TATA corus deal: A study and the road ahead!!

Abstract

The fiscal year of 2006 – 07 saw a continued strong demand for steel. The global consumption of steel had crossed 1100 million tonnes. China alone produced over 400 million tonnes of it and was also one of the biggest consumers of steel. 2006-07 was also a year of consolidation. This year can also be called as a “Year of consolidation” in the global steel industry. Mittal Steel acquired Arcelor and became the largest steel maker in the world. This was followed by another notable acquisition in the industry – Tata Steel’s acquisition of the Anglo Dutch steel maker Corus. Tata Steel bought a 100% stake in Corus (a production capacity of around 25 million tonnes of steel per annum) for a sum of $ 13.6 billion (including its internal debt). This deal also became the deal that rang around the world as it catapulted Tata Steel to the position of the sixth largest steel maker in the world. Jamsetji Nusserwanji Tata, the founder of Tata Steel envisioned the company to produce steel that could meet international standards. Ratan Tata, the chairman of Tata Steel envisioned Tata Steel to transform from being a domestic steel producer to an international steel company with a global scale of production. It was also a fitting tribute to the founder as this transformation was initiated during the centenary of the company. This study talks about why consolidation as a phenomenon is very important in the global steel industry. The factors that were prevailing within Tata Steel and Corus before the merger that facilitated this deal have also been analyzed. It has been argued by some analysts that the price paid by Tata Steel for the acquisition of Corus is exorbitant and this in turn has led to a revaluation of the entire steel industry. Given the fact that Corus will be a strategic fit with Tata Steel, the product ranges of Corus would boost Tata Steel’s product portfolio and there will be operational synergies between the two companies, the authors felt that Tata Steel have not paid a high price after all. It was also felt that the sudden economic downturn has played spoilsport in the scheme of things of Tata Steel. The global demand for steel had suddenly dropped, making Tata Steel scout for new sources of funds to stay operational. Tata Steel has however, till now done that successfully. It has leveraged its brand effectively and raised cash from the market, and has also lobbied efficiently with the governments of India and UK to raise more funds at nominal rates. The study also talks about the various strategies of Tata Steel like becoming self sufficient with respect to raw materials, de integrated steel making, control over logistics etc and it has been suggested that all these strategies have to fall in line and synergize each other for this deal to become successful in the future.