Tata-Corus: India's New Steel Giant

7/28/2019 Tata-Corus: India's New Steel Giant

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BUSINESS CAPSULE- WEEKLY RELEASE

Business case By- Avanish Singh and Ashwin

Tata-Corus: India's New Steel Giant

Executive Summary:

By acquiring Anglo-Dutch steel firm Corus, India's Tata Steel is now one of the world's top fivesteel makers. Professor Tarun Khanna says the fact that the deal is the largest out of India andgenerated by the private sector makes this a notable event. But now comes the hardpart making the merger work. Can Tata avoid mistakes made by Chinese companies? From

The Economic Times/India Times. Key concepts include:

Tata's acquisition of Corus is notable not only for creating a new steel giant, but also becausethis deal was a private sector venture far from Indian government influence.

Tata should be able to make the merger work by virtue of its position of financial strength aswell as previous cross-border experiences. The West should not underestimate this heretoforerelatively unknown competitor.

About Faculty in this Article:

Tarun Khanna is the Jorge Paulo Lemann Professor at Harvard Business School.

More Working Knowledge from Tarun Khanna

Tarun Khanna - Faculty

Research

The Tata Group is celebrating its acquisition of the Anglo-Dutch steel firm Corus, and the

catapulting of Tata Steel into world steel's big-five status (by revenue). It should. The $11 billiondeal is a marker in the ground. Not that it is the biggest deal ever from an emerging market.

Recent deals, even attempts, have been bigger. For example, Brazilian firm Companhia Vale doRio Doce successfully acquired most of Canadian nickel company Inco Limited for $19 billion


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last year, and Chinese petro giant CNOOC tried, but failed, to pull off an $18 billion acquisitionof Unocal in the U.S.

But Tata-Corus is the largest out of India, and is done by a private sector entity of its ownvolition, away from the shadow of state influence. For these reasons, it bears noticing.

The same euphoria surrounded Shenzhen-based TCL Multimedia when it acquired the Frenchcompany Thomson's TV assets to become the biggest TV manufacturer in the world (by volume,even if not by revenue) in 2004, just twelve years after TCL entered the TV business in mainlandChina.

Tata Steel is acquiring from a position of strength amidst a boom in the world steel market.

In that case, as in Tata-Corus, the rationale was to supplement the customer-facing front-end inthe developed markets, with a lower-cost back-end in an emerging market. That is, TCL wastrying to buy a sales and marketing structure and a set of brands. Much like Tata is with Corus.But that story had a sorry ending.

TCL chairman Li Dongsheng was awarded a French accolade, Officer de La Legion D'Honneur,the highest honor France had yet bestowed upon a Chinese entrepreneur, but his shareholdersdon't have much to show for the deal.

TCL had to write off much of its investment. The CNOOC-Unocal deal, in the different setting of the oil industry, also had a sorry ending. So, it is perhaps worth reflecting why Tata-Corus mightbe different. I believe it will be. Here's why.

First, CNOOC's bid collapsed amid Washington intrigue. The Chinese proved to bebabes-in-the-wood in navigating the Byzantine corridors of Washington's power, andunderestimated a relentless backlash that unwound the deal. While politics and steel are notalien to each other, there is nothing in Tata-Corus like the level of political concern in theCNOOC-Unocal situation.

Second, TCL acquired Thomson's assets from a position of weakness. Margins at TCL wereunder pressure from cut-throat competition in mainland China. Even though TCL was one of thelargest Chinese TV manufacturers (even prior to the acquisition of Thomson's assets),commodity TVs and other consumer electronics items were not producing good returns.

In contrast, Tata Steel is one of the most profitable, if not the most profitable, steel companiesin the world, and is acquiring from a position of strength amid a boom in the world steel


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market. This will buy it valuable experimenting time and learning space.

Third, there was much difficulty in integrating Chinese and French management. Some of this

surely stemmed from language considerations. To an extent, the Indians' greater command of the world's lingua franca will lubricate the inevitably-difficult integration process.

Fourth, the Tatas have built up some experience in the past few years with cross-borderacquisitions. Some of this lies within Tata Steel itself, as in its acquisition in Singapore. And therest lies in the broader ambit of the Tata group through its acquisitions of Daewoo's truckassets in South Korea, Tetley Tea in the U.K. and ritzy hotel properties on the U.S. East Coast.

TCL had some experience taking over factories in Vietnam and environs, and also a failed bid fora much smaller German company, but nothing to prepare it for the Thomson assets'integration.

Fifth, there is learning in the ambience. That is, India Inc. has built up, and is building up, itsown cross-border acquisition capability. This arises not just from entrepreneurs who have beendoing this for years like the Birlas and Asian Paints but also from more recent moves by India'spharmaceuticals, software, and auto component sectors, among others.

