-sector free enterprise. "The state's ability to prevent this takeover is extremely limited," conceded Patrick Ollier, president of the French parliament's economic affairs committee.

Alongside agriculture, steel is arguably the most political of industries in Europe, and it has long been one of its most regulated. Back in the 1950s, the European Union itself was founded on the basis of an official scheme to manage steel and coal output and prices, and when the industry ran into trouble in the 1980s, governments across Europe poured in billions of dollars of state aid in an attempt to keep it alive. But times have changed. State aid is now banned, barring exceptional circumstances. And with the emergence of China, India, Brazil and Russia as fast-growing world economic forces, demand for all sorts of basic materials from oil to platinum has been on the rise. Steel prices have doubled in the past four years, and worldwide output of an industry once written off as moribund has risen by more than 30% since 2000.

In this new world, location is less important than cost efficiency, and highly mobile investors and entrepreneurs such as Mittal — an Indian national, based in London, with a company headquartered in the Netherlands — are making the rules. Even in Paris, amid the official fury and calls for the deal to be blocked, some acknowledged that the tide of history is turning against the old habit of looking at business in purely national or European terms. "I understand the astonishment and emotion" the bid caused, said Luc Chatel, a lawmaker from President Jacques Chirac's ump party. But he pointed out that the French find it natural for automaker Renault to buy a controlling stake in its Japanese rival Nissan, and added: "What do you prefer? To see European industries shift production to India, or to see Indians investing in Europe?"

Mittal's bid could still be derailed. Financial markets bubbled over with rumors that Arcelor was looking for a rescuer, possibly a Japanese firm who would put in a higher offer, although no such "white knight" had emerged by the end of the week. Mittal also needs to convince investors that his bid, which consists mainly of Mittal Steel stock with some cash, is good for them. Mittal Steel has what many see as a financial weak point: its corporate governance structure, which locks in Mittal family control. Lakshmi's son Aditya, 29, is president and ceo of the company, and his daughter Vanisha, 24, is also on the board. The family's current holding of 88% of Mittal stock is set to drop to just above 50% if the deal is concluded. But the Mittals will continue to have a big controlling majority because of a dual stock structure.

It's not hard to see why Mittal should feel so strongly about retaining family control. Money is in his name: Lakshmi is the Hindu goddess of wealth. But former neighbors say he was born almost penniless, growing up in Sadulpur, a small Rajasthani town in an area of thorn trees and sand dunes in western India, in a house built by his grandfather. The extended family of 20 lived on bare concrete floors, slept on rope beds and cooked on an open fire in the brick yard. "They didn't have any income," says Sushil Kumar Saraogi, 61, editor of the weekly Sadulpur Times. "They scraped by on what the father had managed to rescue. They were very poor." Shankar Lal Saraogi, 78, Mittal's uncle, adds: "They weren't considered a prestigious family. Very ordinary, in fact."

The Mittals quickly moved on — and up. They belong to the Marwari caste, well-known in India for being traders and moneylenders who figure prominently in the leading business houses of India. The family left for Calcutta, a center of Marwari activity, where father Mohan Mittal became a partner in a steel company. Lakshmi graduated with a business degree from the élite St. Xavier's College in 1969 and joined his father's firm before branching out on his own. "He was very strong in numbers," recalls Sisir Bajoria, a fellow Xavier's student. Mittal split from his father and two younger brothers in 1994 for reasons they don't discuss. He took the international arm, with interests in Indonesia and Trinidad and Tobago, and the rest of the family kept the domestic Indian business. Since then, Mittal has left the other side of the family behind. Over the past five years he has made about 20 acquisitions, buying up a network of steel producers in former communist countries including Kazakhstan, Romania and Ukraine, and pushing into the U.S. in 2004 with the $4.5 billion purchase of International Steel Group. His empire now has more than 175,000 employees and spans the globe. Last year, he set up shop in India for the first time, agreeing to build a new factory in the northeastern state of Jharkhand.

With business success has come wealth and opulence. He acquired the Kensington mansion, said to be the world's most expensive home, from Formula One racing's Bernie Ecclestone two years ago. And in 2004, he and his family made headlines around the globe when he threw a $50 million wedding bash for daughter Vanisha. It included an engagement ceremony at Paris' Tuileries Gardens featuring parrots and a tiger; an opera and banquet at the French royal palace at Versailles; and a Kylie Minogue concert and sit-down dinner at the 17th century Vaux le Vicomte Chateau, where chefs from Calcutta served 1,000 guests on china monogrammed with the initials of the bride and groom, hers in pink, his in blue.

While he's a hero in his native country, Mittal had to move fast last week to counteract attempts in parts of Europe to paint him as a villain. He spent most of the week shuttling in his private jet from European capital to European capital, including three trips to Paris, to explain his motives and promise he wouldn't cut European jobs. Governments have limited formal means to stop the Arcelor deal, as 85% of the company is traded freely on the stock market. Nonetheless, they and labor unions can make life hard for Mittal, who still needs to get E.U. antitrust clearance for the deal. The French government has used its political muscle to block takeovers in the past, including an attempt in 2004 by Germany's Siemens to acquire some operations of its ailing French rival Alstom. But the government's control over privately held companies is much more limited. On New Year's Eve, Paris published a list of 11 strategic industries that it wants to protect from takeovers; they include some biotechnology research and casinos but not, surprisingly, steel.

Antitrust clearance may take several months, but early indications are that it may not pose a huge problem. The combined company would be three times the size of its nearest competitors, with a 10% share of the world steel market, but Mittal and Arcelor don't have many territorial or product overlaps that could cause problems with regulators. Hermann Reith, analyst with BHF-Bank in Frankfurt, says he reckons the chances of the deal going through are now more than 50%. "We will look at this issue, as always, very carefully on competition grounds only. The regulation gives us no power to question mergers for other reasons," said Neelie Kroes, the E.U.'s Antitrust Commissioner. She added: "I am against national champions. And against European champions. But I am for global champions based in Europe."

The irony of this fight is that Mittal and Dollé both share a similar vision about the future of steel. Both are trying to build themselves up as Europe-based global titans, believing that a worldwide consolidation is necessary to bring stability and sustainability to a volatile industry. Mittal has long argued that the industry's future will brighten if several huge players emerge from the scrappy pack of smaller firms. "Steel will always remain a cyclical industry," he told Time. "But if we are strong in financial health and stick with our principles and vision, we will reduce the effect of the volatility."

Despite the acrimony on display last week, Mittal says he remains "good friends" with Dollé. "I admire him as a leader. It's nothing personal." But dinner is dinner, and business is business.

• PETER GUMBEL
• Lakshmi Mittal's bold bid for steelmaker Arcelor sent half of Europe into a frenzy. Inside a strikingly successful business model