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Recovering from his all-night bidding contest with Brazil’s CSN over Corus, B. Muthuraman sat down for a coffee at the Taj Mahal Palace Hotel in Mumbai on Wednesday morning.
“I’ll take three sugar cubes,” the managing director of Tata Steel told the waiter.
“Right now, I’m low on energy.”
Even in his red-eyed state, Mr Muthuraman and group chairman Ratan Tata could not hide their elation.
After a four-month battle, they had pulled off India’s largest overseas acquisition, in the process turning their efficient but minor steel-maker into the world’s fifth largest producer of the metal.
But if the group thought the initial battle for Corus was difficult, the hard work has yet to come.
Tata Steel has paid what the market sees as a full price for a much larger and far less competitive producer, in an entirely different market, whose turnover is approaching that of the entire Tata Group.
As if to underline this, Indian investors took what Mr Tata criticised as a short-term view of the deal on Wednesday and sold Tata Steel’s shares down by 10.7 per cent to Rs463.95 ($10.52, €8.12, £5.36).
Shriram Iyer, head of research at Edelweiss in Mumbai, said the price of the deal was not outlandish, but “it’s clear there was no money left lying on the table”.
“In the long term, it’s probably a great deal if it works out the way they’ve planned. But the time horizons of investors and of the company may not be aligned.”
Tata Steel says the Corus deal gives it one foot in the emerging market of India, with its low labour and raw material costs, and the other in the mature markets of Europe.
The deal could offer synergies across the group. Corus’s high-quality steel could benefit Tata Motors, India’s biggest truck maker, while the group’s information consulting arm, Tata Consultancy Services, could be used to help lower back-office costs at the Anglo-Dutch producer.
Mr Muthuraman said the combined companies stood to save up to $350m a year, with the full amount to be realised in about three years once Tata Steel completed the next phase of the expansion of its Indian facilities and had excess production to ship to Corus.
He said the price of the deal, at $720 per ton of installed capacity, was less than the industry average for acquisitions in the past five years.
“If you want to create new greenfield capacity of 19m tons with this kind of spread geographically, first of all it will take a long time. Second, it will cost very nearly double,” Mr Muthuraman told the Financial Times.
But he admitted during a press conference on Wednesday that at about nine times 2006 ebitda, the cost was high, reflecting room for improvement in Corus’ operating margins.
Tata Steel’s debt load will increase, with the company contributing more than $4bn in equity to the special purpose vehicle that will buy Corus.
But it will be helped by the parent, Tata Sons, and will meet all of its dividend and investment commitments, the company said.
The other challenge facing the group is how to manage the cultural integration of a large overseas workforce.
Mr Muthuraman refused to give a guarantee on job cuts.
“I don’t think there’s anybody in the world who can say his job is secure,” he said.
The group is retaining part of the management of Corus, but there are anomalies. The remuneration package of Philippe Varin, Corus chief executive, would be many times that of the best-paid of his counterparts at Tata Steel.
Proponents of the deal said such challenges would be ironed out in time.
Jitesh Gadhia, a banker at ABN Amro, one of the company’s advisers on the deal, said: “Value is a bit like beauty. It’s in the eye of the beholder.
“For a company like Tata Steel, which is going to celebrate its 100th year in the business this year, they’re not into instant gratification.”