The political dispute over the €19bn (£13bn) hostile bid by Mittal Steel for Arcelor escalated yesterday after it was alleged that India has threatened not to ratify a double taxation accord with Luxembourg, apparently over the Grand Duchy's opposition to the deal.
Mittal Steel, which has headquarters in Rotterdam but is controlled by the Indian entrepreneur Lakshmi Mittal, has met ferocious opposition in France and Luxembourg, where Arcelor is based and is the biggest private employer of some 5,900 people. The Indian government has publicly suggested that negative response to Mr Mittal's bid is partly the result of his ethnicity.
Yesterday Luxembourg's Prime Minister, Jean-Claude Juncker, said: "The [Indian] government, although full of wise men, has just threatened the Grand Duchy with not ratifying a double taxation agreement between India and Luxembourg."
Although Mr Juncker did not explicitly make the link with the Arcelor bid, sources in Luxembourg said they were in no doubt that the Indian action was a direct consequence of the Indian government's perception of discrimination against Mr Mittal. They pointed out that the Indian press had written stories saying that the double taxation agreement with Luxembourg could fall victim to the controversy. The Indian embassy in Brussels denied that such a threat was made.
Mittal Steel yesterday reported a bigger-than-expected fall in 2005 profits, which dropped to $3.4bn (£2bn) after tax, from $4.7bn for 2004. The company blamed higher costs and less buoyant conditions in the steel industry, with China in particular weakening as a market.
The state of Luxembourg is Arcelor's single biggest shareholder with a 5.6 per cent stake. On Tuesday, the government announced it had hired the investment bank JP Morgan to advise on the Mittal offer. Mr Juncker, a vocal opponent to the bid, rejected accusations of racism. "It does not matter whether he is Indian, Portuguese, or Belgian," he said.
Mr Mittal has held meetings with Mr Juncker and European Commission officials to try to placate concerns. He said: "We are a European company. Arcelor is also a European company. Basically there is no difference in culture. It is two European companies merging."
Although Mr Mittal retains his Indian passport, he is based in London. Asked whether he would raise the offer, Mr Mittal gave an emphatic "no". The offer documents have been lodged with regulators, he said, and would be sent to Arcelor shareholders when cleared.Reuse content