Facing the c‘ORE’us challenge
Tata Steel should focus more on ore supply procurement than increasing steel production capacity
It was in October 2006 that Tata Steel first made a $8 billion
bid for English steel-maker, Corus. A year later, that’s a $12.1 billion worth chapter in M&A books – the biggest ever by an Indian company – making the Tata Steel & Corus combine the 6th largest globally, with a total annual steel capacity of 25.6 million tonnes! That’s Tata Steel for you, growing amidst drama & against all odds.
And risks? Well, surely if it’s raising of $875 million through FCCBs during September 2007 to fund its Corus buy was not stretching it too far, it further went ahead with a $3.8 billion raising mega-rights issue (scheduled to close on December 21, 2007), stretching its total borrowings for FY 2007-08 to Rs.249.26 billion, a perilous rise of 638.11% over last year. Dangerous indeed, but that is not the primary challenge for the Indian behemoth. “So what is it?” is the question. Surely, with the company announcing a new organisational composition for prompt amalgamation of common functions across its global steel operations on November 28, 2007 – including Corus and other acquired units – synergies are bound to arise through focused management approach as Hitesh Agarwal, VP (Research), Angel Trade, asserts, “Bringing everything under one umbrella is part of Tatas’ initiative to bring all its companies under one umbrella. This will help the management and the benefit of consolidation will be realised in the long run.” The new structure, besides many others, also includes trusted names like Ratan Tata, B. Muthuraman (MD, Tata Steel) and Philippe Varin (CEO, Corus). While the move is in-sync with Ratan Tata’s vision of a “light-touch” integration strategy, it is indeed necessary to tap synergies, wherever possible in a time-bound manner, especially considering that at the moment Tata Steel’s priority would be to stop the downslide in Corus’ revenues which fell annually by 49.22% to just $468.71 million in 2006.
While the strategic logic for the Corus move was global expansion, that precisely is where the challenge lies – further acquisitions! With the price of iron ore expected to rise for another 3-4 years due to steel demand and supply mismatch, Tata Steel will have to mull over acquiring some iron ore entities in the near future. In the face of rising ore prices, Tatas should logically have bid for Brazilian CSN (than Corus). However, Tata Steel seems to have realised this – most recent proofs to prove the same being its JV with Riversdale Mining Ltd. in Mozambique for $88 billion on November 30, 2007 & the deal to buy a 30% stake in three companies owned by Indonesian Bumi Resources for $1.1 billion. And despite the current strained cashflows from Corus not providing returns enough to allow Tata Steel to think bigger near term acquisitions, the battle against getting hold of raw material sources is a must win battle for Tata Steel; whatever it takes!
For Complete IIPM Article, Click on IIPM Article
Source : IIPM Editorial, 2008
It was in October 2006 that Tata Steel first made a $8 billion
bid for English steel-maker, Corus. A year later, that’s a $12.1 billion worth chapter in M&A books – the biggest ever by an Indian company – making the Tata Steel & Corus combine the 6th largest globally, with a total annual steel capacity of 25.6 million tonnes! That’s Tata Steel for you, growing amidst drama & against all odds.And risks? Well, surely if it’s raising of $875 million through FCCBs during September 2007 to fund its Corus buy was not stretching it too far, it further went ahead with a $3.8 billion raising mega-rights issue (scheduled to close on December 21, 2007), stretching its total borrowings for FY 2007-08 to Rs.249.26 billion, a perilous rise of 638.11% over last year. Dangerous indeed, but that is not the primary challenge for the Indian behemoth. “So what is it?” is the question. Surely, with the company announcing a new organisational composition for prompt amalgamation of common functions across its global steel operations on November 28, 2007 – including Corus and other acquired units – synergies are bound to arise through focused management approach as Hitesh Agarwal, VP (Research), Angel Trade, asserts, “Bringing everything under one umbrella is part of Tatas’ initiative to bring all its companies under one umbrella. This will help the management and the benefit of consolidation will be realised in the long run.” The new structure, besides many others, also includes trusted names like Ratan Tata, B. Muthuraman (MD, Tata Steel) and Philippe Varin (CEO, Corus). While the move is in-sync with Ratan Tata’s vision of a “light-touch” integration strategy, it is indeed necessary to tap synergies, wherever possible in a time-bound manner, especially considering that at the moment Tata Steel’s priority would be to stop the downslide in Corus’ revenues which fell annually by 49.22% to just $468.71 million in 2006.
While the strategic logic for the Corus move was global expansion, that precisely is where the challenge lies – further acquisitions! With the price of iron ore expected to rise for another 3-4 years due to steel demand and supply mismatch, Tata Steel will have to mull over acquiring some iron ore entities in the near future. In the face of rising ore prices, Tatas should logically have bid for Brazilian CSN (than Corus). However, Tata Steel seems to have realised this – most recent proofs to prove the same being its JV with Riversdale Mining Ltd. in Mozambique for $88 billion on November 30, 2007 & the deal to buy a 30% stake in three companies owned by Indonesian Bumi Resources for $1.1 billion. And despite the current strained cashflows from Corus not providing returns enough to allow Tata Steel to think bigger near term acquisitions, the battle against getting hold of raw material sources is a must win battle for Tata Steel; whatever it takes!
For Complete IIPM Article, Click on IIPM Article
Source : IIPM Editorial, 2008
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