This record is a partial extract of the original cable. The full text of the original cable is not available.

061436Z Feb 06

UNCLAS SECTION 01 OF 02 PARIS 000755 
 
SIPDIS 
 
SENSITIVE 
 
PASS FEDERAL RESERVE 
PASS CEA 
STATE FOR E, EB, EUR/WE 
TREASURY FOR DO/IM SOBEL, RHARLOW, LHULL 
TREASURY ALSO FOR DO/IMB AND DO/E WDINKELACKER 
LABOR FOR ILAB - WBRUMFIELD 
USDOC FOR 4212/MAC/EUR/OEURA 
 
E.O. 12958: N/A 
TAGS: EFIN ECON ELAB PGOV FR
SUBJECT: MITTAL STEEL RE-AWAKENS ECONOMIC PATRIOTISM 
 
 
SENSITIVE BUT UNCLASSIFIED, NOT FOR INTERNET 
 
Ref: A) Luxembourg 31  B) Paris 357 
 
¶1.  (SBU) SUMMARY: French politicians, caught off guard at 
first, are finding it hard to resist evoking "economic 
patriotism" in response to Mittal Steel's surprise hostile 
takeover bid of Arcelor.  After Mittal preemptively assured 
it had no job cuts in mind, the latest salvos have shifted 
to disingenuous criticism regarding a perceived lack of an 
industrial plan.  END SUMMARY. 
 
A Week of Announcements 
----------------------- 
¶2.  (U) Immediately after Mittal Steel's surprise takeover 
offer for Arcelor (ref A), Finance Minister Thierry Breton 
led off initial negative GOF reaction, noting he was 
"shocked" by the way Mittal had announced its offer.  Mittal 
rushed to correct that "faux pas" by scheduling its first 
meeting on Monday January 30, among many others the first 
week after its announcement, with Breton.  At a later press 
conference, Indian-born CEO Lakshmi Mittal said he had 
explained the reason to Breton: a leak about the offer had 
forced the publicly traded company to go completely public. 
Mittal also stressed he had assured Breton that Mittal did 
not intend to close any plants or cut jobs. 
 
¶3.  (U) Prime Minister Dominque de Villepin in a radio 
interview on January 31 criticized the takeover bid, saying 
it was bad form because it was "very" hostile, and bad 
business because, to his knowledge, it lacked any industrial 
plan.  He evoked his "economic patriotism" agenda (ref B), 
describing it as requiring all actors, including 
shareholders and business leaders, to mobilize.  Noting that 
President Chirac would meet with Luxembourg PM Juncker on 
February 1, he said what he wants is to quickly develop a 
European industrial policy, to create great French, and 
European, industrial champions.  He argued the Americans, 
Chinese, the Japanese, etc. already practice economic 
patriotism, and he called for collective responsibility to 
face the challenge.  He asserted that the government role is 
to stand beside the movement for industrial champions with a 
true policy of "economic intelligence," which France is 
already doing.  Neither President Chirac nor Villepin made 
any comments after the meeting with Juncker regarding 
Mittal. 
 
¶4.  (U) We have seen press reports that the Indian Secretary 
of Commerce while in London on February 2 expressed his 
concerns about French opposition to the Mittal bid, and 
announced the Indian government would be looking closely at 
future GOF pronouncements for anti-Indian bias.  Other press 
reports indicate varying degrees of official concern about 
the bid. 
 
¶5.  (U) On February 2, Finance Minister Breton sought to 
correct what some may have viewed as France's protectionist 
stance, saying he has nothing against India and admitting 
that it is up to Arcelor's shareholders to decide whether 
Mittal has an industrial plan (although adding he still has 
not seen evidence of one).  In his strongest statement to 
date, Breton published a letter in the Monday edition of the 
Financial Times (released on Sunday, February 5), saying 
that protectionism has no place in modern economic 
governance.  The PM, on Europe 1 radio Sunday night, 
affirmed that the State has a responsibility to check the 
validity of the transaction, indicated he still wants to 
know more, and urged continued "mobilization". 
 
¶6.  (U) Arcelor, for its part, immediately rejected the 
offer.  Later comments by CEO Dolle that if Mittal made 
another offer, the board would of course consider it, 
prompted one analyst to comment that the issue is neither 
political nor economic.  What matters is the price. 
 
Regulatory Responses 
-------------------- 
¶7.  (U) French securities regulator AMF (Autorite de Marches 
Financieres) decided on February 3 to postpone deciding 
whether it would assert jurisdiction to review the proposed 
takeover, announcing simply that it recognized the probable 
primacy of Luxembourg law but that it would consult with its 
counterparts in Luxembourg, Spain, and Belgium.  Although 
neither company is French (Mittal headquarters are in 
Rotterdam, Arcelor in Luxembourg), both companies are traded 
on the Paris-based Euronext exchange.  Moreover, France has 
not yet implemented the EU takeover directive, which would 
have ruled out AMF review.  The AMF on February 2 released a 
brochure on EU financial sector directives, indicating it 
expected France would transpose the takeover directive into 
national law before May 20, 2006. 
 
¶8. (U) Mittal Steel presumably will be able to avoid GOF 
review under its new "strategic sectors" decree (ref B), 
since it can take advantage of the carve-out for companies 
based in the European Union, thanks to its Rotterdam 
headquarters. 
 
COMMENTS 
-------- 
¶9. (SBU) The evolution of the French position could be due 
to differences between the Prime Minister's office and the 
Finance Ministry, the former being much more insistent about 
its economic patriotism agenda.  Perhaps one explanation for 
the hemming and hawing is French concern about outsourcing 
or "delocalization."  On the one hand, the GOF nod to 
individual responsibility in creating industrial champions 
(as opposed to governmental responsibility) is encouraging. 
On the other hand, the PM's elaboration of the GOF role in 
securing "economic intelligence," and an insistence by the 
AMF to review the bid, cast an ominous shadow of state 
interference in the French concept of an open investment 
regime.  The latest charge that Mittal lacks an industrial 
plan is, in this context, striking for its ambiguity.  (We 
suspect that by "industrial plan", the GOF wants to know how 
French jobs will be preserved.)  President Chirac's silence 
is also striking, although it should be noted he plans to 
travel to India on February 19. 
 
¶10.  (SBU) Alternatively, the evolution in the GOF position 
could be due to the problem of fitting a round peg in a 
square hole: the Mittal bid is not the best test of economic 
patriotism.  While the Luxembourg and Belgium governments 
are shareholders of Arcelor, France is not.  Mittal is a 
company based in the Netherlands with plants throughout 
Europe (including France), is traded in Europe (and New 
York), and is 97% controlled by a family that claims London 
for its home.  If the acquisition succeeds, Mittal will 
become a larger European company.  If the French were truly 
interested in creating European champions, not just French 
ones, it seems curious that the takeover bid should have 
prompted GOF opposition. 
STAPLETON#