Jeremy Warner's Outlook: Shareholders will not forgive Arcelor's chairman if he refuses to talk to Mittal

Dow approaches record. Time to sell?; Taking aim at the supermarkets
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The Independent Online

He's promised to sweeten his offer, he's promised to reform his corporate governance. He's even recruited a Frenchman to the board, but still the horse won't come to water. As far as Arcelor is concerned, there's nothing to talk about.

Arcelor is perfectly willing to "examine all options and proposals" put forward by Lakshmi Mittal but, so far, the company insists, there is not enough detail to serve as a basis for negotiation. Is this just a clever tactical manoeuvre designed to wring the best possible deal from the Indian-born steel baron, or is there no price at which the board is prepared to sell?

Arcelor would like shareholders to believe its stance is dictated by the former. The evidence points to the latter. Joseph Kinsch, Arcelor's chairman, is Luxembourg steel aristocracy through and through, and he's no intention of giving up his seat to the upstart Mittal. By whatever means, he's determined to see him off. Already, the Arcelor board has placed the Canadian offshoot Dofasco in a Dutch registered trust, in effect a poison pill which might have prevented Mr Mittal selling the business to help defray his bid costs.

Most of the other body language has been strongly suggestive of frustrating action too. The latest example is that Arcelor is invoking an obscure Luxembourg law which allows the company to comment on and challenge the official offer document before it is sent to shareholders. This looks like just another delaying tactic. The Luxembourg government is equally determined to obstruct Mr Mittal's endeavours.

Paradoxically, none of this bodes well for Arcelor's chances of survival. Arcelor's share register is a deeply obscure affair; it's hard to get to the bottom of where the balance of power might lie. Yet it is a reasonable bet that the majority of the shares are these days owned not by local interests, but by big international investors who care not a fig about the supposed "strategic" importance of Arcelor to Luxembourg and will wreak a terrible revenge if they suspect Mr Kinsch is acting against their best interests.

Many of these institutions have continued doubts about Mittal Steel, which will not have been answered by yesterday's concessions on corporate governance. In comes Francois Pinault, the French financier. He is at least demonstrably independent, unlike some of Mr Mittal's other non executives, who are essentially cronies. But his history is a controversial and chequered one.

Mr Mittal has also promised to align his voting rights in the combined concerned with his economic interest, to give up his right to nominate directors, and to split board positions equally between Mittal Steel and Arcelor. However, since Mr Mittal will retain majority control, these changes might seem largely academic. Yet whatever doubts investors might have about Mittal, they'll sell Arcelor down the river if they sense self-interested obstruction. The industrial logic of this merger remains compelling. Mr Kinsch should at least be talking, even if, at the end of it, he's able to say hand on heart that the deal is not in shareholders' best interests.

Dow approaches record. Time to sell?

In the immediate aftermath of the September 11 terrorist atrocities, Paul O'Neill, then the US Treasury Secretary, forecast that the Dow Jones Industrial Average would again be trading at a record high within the year. It was the sort of ludicrous suggestion that this most accident prone of Treasury Secretaries was prone to and, as widely predicted at the time, it proved laughably premature.

In the event, the demise of the Twin Towers was only a staging post in one of the most serious bear markets the world has ever seen. Equity values didn't finally bottom out until March 2003, just ahead of the invasion of Iraq. Only now, some four and a half years after Mr O'Neill's remarks, is the Dow once again approaching its all-time high of 11,722.98.

The US Federal Reserve is today expected to announce another quarter point rise in interest rates, but if the mood music is right in the accompanying statement, with the markets looking for hints that the interest rate cycle is about to peak, then the January 2000 record could be breached before the day is out.

This has already prompted a mass of comment to the effect that markets are again running ahead of themselves and are in all probability destined for fresh disaster. The spectacle of that eternal bear of the world economy, Stephen Roach, chief economist at Morgan Stanley, all of a sudden turning bullish, acts as an obvious warning signal. When the last bear turns bullish, goes the old stock market adage, you know it's time to get going.

Are the gloomsters right? There are certainly plenty of risks around. The biggest would seem to be an uncontrolled collapse in the dollar, which has already weakened very considerably against the euro. For the time being, however, it remains pegged against the Chinese renminbi, with other Asian economies attempting to mirror the peg as far as possible.

This in turn is bound to make the position of the European economy increasingly difficult. Perhaps it no longer matters what happens to the Italian economy, which is the most exposed to Far Eastern competition, but it does matter what happens to France and Germany, whose economic recovery is endangered by a strengthening euro too.

The other obvious risk also lies in America - the still buoyant US housing market. Experience in Britain and Australia is that the housing market can be brought to heel without a collapse in the wider economy, but it is perhaps the case that US consumption has been more linked to the fortunes of the housing market than elsewhere in the English speaking world. In any case, for the US at least, these are still unchartered waters. If cracks appear in the US economy, there will be powerful knock-on effects in the developing markets of Asia and Latin America.

Yes, indeed. The doomsday scenario is easily mapped out. Yet it is in the nature of risk that the chances of something not happening are generally a good deal higher than that of the feared calamity. As things stand, equity valuations continue to look reasonable, especially when set against alternative asset classes. Certainly they are nowhere near as stretched as they were at the turn of the century, and although the bubble sectors back then of telecoms, technology and media find their parallel in the present craze for mining and oil stocks, somehow equity markets don't feel nearly as overhyped this time around. Valuations are more solidly based on fundamentals. It may well be that markets need to pause for breath, but it is hard to see why they need to plunge anew into the abyss.

Taking aim at the supermarkets

It was never very likely that John Fingleton, the chief executive of the Office of Fair Trading would reverse his preliminary judgment that the supermarkets be referred to the Competition Commission. Yet the striking thing about yesterday's rubber stamping of the decision is how uninterested the body politic seems to be in the matter. Discounting the 1,200 responses that came from individuals, all but 170 of them via automated e-mail from the Friends of the Earth website, there were only 50 other representations and as few as seven from supermarket suppliers.

This is hardly evidence of the masses rising up in revolt over the supposed iniquities of Tesco and others. The truth of the matter is that this is an almost wholly pointless investigation which is highly likely to result in a largely clean bill of health for the supermarkets.

No doubt changes to the planning rules will be proposed, but if this results in four areas of green space being concreted over to make way for supermarket competition where previously there had only been one or two, FoE is hardly going to thank the Competition Commission for that. The growing power of the supermarkets in convenience shopping is a complete red herring, for in most cases, Tesco and others are only improving quality, choice and price on the high street.

j.warner@independent.co.uk

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