Not your fight

Kamal Nath and his colleagues in the government should stay out of the battle being fought by Mittal Steel for control of Arcelor, which is next only to Mittal in size in the global steel industry. For a start, while the principal shareholder and founder of Mittal Steel, LN Mittal, may be a non-resident Indian national, his company is European and indeed has no Indian operations. India therefore has no locus standi and indeed no economic interest in the outcome. Besides which, it is not even clear that consolidation of the steel industry, and Mittal accounting for 10 per cent of the global industry, is in India's interest.

To be sure, the manner in which the authorities in France and Luxembourg have conducted themselves on the issue does them no credit; some of their initial, unguarded comments certainly deserve to be criticised. But it has long been known that hostile bids for companies are mostly an Anglo-Saxon phenomenon, and are frowned on in both Japan and continental Europe, where ownership and management structures tend to be more inter-woven and clubby, and therefore are not quite the free market variety found in the text books or favoured on Wall Street and in the City of London. General Electric was fended off recently when it tried to do a French acquisition, so the French president, Jacques Chirac, was probably speaking the truth when he declared in an interview that the issue has nothing to do with Mr Mittal being an Indian.

Indeed, if Mr Nath were to pause for a moment and dwell on the subject, he would find that virtually no hostile bid for a company has succeeded in India either "" starting with the famous Swraj Paul raid on DCM and Escorts in the early 1980s. This is partly because Indian companies are not yet at the stage where they routinely divorce ownership and management; the preferred route still is for the largest shareholder to be chief executive as well. Where companies have changed hands, it has almost always been by agreement between seller and buyer, and therefore devoid of the dramatics of public bids and counter-bids, and white knights and poison pills. The very existence of those terms reveals the stratagems used by company managements to ward off takeover threats "" and Arcelor now seems to be getting ready to follow tested American precedent.

A moment's reflection would convince Mr Nath, if he needs convincing, that an external hostile bid on one of India's prized corporate jewels (say Tata Motors) would certainly create tremendous political pressure on the government to be patriotic in its responses, and not declare with a hands-off attitude that the forces of the market should prevail. If Mr Nath believes otherwise, he only has to say so and he can be assured that he will have the likes of Rahul Bajaj pouncing on him. But the surer way for companies that wish to protect themselves from unwanted suitors is for the controlling group to own a sufficiently large number of shares so that a hostile takeover is ruled out. Where that is not the case, the company should be considered fair game because, in the Anglo-Saxon model, takeovers often result in better performance, and the threat of a takeover spurs on management. Continental Europe, however, seems to prefer to see even an under-performing business, in preference to one that is taken over by foreigners.