Opinion

Tata Corus Deal will benefit Tata Steel

Nine round of auctions, four months of transition and around $12.1 billion fetched a neo Tata Steel. Tata Steel now is the fifth largest steel company from fifty sixth initially with an annual production of around 24 million tones from around 6 million tones previously. The rise in turnovers of the new entity will bring Tata steel in the fortune 500 list as well. Tata steel acquired Anglo-Dutch steel major Corus plc in a deal of $12.1 billion or '6.2 billion at 608 pence per share. This acquisition process began in October last year with a price of 455 pence per share and a price of around $8 billion. The deal finally materialized after lot of competition from Brazilian Steel maker CSN. In the ninth round of auction CSN's 603 pence per share was outbid by Tata steel's 608 pence per share.

Corus' well known strength is the production of high-end steel-used in construction automobile and aircraft as well as its impressive research and development will complement Tata Steel. The merger will also give it access to the important markets of Europe. All that will benefit Corus is the management expertise of the Tatas and their cost advantage in producing steel. With their acumen they will bring down the production cost of Corus. Tata Steel expects to earn $300 million per year through cost savings.

Market has not responded well to this deal as the price of the stocks fell. Investors are worried about cash outflow and the resultant strain on company's balance sheet. Of the total cash to be paid in the deal $4.1 billion will be forked by Tata steel, rest of the money will be as debts and will be returned from Corus cash flows.

No merger is riddle free and almost every has a bit of it. Tata steel needs to concentrate on bringing down the production cost, which is high now. They need to use the best of their management skills. Ratan Tata's dexterity has worked out for the benefit of the group and this time will be no exception. The share holders need to keep their faith intact in the group and this will pay as it has before. 

03-Feb-2007

More by :  Mihir Mishra


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