In an attempt to consolidate its metal business to drive efficiencies and reduce costs, the Tata Group on Friday announced the merger of seven of its metal companies into Tata Steel.
The board of Tata Steel approved the amalgamation of seven of its subsidiaries – Tata Steel Long Products, Tata Metaliks, The Tinplate Company of India, TRF, Indian Steel & Wire Products, Tata Steel Mining and S&T Mining into and with their parent company Tata Steel.
The decision was taken at a board meeting of the company held yesterday, an exchange filing said.
The company has withdrawn the earlier merger scheme of Tata Metaliks and Tata Steel Long Products (TSPL).
Share swap ratios under the merger scheme:
Tata Steel vs TRF: 17:10 (17 shares of Tata Steel for every 10 shares of TRF)
Tata Steel vs TSPL: 67:10 (67 shares of Tata Steel for every 10 shares of TSPL)
Tata Steel vs Tinplate: 33:10 (33 shares of Tata Steel for every 10 shares of Tinplate)
Tata Steel vs Tata Metaliks: 79:10 (79 shares of Tata Steel for every 10 shares of Tata Metaliks)
Explaining the rationale behind the merger scheme, Tata Steel said the resources of the merged entities can be pooled to unlock the opportunity for creating shareholder value.
Besides citing other synergies, it also said the mergers will result in utilisation of each other’s facilities in a more efficient manner. Marketing and distribution network of both entities can be collaborated, it said.
“In line with group level 5S strategy – simplification, synergy, scale, sustainability, and speed – proposed Scheme will simplify group holding structure, improve agility to enable quicker decision making, eliminate administrative duplications, consequently reducing administrative costs of maintaining separate entities,” Tata Steel said.
On ISWP, the steel major said the amalgamation will ensure creation of a combined entity, leading to ‘One-Tata Steel’ in front of customers which will improve shareholder value of the merged entity.
The mega-merger plan would require the approval of shareholders of all the seven companies as well as those of Tata Steel, regulatory bodies and stock exchanges.
“Tata Steel was seen articulating the merger in their annual report. One of the advantages with the amalgamation coming in is that royalty would not be required,” Amit Dixit of Edelweiss Securities said.
Under the leadership of N Chandrasekaran, the Tata Group has been trying to consolidate its businesses that share common synergies. Earlier this year, the group had announced the merger of Tata Consumer and Tata Coffee. This week’s media reports have said that the Tatas are now planning to consolidate airline companies – Air Asia India and Vistara – under the Air India brand by 2024.
Reacting to the merger announcement, Tata Steel stock rallied around 4.1 per cent despite Sensex losing over 650 points in early morning hours. The stock of all the remaining four merger-bound listed companies were trading lower during the day. TSPL was the worst hit of the lot and eroded over 9 per cent of shareholder value while both TRF and Tinplate were trading lower by 5 per cent each.
Tata Metaliks was lower by 3 per cent to Rs 776.
