The Telegraph
Monday , April 24 , 2017

'White knight' twist in Corus tale

Calcutta, April 23: Tata Steel's audacious £6.7-billion bid to acquire Anglo-Dutch steel maker Corus Group Plc in 2007 might have been influenced by the tacit backing of a "white knight", the company's former managing director Jamshed J. Irani suggested on Friday.

The "knight", however, did not appear after the debt-fuelled deal - the largest overseas acquisition by an Indian corporate - was done, leaving Tata Steel to manage the gargantuan takeover all by itself.

"The white knight was not an Indian company and it did not appear (after the deal) because of the government," Irani said, bringing a previously unknown element to the fore of the decade-old deal that remains under microscope because of several challenges it continues to face even today.

The acquisition catapulted Tata Steel, then having a combined capacity of 8.2 million tonnes across India, Thailand and Singapore, from the 55th position in the global pecking order to the top six.

However, doubts lingered on how the Indian company with just under £2-billion sales would be able to manage the £10-billion giant with installed capacity of over 18 million tonnes.

Irani would not name the company that might have comforted the Tata Steel leadership into taking the plunge. "It is a boardroom detail that I would not share," he said.

After an initial few quarters of profit, the European operation slipped into the red as demand for the alloy tumbled in the aftermath of the global financial meltdown of 2008.

A high cost structure on the back of the UK's defined pension scheme along with cheap Chinese imports rendered the British operation unviable.

The Tata Steel group managed to stay afloat largely because of the profitable and efficient Indian business.

Irani was the managing director of Tata Steel, formerly TISCO, between 1992 and 2001 and then served on the company's board as non-executive director after retirement at the age of 75 in 2011. He was also a board member of Tata Sons, the promoter company of the $107-billion salt-to-software conglomerate.

A member of the Tata Steel board, who was actively involved in the acquisition of Corus and worked with Irani, also would not comment.

"I will neither confirm nor contradict what he said," the former board member said.

Chequered journey

Reflecting on the decade-old deal, Irani, who now lives in Jamshedpur where the Tatas operate a 10-million-tonne steel plant and runs part of the town, termed the Corus acquisition as an "aspirational mistake".

"It was a mistake, not an intentional one, but aspirational," Irani said at an interactive session of the Calcutta Chamber of Commerce in Calcutta.

Tata Steel's subsequent attempt to slice off Tata Steel Europe, as Corus is now called, and sell it in parts, especially after the 2008 economic meltdown, would then stand to reason, a steel industry veteran noted, because the Indian company did not ever plan to manage the entire show alone.

The Tatas initially offered 455 pence a share for Corus but ended up paying 33.6 per cent more (608 pence a share) after engaging in a bidding war with Brazil's CSN.

"The Tatas paid seven times of the forward earnings multiple compared with 4.6 times Mittal Steel had offered to acquire Arcelor. Corus was bought at top valuation and experts wondered why it did. May be they went up hoping the burden will be shared later," said the industry veteran.

Tata Steel Europe sold the Teesside Cast Products division in the UK to Thai steel player SSI in 2011 and the European long product division to Greybull Capital in 2016.

It also sold the speciality steel business to Liberty House recently. Moreover, it cut thousands of jobs in the UK to turn the corner.

It has now started discussions with German conglomerate Thyssenkrupp AG for a potential collaboration of the European steel business that includes the inefficient, loss-making UK business and the efficient, profitable Dutch operation.

However, the progress of the negotiation has been tardy and one of the reasons cited was the overhang of the pension liability on the financials.

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