The
announcement that
Tata Steel, with
an annual revenue
of about $5 billion,
was taking over
Anglo-Dutch firm
Corus, which generates
$17.54 billion's
worth of yearly
revenue, took
the corporate
media by surprise.
After all, it is rather
unusual to expect a
Lilliputian to engulf
a Gulliver.
The £4.3bn ($8.1bn)
takeover offer for a
foreign is the largest
buyout of a foreign
company by an Indian
company, and the second
largest after Mittal
Steel's $34 billion
acquisition of its nearest
rival Arcelor earlier
this year.
Tata Steel-Corus entity
will have steel production
of 23.5 million tons
and will give it an
excess of $22 billion
revenue.
Indeed Tata's takeover
of Corus which is its
first expansion outside
of Asia catapults Tata
Steel onto the global
map making it the fifth
largest steel producer
in the world. The new
entity will also likely
become the seventh Indian
entity to find a place
in the next list of
Fortune 500 companies.
Indian Oil, Reliance
Industries, Bharat Petroleum,
Hindustan Petroleum,
Oil and Natural Gas
Corp and State Bank
of India are six Indian
companies currently
listed in Fortune 500.
A phenomenon
of Indian economy
in the millennium
The takeover
of Corus is
not only a "defining
moment",
as the Tata
Chairman has
put it but it
is in line with
the recent phenomenon
of Indian companies
looking for
acquisition
to broaden their
reach internationally.
Already Indian
companies have
a strong presence
in the UK. India
is the third
largest investor
and
according
to a report, gross outward
investment from India
into the UK by Indian
companies or their subsidiaries
has risen from an average
of $14 million per annum
before 1995 to $1.3
billion in 2004. In
the financial year 2004-05,
Indian investment in
the UK rose by 30%.
The Corus deal and financing
of it
Corus came into being
after the merger of
British Steel and Dutch
firm Hoogovens in 1999.
The company whose production
facilities are located
in Europe-mainly in
the UK and the Netherlands-with
smaller plants in Germany
and France employs 47,300
people worldwide and
has a 24,000-strong
workforce in the UK.
Tata Steel has offered
£4.55p a share
for Corus which is roughly
20 pence below the current
share price. The takeover
also means Tata is taking
on £1billion debt
and will be paying £126
million into the Corus
pension fund. Tata Corus
deal is expected to
close by January 2007.
Tata Steel is financing
the acquisition through
its "own funds
and debt". Tata
Steel UK will take $3.45
billion from Tata Steel
and have debt financing
arrangement for a total
of around $6.5 billion
from a consortium of
banks including Credit
Suisse, ABN Amro and
Deutsche Bank.
Post- takeover scenario
The strengths
Tata has low-cost production
while Corus has sophisticated
steel-making technology.
This would enable them
to serve various markets
with a better pricing
power. Besides, the
marriage is expected
to create synergies
in distribution and
R&D.
The combined company
will have a capacity
of 26.9-million tons.
Besides, TATA has taken
plans to expand further.
It will start its 2
million tons plant in
Jamshedpur by 2008 and
set up three new plants
in the states of Jharkhand,
Chattisgarh and Orissa
in India with a combined
capacity of 23 million
tons per annum.
In Bangladesh, Tata
Steel has proposed to
set up a 2.4 million
ton plant while in Iran
a 5 million ton plant.
When all these new plants
are built, the total
capacity of the merged
Tata Steel-Corus entity
will reach nearly 60-million
tons. It will no more
be in the fifth position
but will be vying for
the third position,
unless of course other
big takeovers take place
within this time.
The weaknesses
There is a growing consolidation
in the global steel
industry. Although the
analysts have broadly
welcomed the deal, some
nevertheless have warned
that in case of any
economic downturn over
the coming years, Tata
Steel might have difficulty
paying off the £1bn
of debt it ...
World's
top steel makers
by volume
( after acquisition
of Corus)
