 "European woes test Tata Steel's resilience")
In the same month, the first commercial flight connecting Jamshedpur was launched by Air Deccan; the then Corus CEO, Philippe Varin, released historian Russi Lala's book for the centenary, The Romance of Tata Steel; and a 20-minute film on Tata Steel put together by Zafar Hai was shown at Jamshedpur Works. Tata Steel was in the mood to celebrate and Corus made it more meaningful.
B Muthuraman, the then managing director, was the man of the moment. Seemingly satisfied with the way things had turned out, he gave a stirring speech to a gathering of employees and guests assembled at Jamshedpur. Prior to the acquisition, he said, he wasn't too excited about the centenary celebrations. "There was something missing...one has to earn a celebration," he said.
Tata Steel had truly earned it. Besides Tata Steel, Corus had another suitor, Brazilian steelmaker CSN. A bidding war ensued which Tata Steel won but ended up paying a 34 per cent premium at 608 pence a share to its original offer. Even then, the deal had looked good.
"Tata Steel was desperately looking for a global acquisition. It was part of the company's long-term plan of achieving a 50-million- tonne capacity by 2015," an analyst points out.
The demand for steel was booming then. According to Tata Steel's presentation to analysts after the acquisition, global steel demand was expected to grow 5.9 per cent to 1,179 million tonnes in 2007; China's steel demand was set to grow 13 per cent and the demand in India was expected to grow 10.2 per cent in the same year.
The next seven years, however, saw a paradigm shift; steel prices crashed from $600 a tonne to $400 and lower; China's supply far outstripped demand and the developed world's demand growth turned negative. Emerging markets, including India, were relatively better off but were affected by cheap imports. The basic assumptions that made Corus's acquisition so lucrative just went haywire.
Tata Steel tried to save Corus. A number of restructuring initiatives like 'Weathering the Storm' and 'Fit for the Future' followed.
In March 2011, Tata Steel sold Teeside Cast Products to Sahaviriya Steel of Thailand for $467 million tonne. Last week, Scunthorpe was sold to Greybull Capital for a token £1, according to reports in the British media. Port Talbot too is on the block. In short, Tata Steel is giving up on the UK units after a nine-year struggle.
Over the past seven days, the advisors to Tata Steel Europe have begun initial exploration of interest in Tata Steel UK's remaining operations, reaching out to 190 potential financial and industrial investors worldwide, Tata Steel said on Monday.
To focus on the "vital" tasks that lie ahead, Bimlendra Jha, executive committee member of Tata Steel Europe, has been appointed as the chief executive officer of Tata Steel UK.
The asset sale might do the company some good. Tata Steel has invested £1.5 billion since the acquisition in modernising the outdated plants. It has, as a result, suffered asset impairment of more than £2 billion over the past five years. The company's loss per day is estimated to be to the tune of £1 million. Clearly, it is a losing proposition.
Prized possession
According to a Deutsche Bank Markets Research note, after the sale of assets in the UK, Tata Steel Europe would house only the highly efficient and profitable Ijmuiden facility in the Netherlands, leading to a sharp improvement in Tata Steel Europe's margin and profitability.
The only concern, however, is the pension fund liability that has not been transferred with the sale of Scunthorpe. But the silver lining is that the employees of the long products unit will now become deferred pensioners, allowing the company to stop any incremental pension contributions.
Peers in the steel sector vouch for the Ijmuiden facility. "It's easily one of the best performing plants in the world. The quality of equipment and products is world class," says a competing producer in the domestic market.
For the year ending March 2015, Tata Steel UK operations reported an EBIDTA (earnings before income, depreciation, taxes and amortisation) loss of £170 million compared to Ijmuiden's positive EBIDTA of ¤499, says the Deutsche Bank report.
Essentially, it's the non-performing assets that Tata Steel is getting rid of. "The potential sale of assets in the UK is likely to lead to a significant improvement in Tata Steel Europe's margin and profitability profile and decline in cash flow drag (estimated at $500 million per annum) for the free cash-generating Indian entity, providing a strong case for re-rating," the report further adds.
According to foreign media, Tata Steel is exploring the option of forming a joint venture with its Dutch operations and Germany's diversified industrial conglomerate Thyssenkrupp.
"That could result in a potentially strong player in the European market. Ijmuiden is a world class plant and Thyssenkrupp has a significant market share in special and value added steel," a steel industry watcher says.
Tata Steel may be getting its act together, finally. Its Indian operations are expected to do well going forward with more policy action expected from the government to stem imports.
The production capacity of Tata Steel's India operations is at 13 million tonnes. At Kalinganagar in Odisha, where it has currently commissioned the first phase of three million tonnes, there is scope for expansion up to 15 million tonnes.
Deutsche Bank has valued the Indian operations at 6.5xFY17E EV/EBIDTA, which is in line with the valuation of global peers like ArcelorMittal. That too is a conservative estimate.
On many occasions prior to the Corus acquisition, Tata Steel had topped steel information service provider World Steel Dynamics's chart of world class steel makers on several parameters such as technology, product quality, position in the market, among others.
Can Tata Steel regain its pole position? An old timer recalls how Ratan Tata, then chairman of Tata Steel, had cancelled an extravagant team building conference at Taj Aguada in Goa when the company was undertaking stringent measures to reduce costs. Some employees and their spouses were already on their way when the trip was called off. The conference was ultimately held at Rangoli, a restaurant in Mumbai, with then managing director J J Irani and Tata in attendance.
Hard times call for hard measures. For a century-old company, such moments come more than once.