French opposition to Mittal Steel bid
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The only surprise in the bid of Mittal Steel over Arcelor has been the bid itself. Every step after the bid is proceeding on expected lines. France is leading the vociferous pack of political opposition to this bid. Given the history, no one would have expected anything lesser from France. It has proved itself to be the most protectionist country in world in recent times. Only last year, it had all its political leadership united to oppose the ‘rumoured’ bid of Pepsico over Danone, the French food firm. The bid never saw light of the day.
France is the most subsidy driven economy in the developed world. It is also involved in a debate with Britain in the EU over its protectionist policies(see my post of 29th November on this). It has used the money paid by EU under Common Agricultural Policy (CAP) to effectively protect its agricultural sector. It was not long back when Christine Lagarde, the French trade minister, bluntly said that Tony Blair is talking about reform as it is fashionable and he is looking for scapegoat in this context.
On closer look, I find many other compulsions for Mr Villepin to oppose this bid. The GDP growth rate of France has been 1.6 % in 2005 and unemployment rate is 9.5%. France is going through the phase of stagnant economy and rising unemployment. The riots by unemployed youths couple of months back must have been fresh on his mind. The social security network and health insurance schemes are also going through a rough phase. Top of all this, France is having Presidential election in 2007, so all the aspirants which may include President Chirac and Prime Minister Villepin are trying to improve the labour situation. With 30,000 French citizens working in Arcelor, they don’t want to take the risk and may be this will give them some brownie points with electorates.
But things are different this time for France. Neither it has any stake in Arcelor, compared to 5.6% stake of Luxembourg government, nor is Arcelor listed in France. This is the reason that French Prime Minister Mr Dominique De Villepin is invoking concepts such as ‘Economic Patriotism’. I wonder why this is not invoked when France accuses US of favouring its Boeing.
I would rather Mr Villepin invests his time in doing important things as reforming the labour policies and improving the GDP growth rate. It has been proved in many cases that impractical protectionist schemes have always backfired. Let the bidding process take its own course. There is EU competition commission for all other issues.
The only surprise in the bid of Mittal Steel over Arcelor has been the bid itself. Every step after the bid is proceeding on expected lines. France is leading the vociferous pack of political opposition to this bid. Given the history, no one would have expected anything lesser from France. It has proved itself to be the most protectionist country in world in recent times. Only last year, it had all its political leadership united to oppose the ‘rumoured’ bid of Pepsico over Danone, the French food firm. The bid never saw light of the day.
France is the most subsidy driven economy in the developed world. It is also involved in a debate with Britain in the EU over its protectionist policies(see my post of 29th November on this). It has used the money paid by EU under Common Agricultural Policy (CAP) to effectively protect its agricultural sector. It was not long back when Christine Lagarde, the French trade minister, bluntly said that Tony Blair is talking about reform as it is fashionable and he is looking for scapegoat in this context.
On closer look, I find many other compulsions for Mr Villepin to oppose this bid. The GDP growth rate of France has been 1.6 % in 2005 and unemployment rate is 9.5%. France is going through the phase of stagnant economy and rising unemployment. The riots by unemployed youths couple of months back must have been fresh on his mind. The social security network and health insurance schemes are also going through a rough phase. Top of all this, France is having Presidential election in 2007, so all the aspirants which may include President Chirac and Prime Minister Villepin are trying to improve the labour situation. With 30,000 French citizens working in Arcelor, they don’t want to take the risk and may be this will give them some brownie points with electorates.
But things are different this time for France. Neither it has any stake in Arcelor, compared to 5.6% stake of Luxembourg government, nor is Arcelor listed in France. This is the reason that French Prime Minister Mr Dominique De Villepin is invoking concepts such as ‘Economic Patriotism’. I wonder why this is not invoked when France accuses US of favouring its Boeing.
I would rather Mr Villepin invests his time in doing important things as reforming the labour policies and improving the GDP growth rate. It has been proved in many cases that impractical protectionist schemes have always backfired. Let the bidding process take its own course. There is EU competition commission for all other issues.
