Costly Showdown for France and ArcelorMittal over Planned Plant Closures

The showdown between France and Indian-born steel tycoon Lakshmi Mittal could reach a climax this weekend as a deadline the company set for the government to find a buyer for two outdated blast furnaces expires.

PARIS -- An epic battle of brinkmanship could leave the world's top steelmaker hobbled and damage France's business climate if the government is forced into following through on its threat to nationalize one of the ArcelorMittal's plants.

The showdown between France and Indian-born steel tycoon Lakshmi Mittal could reach a climax this weekend as a deadline the company set for the government to find a buyer for two outdated blast furnaces expires.

The dispute pits a debt-saddled ArcelorMittal SA (IW 1000/35), which has been trying to adjust to a sagging steel market, against a new Socialist government that wants to improve industrial competitiveness but also has vowed to protect jobs as unemployment climbs.

ArcelorMittal announced on Oct. 1 that it plans to permanently close two blast furnaces at its Florange plant in the eastern Lorraine region that the company regards as uneconomic in two months if the government doesn't find a buyer.

The French government says it has potential buyers, but only for the entire Florange site, which has facilities that ArcelorMittal wants to keep.

The French government has threatened to temporarily nationalize the entire site to protect the 650 jobs on the line in order to sell it on to the buyer, whose identity it has not revealed and which French media have speculated could be Russian.

ArcelorMittal has warned that nationalization of the plant would cast doubt on the future of all its operations in France, where it employs 20,000 people.

President Francois Hollande himself dangled the threat in talks with the billionaire, ranked 21st in the Forbes list of the world's wealthiest people.

Talks were ongoing on Friday. And although no progress was apparent, ArcelorMittal and the government appeared ready to continue talks past the deadline.

Backing down on closing the blast furnaces and cutting staff could prove damaging to ArcelorMittal, which plunged into a quarterly net loss of $709 million in the period from July to September on sliding demand from China.

The company said its priority is to reduce its debt, which is expected to rise to $22 billion by the end of the year. Even so, Moody's downgraded the company's credit rating to junk status, which likely will make it more costly for the company to borrow.

The ratings agency warned that asset sales to reduce debt would damage the company's core operations and hurt earnings.

ArcelorMittal has warned that the unwanted loss of facilities for higher-end steel products at Florange would impact its operations throughout France.

Nationalization could prove costly for the government just as it is pushing through more than 30 billion euros in spending cuts and tax hikes as it tries to meet EU budget rules.

The government is providing billions in fresh capital to prop up failed French-Belgian bank Dexia and billions in guarantees to carmaker Peugeot's financing arm.

French Business Climate Takes a Hit

The affair already has chilled the business climate in the country after Industrial Renewal Minister Arnaud Montebourg said Mittal is not welcome in France.

A number of French companies have announced layoffs, including Peugeot, which is slashing 8,000 jobs.

The remarks caused outrage in India, where social media networks have been flooded with messages saying Mittal would have been treated differently if he were white.

The self-made steel tycoon faced a hostile welcome from Arcelor executives and French interests during his contested takeover of the company in 2006.

Nationalization also would throw doubt on the government's seriousness about improving the competitiveness of French industry, although it has announced billions in tax breaks for companies.

The government also would court the risk of plans to sell the site falling through.

Failing to follow through on the threat to nationalize the plant could prove politically costly, however.

The government has vowed to protect jobs as the unemployment rate has crept up to 10%, and a recent poll showed the French support nationalizing Florange by nearly a two-to-one margin.

Copyright Agence France-Presse, 2012

By Richard Lein, AFP

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