OK Tata, buy, sings Corus

LONDON: With the board of Anglo-Dutch steelmaker Corus accepting the Tatas’ £4.3 billion (over Rs36,000 crore) bid to buy the company, the combined entity will become the world’s fifth largest steel group.

Lakshmi Mittal’s Arcelor Mittal is the world’s largest, with a production capacity of 110 million tonnes. When the Tata-Corus deal is settled, the merged company’s annual production capacity will be 23.5 million tonnes.

The deal will be consummated over the next three months, when at least half of Corus’s shareholders sell their shares to the Tatas.

But that’s not a certainty as Tatas’ 455 pence per share offer is lower than Corus’s current share price. Analysts believe the chances of a rival approach for Corus are high, possibly from Russian giant Severstal or the Brazilian company CSN.

But it was India’s day in Britain, with Tata Sons chairman Ratan Tata calling it a defining moment for the group. “This is a very exiting time as it puts together two companies with a rather similar global view,” he said. Corus chairman Jim Leng said the deal was the culmination of talks with firms in Brazil, Russia, and India.

But the audacious takeover by Tata Steel of a company more than three times its size has ruffled many feathers — among unions and business opinion-makers. While unions in the UK fear that the change of ownership could lead to heavy job losses, other commentators were acutely aware of the coming power-shift in global business.

“This is a very good example of the way economic power is shifting to the East,” said Russel Hayes, the BBC’s business correspondent. Indeed, the Tata-Corus deal dominated all the news channels all day.

By catapulting itself to No 5 position in the world, Tata Steel has not only raised its own image in the world but also that of India as a global economic power. “Tata will now become a big player, and it is an interesting game,” said Patrick Flockhart of Steel Business Briefing. “The world steel industry is growing and the race is on to get high quality assets, and India is very much in the race.”

Calling it a sign of the times that signifies the shift in world steel from the US and UK to Asia, the Tata takeover comes amid growing consolidation in the global steel industry. “This shows that it is no longer economic to make primary steel in any developed economy,” said Bob Jones, editor of Metal Bulletin. Coming in the wake of Mittal Steel buying up Arcelor, the Tata bid is seen as yet another Indian success story.

Industry analysts broadly welcomed the deal but warned of risks if there was an economic downturn. In that event, Tata Steel would have difficulty paying off the £1 billion debt it has taken to buy Corus.

Denis MacShane, MP for Rotherham, where Corus has plants, and chairman of the steel group of MPs, said he was “very positive about the deal”. But trade unions as well as Corus workers remained wary. “The assurances on jobs look very brittle at the moment,” said John Rowse, national secretary, Transport and General Workers Union.

A worker at the Corus plant was more philosophical arguing that it “didn’t matter where the pay cheque came from, as long as it came” and there was stability in the industry.

In an attempt to allay their fears, Tata has promised not to relocate any Corus plant and said that there would be no redundancies in the short term. But job cuts in the long term are not ruled out. Tata has pledged to pay £126m into the Corus pension fund as part of the deal, and will increase the annual contributions to the British steel fund.

“[We] shall be seeking urgent talks with the Tatas to discuss their plans for the business,” said Michael Leahy, general secretary of Community, Corus’s main trade union. “In particular, we wish to discuss their plans for further investment in Corus’s UK operations.”

Leahy said Community would also seek guarantees on the terms and conditions of employment for Corus’s UK employees, particularly on pay and pensions. The union will hold talks with the British government to urge it to make clear that it wishes Tata to maintain UK steelmaking capacity.