Corus signs up to make Tata No 5

MUMBAI: As the morning sun climbed on the London skies on Friday, Ratan Tata, chairman of the $22 billion Tata group, sewed up a deal that could double the group’s revenues at one stroke.

Tata Steel won approval from the board of Corus Group plc for its $8.04 billion (Rs 36,437 crore) takeover bid that will catapult the combined group to become the world’s fifth-largest steel maker from a modest current rank of 56 in global rankings.

The deal, India’s largest-ever foreign acquisition, extends a wave of consolidation that was fanned initially by compatriot Lakshmi Mittal’s Mittal Steel when it acquired Europe’s largest steelmaker Arcelor for $38 billion.

To go through, at least 50% of Corus shareholders will have to accept the bid, and the process could take all of three months to complete.

For the Tatas, the hunger for growth seems unsatiated despite gulping down a steel maker that’s thrice the size of Tata Steel. When asked whether the Mittal-Arcelor deal was the provocation for the Tatas snagging Corus, Ratan was emphatic.

“We could not be defining our strategy based on what Lakshmi Mittal does. Our focus is on strategic fit. We want Corus not for the tonnage. We’ll continue to look at strategic opportunities, but it’ll not be for raising tonnage. Our strategies are equal if not better than Lakshmi Mittal’s.”

B Muthuraman, managing director of Tata Steel, seconded his boss’s vision. “The merged company will be the fifth largest steel company in the world — and we don’t intend stopping there. We are at the beginning of yet another phase of consolidation in the global steel industry.”

Analysts, however, continued to see the dark shadows of other predators planning a counterbid. But the two groups — Corus and Tata Steel — appeared unfazed and their bonhomie revealed that they have something up their sleeves and that the new-found relationship is for keeps.

“We believe that the offer on the table (455 pence a share) is a fair offer and the right type of offer,” said Ratan Tata, who will take over as the chairman of the $19.4 billion Corus. Jim Leng, chairman of Corus group, who will step down to take the post of deputy chairman instead, was emphatic that the Tata group was the right choice. Apart from Tata, B Muthuraman, Arun Gandhi, a legal eagle and member on the Tata Sons board, and Ishaat  Hussain, finance director of Tata Sons, will also join the board.

Phillipe Varin will continue as CEO of Corus, a clear indicator that the Tatas will not disturb the present management of the Anglo-Dutch steel company. Leng will be inducted on the Tata Steel board as deputy chairman and will be joined by three Corus board members.

Tata Steel UK, which will own Corus, will ensure that Corus’ identity will remain for the time being. “Frankly it’s not important who owns the shares. It’s not sufficient either to be a European company with passion. What’s important is that we retain commercial passion and become globally competitive,” Leng, reasoned when asked whether it is the end of the glorious days of British-owned steel furnaces.

Voices on job losses are already being heard in Europe as the Indian steel company prepares to acquire the company. Muthuraman, however, reasoned that Corus jobs can only be protected if it merges with another low-cost producer. As a standalone manufacturer of high cost steel, it stands a lesser chance to protect jobs.

Back home, the Tatas will use some technology help from Corus to set up greenfield plants and says it is committed to its local expansion plans. “We’ll have 40 million tonnes capacity by 2011-12, Muthuraman declared. For a steel company which has a local capacity of 5.5 million tonnes, the resolve is indeed ambitious but within reach.