Saturday, Aug 20, 2022

Land Alloy!

Fair price or fat price? As analysts pore over the Corus deal, Outlook looks at how Tata Steel can gain. It's a perilous path.

Land Alloy! Land Alloy!

How It Was Forged

  • At over $12 billion, it's the largest M&A deal by an Indian business group
  • Tatas paid 608 pence a share for Corus, a third more than its initial bid
  • Tata Steel becomes the fifth largest steelmaker in the world
  • The deal adds 19 million TPA to Tata Steel's installed capacity
  • The deal values Corus at 9 times its EBIDTA, or nearly 50 per cent higher than Mittal-Arcelor
  • Tata Steel feels it can extract synergies worth $300-315 mn a year
  • Tata Steel can export slabs to Corus' units to convert them into high-margin, value-added products
  • At a valuation of $710 per tonne, the deal cost is lower than the cost of setting up a new greenfield plant
  • Lower global steel prices this year can upset Tata Steel's calculations
It was an elated, tired and relieved Ratan Tata who addressed the Mumbai press conference on January 31, hours after effecting India Inc's biggest global merger. It was also a more confident, ambitious and aggressive Tata—different from his usual soft and conservative image. After all, he had bagged the British major, Corus, after a roller-coaster sequence of events and a head-to-head fight with Brazil's CSN Not to forget that many thought the puny Tata Steel had little chance against CSN's financial muscle. It was, therefore, a changed Tata who told a newspaper that one needs to be bold in setting goals and unafraid of taking risks.

But even as Tata was addressing the media, walking in and out of endless interviews, and talking about how Tata Steel has achieved a global scale, Tata Steel's stock was plummeting. At the close of the day's trade, it had slumped by 10 per cent. The consensual chorus among analysts about the Corus deal was that Tata had gone overboard in the price he paid for the buyout. Maybe, the analysts hinted, the merger had more to do with egos, not with financial strategies. It was possible, they added, that Tata had a ferocious tiger by the tail.