P.S. - Due to some reactions, I think I need to clarify myself. I am indifferent to 'Indian' connection in this bid. I am supporting Mittal Steel bid only cause of my believe in 'free market' theory. I know Mittal steel has its downside and I will try to come up with a post on it as well.
posted by greensatya @ 9:03 PM
8 Comments:
At 7:35 AM,
Akanksha said…
reading all these posts on economic/finance topics by u and sej i hav actually started understanding sm stuff.. cant say whether i like reading them but they r certainly educational!
At 8:30 AM,
Y said…
Economic Patriotism
:>>>>>>>
That was one of the best jokes I heard in a long long time.
That one beat Mushy too.
PS : I dont believe in free markets.
At 8:41 AM,
Raj said…
I want to visit Luxembourg once in my life. Liechtenstein too :)
At 8:51 AM,
greensatya said…
Akanksha - So these posts are worth it if you like them, even a bit though :)
Sher - eeks ! I thought you are believer of free market. Then I guess your views on the bid will be totally opposite to mine. Would appreciate one post from you regarding the free market theory and your standing.
Yeah this joke beats even Mushy :p. This was the first time I had heard this term.
Raj - Luxembourg, a safe banking place, tax haven and its Schengen village where the treaty of Schengen Visas were signed. I also plan to visit it this summer. Right now I am reeling under severe Siberian winter :(
At 9:45 AM,
Y said…
I have no views on this bid. But generally I dont belive in free markets. I will write my ramblings on that. But its basically derived from what Soros proposes.
At 12:05 PM,
greensatya said…
Seems interesting, will wait for your post.
At 2:59 PM,
Anonymous said…
Satya,
Mittal´s nationality aside, this kind of protectionism is not characteristic only of France and the EU countries.
Even countries like India have been so aggressively protective of being taken over through hostile bids by outsiders. Remember UTI´s intervention in BAT´s attempt to become a majority partner in ITC? Thus, BAT´s attempt to control 51% of ITC shares was stopped due to UTI holding on to 10% inspite of handsome gains promised in return.
Remember the fight over L&T´s cement division control? Indian companies (esp family owned ones) have always resisted hostile/non-hostile take-overs even from other Indian companies and the Govt has directly and indirectly thwarted such attempts one way or the other.
Even now, we are mum about FDI on retail sector and oppose foreign over print media under the guise of "national interests".
Need we be suprised by the French reaction to a hostile bid then?
-Alice
At 8:10 AM,
greensatya said…
Alice you seem to have been inspired from Sucheta Dalal's column. Though I find her the best but even though I could not agree fully with her that column.
I think the issue of hostile takeover is mixed with so many other issues in your comment.
If UTI is not selling its stake to BAT, will it come under the opposition to hostile takeover ? So what if share holder of Arcelor don't sell their shares to Mittal? No one is questioning that. They have the right to do so and everyone would be happy if they decide. French government under what capacity is opposing the deal ? The best way is to let the share holders decide. I don't think that BAT-ITC case is opposition to hostile takeover by Indian government.
What was the fight over L&T cement control ? It was just a case of one party selling its stake to another. It happened with I-flex, CITI bank sold its stake to Oracle and Oracle got the control of I-Flex.
You say that Indian family owned business have always resisted the hostile/non-hostile takeovers. How they resist ? They resist by their stake, most of them have around 80% stake with them. It is case of not selling their stake and not resisting hostile takeovers. There is a difference in both. If Indian government wants then they can put a law that no promoter alone or with persons acting in concert can have more than 50% stake. As far as I know there is not a single country in world which has this kind of law.
Now FDI in retail sector is totally different from this issue. It is some policy decision and even then we all know that it is going to be allowed very soon. Even today if some foreign company wants to acquire Pantaloon (Big Bazaar)they can do so, where is the law against it?
Well Print media is another sensitive issue. I am also not for allowing FDI in the current affairs and for other sections this was liberalised in the erstwhile Vajpayee government. If you would have read the American Main stream media during the Bush visit you would have know why we can't allow FDI in print media to come so soon in India.
Still I am surprised and against French opposition. Let the share holder of Arcelor decide what they want? Why some third party Political opposition? Pray tell me when has that happened in India?
Lafarge took over cement companies in India, who opposed ? Holocim is taking over Gujrat Ambuja (in turn ACC) and I am pretty sure that you would be knowing how small investors are getting hurt in the process.Even though who is stopping it?
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