Earlier this year, a director at Mittal Steel accused Guy Dollé, the boss of the world’s second largest steel company of acting like a spoilt child. The accusation went like this: Monsieur Dollé was saying of the company he ran: “ ‘It’s my playpen and I don’t want anyone else to play with my toys – go away’.” Now, just a few months on, and its Mittal’s turn to say: “it’s not fair#33;” The question is this, of the three protagonists in the drama which has hit the global steel market, that’s Dollé, India’s richest man Lakshmi Mittal, and the Russian economist turned billionaire, Alexei Mordashov, who are the men of steel, and who is the Lex Luther of the saga?

We all know that from a business perspective, it’s much harder to get people to do something rather than nothing. And this fundamental law of human nature forms the basis of one of Mittal’s gripes. For his offer for the Luxembourg/Belgium/French based steel company Arcelor to go ahead, 50% of the shareholders in his intended have to say “oui.” And if more than half sit on their hands and do nothing, the deal is off. But for Arcelor’s bid for Russian steel company Severstal to go through, then 50% of those same shareholders, would have to get off their hands and say “non.”

“Don’t talk to me about democracy”, says “Dollé,” whose fellow countrymen believe they invented the concept – (democracy comes from the Greek words meaning people and rule- and was first used in ancient Athens). One of the big questions over the Mittal offer for his company was the power exercised by its boss and the Mittal family, whose shares carry additional voting rights.

Besides, says Dollé, his deal is superior.The Arcelor Severstal merger would leave current shareholders in the European steel maker holding 68% of the merged company, and value Arcelor at 44 euros a share; that works out at 36.6% more than the Mittal offer. It’s a “no brainer then” says Dollé.

Not so fast, retort others. The value Dollé puts on the deal is rather dependent on how you value the Russian company. And here is the problem. It’s 89% owned by Alexei Mordashov and the valuation of Severstal seems to be, how can we put this, a bit of a finger in the air job. Supposedly, the valuation was in fact calculated by Deutsche Bank, but many are not convinced. The Telegraph for example, headlined: “Show us adviser’s figures on Severstal”, while the Observer put it more strongly: “Arcelor’s Russian deal reeks of double standards”. The Business paper said: “ Outraged shareholders of European steel giant Arcelor will this week launch two separate attacks to block its defensive merger with Russian steel company Severstal.”

Certainly, the arguments put forward by Arcelor against the Mittal bid, but for the merger with Severstal don’t entirely stack up. For one thing, Arcelor said that Mittal was just a grubby maker of commodities, whereas it produced premium steel. And yet, says press comment, the Russian company too is at the commodity end of the market.

Then there are the individuals involved. The latest offer from Mittal would have entailed seeing the Mittal family stake and voting rights in the new company reduced to around 45%. And yet still Dollé rattled the corporate governance arguments, and suggested that it was too risky to leave European jobs at the mercy of the Indian rich man.

The new deal, the one Dollé believes in so strongly, also confers a lot of power to the Russian rich man, Mordashov. Initially he will have 32%, but he will then not partake in a share buy back, and after that has gone though, will be left with 40% of the business.

Sure, Doll̩ will be happy. He will stay in control Рfor the time being, while Mordashov will take a back seat. But whose to say it will always be like that? Mr Mordashov might bide his time on the planet Krypton for a while Рbut few doubt that eventually he will be the man in control.

And who is Alexei Mordashov? We don’t know much about him, other than this. He is 40, he appears to have the support of Vladimir Putin, and came to prominence under curious circumstances- but then again the same could be said of just about all of the Russian oligarchs.

An economist by background, he has recently come to prominence on the global scene, lobbying hard on behalf of mother Russia to be allowed into the World Trade Organisation. His peers in the community of economists consider him softly spoken and thoughtful. But he rose to power, or so it is said, by buying the state owned Severstal steel plant cheaply and selling it on the market. He then used the resulting cash to buy workers’ shares.

A key difference perhaps between Lakshmi Mittal and Alexei Mordashov is this. The Indian entrepreneur is all about profit, he is known as a ruthless cost cutter- and that’s why the Europeans fear him, and the resulting job losses they think will follow. It’s different if you are Russian. You have to keep the Kremlin on side, and that means a slightly different attitude to your work force.

But in the modern steel industry size matters. A Mittal Arcelor company would be bigger than an Arcelor Severstal firm. It would exploit more economies of scale. And in the new world, ultimately only companies who stick to the profit motive will survive

Some say Doll̩ is trying to fast track his deal. Even the timing Рthe spring public holiday in the UK and US means less shareholders are contactable, has aroused suspicions.

One way or another, Dollé wanted to say ‘no’ to Mittal. And it does seem just a little like he was prepared to go a long way to get his way. Even if that means indirectly jumping into bed with the Kremlin.

Sources

Kremlin-Backed Russian Steps In to Disrupt Mittal Hostile Bid for Arcelor Mosnews.com

Outraged Arcelor shareholders aim to derail Russian merger Business

‘Show us adviser’s figures on Severstal’ Telegraph

© Investment & Business News 2013