In 2006, Tata Steel’s production capacity wasn’t enough for it to be ranked among the Top 50 steel companies in the world. But driven by the ambitions of its chairman Ratan Tata it aimed to be among the global leaders in the sector. In pursuit of that goal it targeted Corus, the Anglo-Dutch steelmaker nearly four times its size but with much lower profitability.
The mid-2000s was a period of extravagant exuberance in corporate India, even if much of it seemed irrational later. Globally, the steel industry was going through a phase of consolidation with another Indian company emerging as a key predator.
In 2004, Mittal Steel owned by billionaire LN Mittal had acquired the US company International Steel Group, and two years later its merger with Arcelor following a $36.1 billion offer had created the world’s largest steel company.
Corus, the result of a 1999 merger of British Steel with Hoogovens of the Netherlands, had a few other suitors, including the Brazilian firm CSN (Companhia Siderurgica Nacional SA). Tata had to move decisively and rapidly.
Negotiations began in November 2005 but the first offer from Tata came in the middle of 2006. By October, the Corus board recommended accepting the Tata offer of 455 pence a share amounting to £5.1 billion, and a shareholders’ meeting was fixed.
Enter CSN which upped the Tata offer, forcing the Corus board to postpone the shareholders’ meeting. With CSN on the ascendant Tata raised its offer to 500 pence. CSN promptly countered with 515 pence. As the new year dawned, both companies accepted the terms for an auction process comprising nine rounds of bidding to find the winner.
It was a high-stakes game of flash poker played out on a global scale with the eyes of the world glued on India.
The bidding had begun at 455 pence a share but by the final round, the price had climbed to 603 pence from CSN. Finally, Tata Steel strategists at Bombay House including Tata himself, B. Muthuraman, its managing director and Kaushik Chaterjee its chief financial officer, offered 608 pence per share to seal the deal. The acquisition price represented a premium of 68 percent over the average closing market share price of Corus for the preceding twelve-month period.
The total value of the deal at £6.2 billion ($12 billion), makes it one of the largest cross-border acquisitions in Indian corporate history. It instantly catapulted Tata Steel into the ranks of the top ten steelmakers in the world with an annual capacity of 25 million tonnes.
Critics, however, questioned whether the various synergies in areas like procurement, R&D, production and logistics justified the high price. The Tata Steel stock took a beating on the announcement of the deal given the high level of debt the company would have to take to finance it.
Many of those fears were proven right as within a year, the global economy collapsed following the financial crisis and that coupled with Chinese protectionism impacted demand. It took years for Tata Steel to nurse its steel business back to health but the country’s largest cross-border acquisition did give a fillip to the global dreams of Indian business.
—Sundeep Khanna is a former editor and the co-author of the recently released Azim Premji: The Man Beyond the Billions. Views are personal