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Arcelor-Mittal: could Tata Steel be a target in India?news
27 June 2006
Tata Steel is the most efficient steel manufacturer in the world with very attractive mining assets, making it the the most attractive, though as yet, unlikely target for acquisition by Arcelor-Mittal, writes Rex Mathew.

In the joint press conference after the merger announcement with Arcelor, Mittal has acknowledged that future growth opportunities are in emerging markets of China and India. Though Mittal has a minority stake in a Chinese steel company, it would be tough to acquire a large Chinese company or set up a new plant as the Chinese government prefers to keep key sectors like steel under Chinese control.

That would push India as the destination of choice among emerging markets for Arcelor-Mittal in the short to medium term. Demand in India can only grow as the country needs huge investment in infrastructure and per capita consumption is less than one-sixth that of China. So far, there is no threat of excess capacity as in China and the country has enough iron ore reserves to keep producing sufficient ore for making steel.

Despite his nationality, Mittal has not had any business interests in India so far. Last year, Mittal Steel signed a MoU with the Jharkhand government for a mega 10-million tonne steel plant. Not much progress has been made as Mittal is reportedly not happy with the mines, which were offered by the state government and is insisting on high quality iron ore mines on long lease.

Another global major Posco has already started preliminary work on its 12- million tonne steel plant in Orissa. Domestic steel major Tata Steel is also going ahead with a couple of new mega steel plants in the states of Orissa and Jharkhand. Mittal-Arcelor would have to start work on its proposed Jharkhand plant if it has to secure the lucrative iron ore mine lease and gain a foothold in India.

Would Arcelor-Mittal pursue a strategy of acquisitions in India? In an interview after he was acknowledged as one of the richest men in the world, Mittal openly admitted that he was interested in acquiring SAIL if the government would privatise the company. Outright privatisation of such a large PSU would be unthinkable given the current political dispensation with the Left Front being in the ruling alliance at the centre.

Arcelor-Mittal may not be interested in smaller Indian steel companies as they have miniscule capacities by global steel manufacturing standards. Reasonably big ones like Essar Steel and Ispat Industries, promoted by Mittal's father and run by his brothers, are not very efficient and don't have attractive mining assets. JSW Steel and other companies of the Jindal group are attractive for their assets but the Jindals may not be keen on selling out.

That leaves only Tata Steel as the most attractive, though unlikely, target for acquisition by Arcelor-Mittal. Tata Steel is the most efficient steel manufacturer in the world with very attractive mining assets.

The Tata group owns just 26 per cent of Tata Steel. Domestic institutions hold nearly 19 per cent while FII's have a 22-per cent stake. This well distributed holding structure makes a hostile bid technically possible.

What if Arcelor-Mittal launches a hostile bid on Tata Steel, just like Mittal went after Arcelor? Would Indian politicians, who became overnight proponents of free markets in the immediate aftermath of the hostile opposition from the European parliamentarians and backed Mittal, sit back and allow a foreign company to swallow one of India's best companies?

Would the Indian media, which toasted L N Mittal as the first India-born global tycoon and supported him with such verve, still back him if he were to decide to go after one of our own corporate queens? Interesting thought.

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Arcelor-Mittal: could Tata Steel be a target in India?