Luxembourg has benefited greatly from openness to foreign investment flows and maintaining a business friendly regulatory environment. Despite some apparent hesitations and some initial feeble tries, the Luxembourg’s authorities widely maintained this approach in the Arcelor-Mittal affair, deciding against using legislative means to block the takeover. In the end, the authorities simply accelerated implementation of the EU directive on Takeover and left the two companies to deal with the takeover issue within this framework (OECD, 2006, p. 134)
While this data does not indicate the general ownership details for all the countries involved with Arcelor, it is not necessary either. This is because of the share divisions of the company already present involved multiple countries and hence the general ownership and control provisions that acted as barriers to hostile takeovers in Europe did not amount to very much in this case. For the companies based in continental Europe, the fact that a bid is friendly or hostile is less important than the identity of the firm making the bid. This even decides the nature and dynamics if corporate governance in the firm.
EU member states in general consider to implement the takeover directive in a protectionist way. Due to the growing fear of the power of hedge funds, private equity groups and other activist investors, EU countries are likely to pursure their strategy of protectionism resulting in lifting takeover barriers – even thought the Commission has analyzed that takeover offer benefits for companies, investors, and ultimately the European country as a whole. France, Germany, Spain and Italy are the countries with the highest degree of concentration of share ownership, according to the European Corporate Governance Advisory Service.
Especially Germany and Sweden have strongly resisted against the directive, whereas Estonia, Latvia, and Lithuania have opted into the clause. Nevertheless, this only represents less than 1 percent of the listed companies in the EU applying rules on a mandatory basis. Analysts also contend that French and German companies will remain in the focus of foreign investors; on the one hand it is sometimes complex to acquire them through a hostile takeover, on the other hand they are seen as highly profitable and are said to be integrated easily.
Nevertheless there are European national legislations which want to find their individual solutions regarding poison pills and even actively fight for it. The battle for Arcelor inspired France and Luxembourg to adopt legislation to permit poison pill takeover defenses (Steinbacher, 2007, p. 45) Following are the takeover defenses that companies can take while defending themselves against hostile bids, and the reasons why Arcelor choose them or was not able to adopt them: Cross-jewel options: This is a form of lockup in which an option on a target’s most valuable asset i.
e. crown jewels, is offered to a friendly firm in the event of a hostile takeover (Boatright, 1999, p. 157). Clearly Arcelor did not take this option as it was the second largest steel manufacturing company and did not see any other company as worthy of offering its most prized assets. Golden parachute: In this type of defense, there is a part of the employment contract with a top executive that provides for additional compensation in the event that the executive departs voluntarily or involuntarily after a takeover (Boatright, 1999, p.157).
Arcelor did not try this option mostly because of is bases in multiple countries which made common employment contracts complex. Greenmail: This is the repurchase by a target of an unwelcome suitor’s stock at a premium in order to end an attempted hostile takeover (Boatright, 1999, p. 157). This might have been a viable option, certainly Arcelor was audacious enough to try is and was derisive enough of Mittal’s company to attempt a form of payback. However, the facts were indeed damning.
The share prices of Arcelor had doubled in anticipation of the takeover, which meant that the market as a whole was reacting extremely favorably to the deal and unless the management came up with either a better deal or a major flaw with the present offer, there was bound to be trouble. Lockup option: This is an option given to a friendly firm to acquire certain assets in the event of a hostile takeover (Boatright, 1999, p. 157).
Usually, the assets are crucial for the financing of a takeover. An example would be of the hostile bid of Microsoft for Yahoo!, where certain assets of the target company were considered to be crucial This does not however apply to the Arcelor-Mittal case, as the prime reason for Mittal’s interest in the company was the reach the merged company would be able to garner be joining their combined assets, the clout which the combined company would have in terms of price fixing, and of course the cost savings. Pac-man defense: This is a form of defense in which the target makes a counteroffer to acquire the unwelcome suitor (Boatright, 1999, p. 157).
Obviously this was not possible in case of Arcelor-Mittal, as in the first instance Arcelor management did not really wish for a merger of any kind with Mittal. Secondly and most importantly Arcelor had already begun to respond to the deal by taking potshots at Mittal as a person as well as the corporate governance of his company. After taking this stand, Arcelor could not very well say that it was interested in acquiring a stake in the Mittal steel, and hence the option was unfeasible. Poison-pill: This is a general term for any device that lowers the price of a target’ stock in the event of a takeover.
A common form of poison pill is the issuance of a new class of preferred stock that shareholders have a right to redeem at a premium after a takeover (Boatright, 1999, p. 157). Arcelor did try poison pill as a takeover defense strategy and this will be discussed in the next section. White knight: White knight here refers to a friendly suitor who makes an offer for a target in order to avoid a takeover by an unwelcome suitor (Boatright, 1999, p. 157). Arcelor did try this strategy will the Russian steel giant Severstal, which will be discussed on the next section.