Article by M. Thierry Breton, Minister for the Economy, Finance and Industry, published in the “Financial Times” newspaper
Paris, 6 February 2006
The hostile bid by Mittal Steel for Arcelor clearly highlights the advent of stakeholders, which complements the traditional concept of shareholders. The term is familiar to leaders of international companies with high corporate governance standards. It includes all the protagonists who have an interest in the successful operation of a company and who, although not shareholders, can legitimately express a view or even expectations.
Who are these stakeholders? What is the ground for their legitimacy? How far are they entitled to express their views? This debate is welcome as people pretended to be surprised when I expressed “very strong concerns” about Mittal Steel’s bid and my intention to monitor further developments. Like Spain and Luxembourg, France was entitled to state its position.
Arcelor is established in several European countries, including France. With 98,000 employees, it is the world leader in its sector. The future of a business of this size is of crucial economic, industrial and social importance and has to be taken into consideration by any government whose duty is to promote national growth. The French minister of the economy is an obvious stakeholder and therefore entitled to ensure that further developments take into account the interests in his care. Other stakeholders, such as employees, management, customers, suppliers and local authorities, also have the right to state their opinion. It is in the interest of the shareholders of Mittal Steel and Arcelor to listen because the success of the future company and its shareholders is also a function of stakeholders’ consensus.
So what are my concerns? It appeared to me, as to public stakeholders in other countries approached by Mittal’s chairman in the past 10 days, that these talks suffered from a lack of adequate preparation by the company and its advisers.
Notwithstanding the size of the contemplated transaction, Mittal Steel has been unable so far to provide a precise articulation of its industrial plans for the company; it also failed to explain how it intends to merge the groups’ cultures and what governance it will propose. This creates an impression the bid may have been launched hurriedly. It explains why Mr Mittal’s methods have raised questions. Comments by certain shareholders - including the largest, the Grand Duchy of Luxembourg - about the absence of a credible governance plan emphasise concerns we all share.
How and on the basis of what strategic premises and industrial rationale did the board of directors authorise the launch of this hostile bid? Did Mittal’s board make its decision on the basis of a detailed industrial and strategic plan? If so, why wasn’t this presented to the stakeholders? These matters of corporate governance are of paramount importance in a situation where Arcelor’s existing shareholders are invited to become shareholders of Mittal Steel, whose capital and voting rights post-merger shall remain, up to 51% and 66% respectively, in the hands of Mittal Steel’s founder, thereby conveying full control of the board and the shareholders’ meeting to the founder.
The positions of the governments concerned result from the failures reflected by Mittal Steel’s bid. They are certainly not prompted by efforts to protect or discriminate against a large and respected emerging country. India is neither directly nor indirectly concerned by this bid, which involves only European companies.
The positions we expressed are genuinely based on considerations such as respect for the freedom of choice of the shareholders, who are entitled to be aware of all the stakeholders’ reactions. The merger of two large global groups always creates a challenge for the companies involved.
Everybody knows that inadequately prepared or executed mega-mergers increase risks of value destruction. On average, a large portion of such mergers fail.
Because the challenge is of high importance to our communities, public authorities must consider the issues objectively. This is why the strong reaction shown by certain British officials to the alleged interest of a foreign group in Centrica did not come to me as a surprise. No one should confuse the legitimate interest of a public stakeholder with any form of protectionism, whether in Britain or France, which are both widely open to foreign investors.
For all these reasons, I wish to state strongly that protectionist impulses have no place in modern economic governance. Our position towards the international investment community can only be legitimate when based on the quality of players’ strategic plans, methods, acceptance of compliance with accepted governance standards, commitment to the development of our communities and never on the basis of nationality. This is also the key to a harmonious long-term success for all parties, and those companies’ shareholders. It is in the interest of such players to get this message. It is my role to keep reminding them./.