When Corus was acquired for $13.1bn (£8.6bn) just over three years ago by Tata Steel, the move was regarded by Ratan Tata, the deal’s principal architect, as part of a long-term expansion strategy whose merits would take some time to come through.
But the problems that have piled up since then for the Anglo-Dutch steelmaker have posed a severe test even for Mr Tata, one of India’s most prominent industrialists and known for his patient approach and unruffled manner.
Corus was bought by Tata Steel – part of Tata Group, one of India’s biggest industrial businesses – in the biggest-ever foreign acquisition by an Indian company.
The deal was part of a move to make the whole of Tata much more global. It was followed a year later by Tata’s purchase of the UK- based Jaguar and Land Rover operations from Ford Motor for $2.3bn.
Corus was at the time of the transaction about four times bigger than Tata Steel in terms of shipments, so the deal increased the size of the Indian company’s steel arm, turning it into the world’s eighth-biggest steel producer.
Unfortunately for Mr Tata, who is chairman of Tata Group and Tata Steel, Corus became one of the biggest European casualties of the global recession starting in late 2008.
Corus made ebitda losses of more than $1bn in the first nine months of last year. Since the beginning of 2009, it has cut more than 5,000 jobs, mostly from its UK plants that employ just over 20,000 people. Corus has big plants in Port Talbot, Scunthorpe and Teesside and in Ijmuiden in the Netherlands.
Adding to the trading problems, Kirby Adams, the American installed as Corus’s chief executive last March, was plunged into a legal dispute with an Italian-led consortium that caused controversy by reneging on a deal to take over the Teesside site. The site, whose problems pre-date the Tata deal, has been mothballed since the middle of last year.
Mr Adams is also having to deal with the threat of industrial action from Community, the UK’s main steel trade union, over the Teesside imbroglio.
Michael Leahy, Community’s general secretary, says Mr Adams has an “over-adversarial” approach that has led to the “worst period for Corus for industrial relations” in 45 years.
However, B. Muthuraman, Tata Steel’s vice-chairman, brushes off any concerns. He says the deal is on track to meet its objectives and adds: “We are extremely confident that with the economy and markets gradually improving, Corus will create value for Tata over the long term.”
Mike Locker, president of Locker Associates, a US- based steel consultancy, says: “Even though there are short-term problems, over a longer period I think [the Corus deal] will turn out to be a wise move for Tata.”
Corus’s results are moving in the right direction. After the $1bn loss in the first nine months of 2009, it recorded positive ebitda of $142m in the final three months.
But one London-based banker is less enthusiastic about the deal. He says: “Mr Tata badly wanted to do this acquisition but in my view he paid a very full price for Corus. It also diverted the company from other possible approaches [to building up its steel business], especially in Asia. I don’t see this as a positive move from either a financial or a strategic point of view.”
There are also questions over whether Tata has been correct to run Corus essentially as a stand-alone operation, with its management left very much to Mr Adams.
Confusingly for many outsiders, H. Nerurkar, who became Tata Steel managing director last September, does not have any responsibility for Corus. Mr Nerurkar instead has power only to direct the company’s operations in India, Thailand and Singapore.
Mr Adams does not have a totally free rein since he confers regularly with Mr Muthuraman and Mr Tata.
But one India-based consultant criticises the absence of anyone with direct management responsibility on day-to-day matters for the whole of Tata Steel. “I think the company should have done a lot more try to integrate its [Indian and European operations] rather than the Indian management adopting a largely hands-off approach,” the consultant says. “There are a lot of people in the company who should be working together but are at cross purposes.”
This argument is rejected by Lord Bhattacharyya, a Labour peer who is director of the Warwick Management Group at Warwick University in the UK and a confidante of Mr Tata. He says it is right for Tata Steel to keep the identities of its Indian and European operations separate, given a big difference in their size and characteristics. “People do talk to each other from the different parts of the company, so in this sense there is a sufficient amount of integration going on,” he says. “The management of Corus is doing a good job and I think over the longer term the deal will be seen as being a sensible and positive move for Tata.”
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