Cross-border experiences with integrating diverse management teams, communicating acrossborders and time zones, and integrating compensation practices, are not as new to the Tatagroup as they might well have been to the hapless TCL management team.

And finally, my feeling is that the Indians are still underestimated in the West, at least relativeto the Chinese. This complacency might well prove to be the biggest weapon available to thenew big-five kid on the block from Jamshedpur.


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Market Watch By- Shrinidhi Rai

SENSEX : 19486.80 (+ 94.94) ( +0.49%)

NIFTY5930.90 (+ 30.40) ( +0.52%)

Indian Market:

- Rupee ends at 54.13 against dollar.

- SENSEX up by 94.94 points and settles at 19486.80.

- NIFTY up by 30.40 points and settles at 5930.90.

- Global crude oil price of Indian Basket falls to 108.03 US$/bbl on Dec 05.

- Maya effectSensex, Nifty bounce back to 19 -month highs


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Market Analysis:

- Bharti Infratel's initial public offering of over 18.89 crore equity shares of face value of Rs 10 each opens

for subscription on December 11.

The issue will constitute 10 per cent of the post-issue paid up equity share capital of the company, its

Chairman Rakesh Bharti Mittal told reporters today.The price band has been fixed between Rs 210 and

Rs 240 per share, he said.

- Mayawati magic: Nifty gets boost, experts now eye 6000-6100. he Bahujan Samaj Party will support the

government in the retail FDI vote in the Rajya Sabha . This will give the government a majority and the

UPA is set to win the vote. It came a day after the BSP abstained from the vote in the Lok Sabha.

Addressing the upper house on the first day of the retail FDI debate, the BSP chief Mayawati said that

retail FDI may not be good for the country and that the party wants to see impact of FDI in states whowill implement it.The Indian market cheered the news from Parliament and closed at a 20-month high.

The Nifty ended at 5,930, up 30 points or 0.52%. The Sensex shut shop at 19,486, up 95 points or

0.49%.

- International brokerage Credit Suisse today cut its FY13 growth estimate for the country by a notch to

5.9 percent attributing it to delay by the Reserve Bank in cutting rates to prop up growth.The brokerage

also lowered its FY14 growth forecast to 6.9 per cent from the earlier 7.2 percent. "This largely reflects

the delayed RBI rate response, although we continue to stress that our projections are above those of

the consensus," the firm said in a note on the reasons for lowering the 2012-13 estimate by 10 basis

points.In the first half of the fiscal, the economy grew by 5.4 percent. The government has projected

growth between 5.5 and 6 percent this fiscal.

- Global crude oil price of Indian Basket falls to 108.03 US$/bbl on Dec. In rupee terms also, the crude oil

price decreased to Rs 5895.20 per bbl on 05.12.2012 as compared to Rs 5968.12 per bbl on 04.12.2012.

The international crude oil price for Indian Basket as computed/published today by the Petroleum

Planning and Analysis Cell (PPAC) under the Ministry of Petroleum and Natural Gas came down to US$

108.03/barrel (bbl) on 05.12.2012 as compared to US$ 108.61/bbl on the previous trading days fig ures

of 04.12.2012. In rupee terms also, the crude oil price decreased to Rs 5895.20 per bbl on 05.12.2012 as

compared to Rs 5968.12 per bbl on 04.12.2012. This was due to fall in price in dollar terms and rupee
http://www.moneycontrol.com/nifty/nse/nifty-livehttp://www.moneycontrol.com/sensex/bse/sensex-livehttp://www.moneycontrol.com/sensex/bse/sensex-livehttp://www.moneycontrol.com/nifty/nse/nifty-live


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appreciation as rupee dollar-exchange rate on 05.12.2012 was Rs 54.57/US$ against Rs 54.95per US$ on

previous trading day of 04.12.2012.

- Top gainers of the week at Sensex were : Adani Power (7.0 % change), Indiabulls Fin. (5.2 % change),

Jaypee Infratech (4.9% change), Adani Enterp (4.8 % change), Pipavav Defence(4.6% change).

- Top losers of the week at Sensex were : Bhushan Steel (3.6 % change), United Spirits (3.4 % change),

Hexaware Tech (3% change), HCL technologies(2% change), Wockhardt(1.9% change)

EXPERT OPINION NIFTY:

- NIFTY market looks bullish.

- Nifty FUTURE SUPPORT : 5923

- NIFTY FUTURE RESISTANCE: 5975

BANK NIFTY:

- BANK NIFTY looks bullish.

- Positional Support for BANKNIFTY 11900

- Positional Immediate Resistance is 12506.
http://www.design-flute.com/wp-content/uploads/2010/07/rupee-symbol.jpghttp://www.design-flute.com/wp-content/uploads/2010/07/rupee-symbol.jpg

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Tata-Corus: India's New Steel Giant