Tata-Corus: A merger of inconvenience

The Corus group - born out of a deal between British Steel and Koninklijke Hoogovens in 1999 - has failed the merger test once before.

The Anglo-Dutch merger was meant to revive the ailing British Steel which had incurred a net loss of £81 million in the year ended March 31, 1999. But it did not help much as rationalisation, labour unrest and cultural mismatch followed soon.

Kwintessential, which helps businesses wade through the challenges of globalisation, listed the company's problems as: absence of clear leadership, severe lack of communication between departments, low morale of labour force, poor productivity and poor organisation.

Cultural differences apart, there was another major problem. When Corus was formed out of the merger, heavy investments were made in the Dutch side of the operations. As a result, the Dutch operations (Ijmuiden) became a world-class unit while British Steel continued to be a drag.

The issues reflected in the company's financials. Corus' stock market value in 1999 was $6 billion but fell to $230 million in 2003, prompting Corus to look for a buyer. Many companies, including ArcelorMittal, explored the option. Finally, in 2007, Tata Steel bought Corus in a $12 billion deal, what was the biggest foreign acquisition by an Indian company till then.

Steel was at the peak of its cycle and Tata Steel paid 608 pence a share, a premium of 34 per cent to the original offer price to ward off a challenge from Brazilian miner and steelmaker CSN. For CSN, however, it might have been different because of the raw material support. Save for one good year, Corus has remained a problem for Tata Steel. The steel market started deteriorating from the second half of 2008-09, and the company went for restructuring. The fact that there were three CEOs since acquisition didn't help.

"All the CEOs were from diverse European backgrounds. It would have made more sense to have an Indian CEO at helm," an industry said.

In March 2011, Tata Steel sold Teeside Cast Products to Sahaviriya Steel of Thailand for $467 million. So the latest decision to explore all options for portfolio restructuring, including the potential divestment of Tata Steel UK in whole or in parts, is a culmination of events and not completely out of the blue.

Uday Chaturvedi, who had worked for more than 40 years with Tata Steel and had a stint as managing director of Corus Strip Products, a unit of Tata Steel Europe, is not surprised that Tata Steel is exploring the option of divesting its UK units.

"I had foreseen in 2012 that this would happen. Tata Steel had put in huge amount of financial resources but the technical resources were not there," Chaturvedi said.

Tata Steel's former managing director, J J Irani, said he was happy that the Tata Steel board had taken the decision to divest the UK business.