Corus fits well into Tatas’ gameplan
Tata Steel is believed to be in talks to acquire a significant stake in British steel giant Corus. For Tata Steel, the deal would be significant as it would become a global player overnight with presence in more than 40 countries.
The company would gain access to specialised steel making capacity in important markets such as Europe. Besides, post the deal, the combined entity will see its overall steel making capacity rise to over 20m tonnes from 5.2m tonnes now.
It would also fit in with Tata Steel’s strategy of becoming a low-cost, efficient supplier of hot metal to value-added steel plants in major markets. The acquisition of Singapore’s NatSteel and Thailand’s Millennium Steel was a part of this grand plan.
Tata Steel, in this case, intends to use its cheap hot metal making capacity to supply to Corus’ plants in major European markets. This would help Corus source inputs at cheaper costs.
Some analysts believe that Corus would also be able to shift some of its production (about 5m tonnes) to Tata Steel, thereby saving atleast $750m per year.
Rising input costs have been the bane of Corus’ operations for some time now. The company does not own any iron ore mines, making it vulnerable to rising prices. Iron ore prices have touched $60 per tonne, a sharp jump of over 140% over the past three years. Few years ago, Corus made an abortive bid to buy Brazilian steel company CSN for precisely tying up critical iron ore supplies.
Tata Steel will also gain Corus’ experience in making specialised high-end steel and aluminium products. Other than catering to the auto and construction sectors, like Tata Steel, Corus meets the needs of aerospace, energy, engineering, rail and packaging industries.
Corus will also be a gateway for Tata Steel to countries such as the UK, the Netherlands, Germany, France, Norway, Belgium and Brazil, where it has operations. Some analysts believe that it may not be so easy for Tata Steel to clinch the deal. Russian steel makers, they believe, would also be interested in the British company. Evraz and Severstal were also believed to be in talks with Corus at one point.
Unlike the political controversy surrounding the Arcelor-Mittal merger, all indications seem to suggest that the UK government may not oppose the prospect of a foreign steel company taking over Corus, as long as they avoid large-scale layoffs.
In the recent past, Dubai Ports’ smooth takeover of ports major P&O and Spanish group Ferrovial’s hassle-free acquisition of British Airports Authority are evidence of the British government’s pro-free trade credentials.
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