When Tata Steel Ltd won a dramatic bidding contest in 2007, its centennial year, to buy Anglo-Dutch steel maker Corus Group Plc for £6.7 billion, it was celebrated as the coming of age of corporate India, an emerging powerhouse out to put its imprint on the world.
After the firm prevailed over Cia Siderurgica Nacional SA (CSN) by bidding 608 pence per share, 5 pence more than the Brazilian steel maker, then-chairman Ratan Tata called it a defining moment in the history of Tata Steel.
Prophetic words, but not in the way Ratan Tata intended them. A little over nine years later, Tata Steel, founded in 1907 by Jamsetji Tata, said it would put its entire UK business on sale—biting the bullet in the face of a slump in steel demand and prices—that has taken a heavy toll on the company’s financial health.
In the last five years, Tata Steel has taken an impairment charge of more than £2 billion, owing to the UK operations, after making the biggest acquisition by an Indian company. On top of that, it invested about £2 billion as working capital and capital expenditure combined in its UK business.
The book value, the value an asset is assigned in the balance sheet, of its UK assets is almost zero, said Koushik Chatterjee, group executive director (finance and corporate).
Tata Steel’s net debt stood at some $11.3 billion at the end of December, or more than 10 times estimated 2016 Ebitda (earnings before interest, taxes, depreciation and amortization), according to Bloomberg data.
“We looked at the current plans, assumptions, feasibility and came to a decision that Tata Steel UK is not something Tata Steel can support,” Chatterjee said after a seven-hour board meeting that decided on the exit.
The acquisition
It wasn’t supposed to pan out the way it did when Tata Steel, a part of the $108 billion Tata group that has interests in everything from salt to software and tea to telecom, made the audacious bid for Corus Group to expand into Europe.
Together, Corus, the eighth largest steel maker in 2007, and Tata Steel vaulted to fifth place with a combined capacity in excess of 22 million tonnes (mt).
The combined firm, which was later renamed Tata Steel Europe, gained the scale to take on international rivals including ArcelorMittal, the No. 1 maker of the alloy, created after Indian-born tycoon Lakshmi Mittal’s purchase of Arcelor SA the previous year.
Source: livemint.com