TATA - CORUS: 
No greetings from us

TATA - CORUS is a reality. World's fifth largest steel company is only a few formalities away. The drum-beating and fire works that greeted his arrival are inexplicable. So also the lavish media space it has had. 

There were fewer dins when Mr. L N Mittal helicoptered to the top. A self-made man, Mittal had no backing of fluent English (he studied in Bengali) he deserved our applause. In fact he toiled his way up. Mittal, a neo rich, shows off his wealth. Something the Indian psyche never relishes. But his achievement is stellar. Ratan Tata, straight from the Tata fold, had also all his backing. 

That, well, is not the only reason for us withholding our greetings to Tata- Corus. We feel, in the first place, it is no big deal on world scales. And steel production is more country specific these days. Companies or entrepreneurs are not in the picture. Sitting on an annual output of 425 million tonnes China accounts for over a third the world total. However, outside the close orbit of producers and consumers, the identity of the Chinese steel companies is not known. 

Who gained more from the deal? Corus shareholders. They parachuted to safety. On the European bourses, the Corus quotations are yet to catch up with the Tatas' offered rate. For them it was a bailing out operation too. Corus was no sinking ship. But it was certainly in choppy seas. Weighed down by high cost structure, uncertain raw material supplies and competitive assaults.

Both Tatas and Corus would have done their homework on the financials of their merged operations. So it is a bit early to push them under a scan. But synergy, if there is any, favours Corus, not Tatas, by far the cheapest producer of steel. The leveraged buy out will tell upon the Tatas as borrowings make up 80% of its cost. If Corus earns enough and pays down the loans it will be well and good. Otherwise? 

The Tata shareholders better we prayerful. Steel is a cyclical industry. If caught in the trough for long, may God save them. Locational advantages wear thin in a world of crumbling tariff walls, faster transport and hostile currency movements. 

In sum, the gain on the Tata Steel side of the deal is psychological satisfaction. Call it ego, if you like. Tata Steel is only one third of Corus in size and so there was the David's thrill in taking on Goliath. Also feel the touch of colonial revenge. For Corus is largely the good old British Steel that excited awe and respect among the native enterprises including Tata Steel, during the imperial days. So, the acquisition of Corus is well worth the winner's curse. 

A nagging question lingers on. That is about the strategy, or lack of it, among steel companies in developed countries. Offshore plants were never on their cards even when they stopped growing. US Steel for instance. The world's biggest manufacturer fell on hard times in the seventies. Across Atlantic old giants hit also roadblocks. Relocation to or fresh capacity in, low-cost countries could have saved them, under conventional wisdom. All the steel companies, which Mittal and Tata were chasing, would have fallen into the lap of Japan, for a song, when the yen was riding high in the eighties or even thereafter. Though with no iron ore or coal Japan made huge investments abroad in automobiles, but not in steel. Why? Perhaps the Japanese are not well schooled in the economics of steel industry like our Mittals and Tatas. 

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