Tata Confident Corus Will Regain its Lustre
By Peter Marsh
Published: May 4 2010
When Corus was acquired for $13.1bn (£8.6bn) just over three years ago by Tata Steel, the
move was regarded by Ratan Tata, the deal’s principal architect, as part of a long-term
expansion strategy whose merits would take some time to come through.
But the problems that have piled up since then for the Anglo-Dutch steelmaker have posed a
severe test even for Mr. Tata, one of India’s most prominent industrialists and known for his
patient approach and unruffled manner.
Corus was bought by Tata Steel – part of Tata Group, one of India’s biggest industrial
businesses – in the biggest-ever foreign acquisition by an Indian company.
The deal was part of a move to make the whole of Tata much more global. It was followed a
year later by Tata’s purchase of the UK- based Jaguar and Land Rover operations from Ford
Motor for $2.3bn.
Corus was at the time of the transaction about four times bigger than Tata Steel in terms of
shipments, so the deal increased the size of the Indian company’s steel arm, turning it into the
world’s eighth-biggest steel producer.
Unfortunately for Mr. Tata, who is chairman of Tata Group and Tata Steel, Corus became one of
the biggest European casualties of the global recession starting in late 2008.
Corus made EBITDA losses of more than $1bn in the first nine months of last year. Since the
beginning of 2009, it has cut more than 5,000 jobs, mostly from its UK plants that employ just
over 20,000 people. Corus has big plants in Port Talbot, Scunthorpe and Teesside and in
Ijmuiden in the Netherlands.
Adding to the trading problems, Kirby Adams, the American installed as Corus’s chief executive
last March, was plunged into a legal dispute with an Italian-led consortium that caused
controversy by reneging on a deal to take over the Teesside site. The site, whose problems pre-
date the Tata deal, has been mothballed since the middle of last year.
Mr. Adams is also having to deal with the threat of industrial action from Community, the UK’s
main steel trade union, over the Teesside imbroglio.
Michael Leahy, Community’s general secretary, says Mr. Adams has an “over-adversarial”
approach that has led to the “worst period for Corus for industrial relations” in 45 years.
However, B. Muthuraman, Tata Steel’s vice-chairman, brushes off any concerns. He says the
deal is on track to meet its objectives and adds: “We are extremely confident that with the
economy and markets gradually improving, Corus will create value for Tata over the long term.”
Mike Locker, president of Locker Associates, a US- based steel consultancy, says: “Even
though there are short-term problems, over a longer period I think [the Corus deal] will turn out
to be a wise move for Tata.”
Corus’s results are moving in the right direction. After the $1bn loss in the first nine months of
2009, it recorded positive EBITDA of $142m in the final three months.
But one London-based banker is less enthusiastic about the deal. He says: “Mr. Tata badly
wanted to do this acquisition but in my view he paid a very full price for Corus. It also diverted
the company from other possible approaches [to building up its steel business], especially in
Asia. I don’t see this as a positive move from either a financial or a strategic point of view.”
There are also questions over whether Tata has been correct to run Corus essentially as a
stand-alone operation, with its management left very much to Mr. Adams.
Confusingly for many outsiders, H. Nerurkar, who became Tata Steel managing director last
September, does not have any responsibility for Corus. Mr. Nerurkar instead has power only to
direct the company’s operations in India, Thailand and Singapore.
Mr. Adams does not have a totally free rein since he confers regularly with Mr. Muthuraman and
But one India-based consultant criticises the absence of anyone with direct management
responsibility on day-to-day matters for the whole of Tata Steel. “I think the company should
have done a lot more try to integrate its [Indian and European operations] rather than the Indian
management adopting a largely hands-off approach,” the consultant says. “There are a lot of
people in the company who should be working together but are at cross purposes.”
This argument is rejected by Lord Bhattacharyya, a Labour peer who is director of the Warwick
Management Group at Warwick University in the UK and a confidante of Mr. Tata. He says it is
right for Tata Steel to keep the identities of its Indian and European operations separate, given a
big difference in their size and characteristics. “People do talk to each other from the different
parts of the company, so in this sense there is a sufficient amount of integration going on,” he
says. “The management of Corus is doing a good job and I think over the longer term the deal
will be seen as being a sensible and positive move for Tata.”
Short Term Woe
Whatever the long-term merits of Tata Steel’s acquisition of Corus in 2007, the short-term impact on the
Indian company’s profits has been negative, writes Peter Marsh.
Ratan Tata, chair-
man of the Tata
Group that owns
Tata Steel, was
keen on Corus
because of its
and its broad
customer base in
He was also inter-
ested in Corus
because of its size.
In the year to March
2009 Corus ac-
counted for 70 per
cent of Tata Steel’s
total metals output
of 28m tonnes.
Mr. Tata did not
expect any big boost
to Tata Steel’s
At the time of the
transaction Tata was
one of the world’s
ers in terms of profit
margins while Corus
profits record over
the past decade had
In the year to March 2009 Corus -- in spite of being much larger than the Indian part of Tata Steel --
contributed only about half of Tata’s total earnings before interest, tax, depreciation and amortisation of
But between April and December 2009 -- the first nine months of the 2009-10 financial year -- the dire
state of Corus’s profitability had a big impact on Tata Steel’s overall results.
The company’s India-based operations -- which have been relatively unscathed by the recession, thanks
to robust growth in India -- turned in earnings before interest, tax, depreciation and amortisation of $1.3bn
for the nine months, against a $643m loss from Corus.
This meant that, for the whole of Tata Steel, EBITDA for the first nine months of 2009-10 was only $861m,
less than a quarter of the equivalent figure in the same period in 2008-09.