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.
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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?"