IT’S A LATE evening on a cold but leisurely Sunday and the streets around Ballard estate, Mumbai’s commercial centre, that are humming with activity on normal weekdays, seem to be enjoying the weekly peace. Even most of the investment bankers, corporate honchos and consultants seem to have disappeared for the long weekend. Bombay House, the corporate headquarters of Tatas, is however witnessing a flurry of activity even at this hour. No prizes for guessing the reason – Tatas are busy giving final shape to their bid strategy in the ongoing war with Brazil’s CSN for acquitting controlling stake in Europe’s second largest and world’s eighth largest steel maker, Corus Steel. The stakes are high– this acquisition would catapult Tata, world’s 56th largest steel maker, into the elite position of world’s 6th largest steel maker.
Proposed acquisition of Corus by Tatas is yet another sign of growing global aspirations of the Tata Group. Beginning with the Tata Tea’s acquisition of global tea major Tetley in year 2000 and following in the footsteps of Tata Motors that acquired Daewoo’s commercial vehicle unit and then more recent acquisition of Boston’s prestigious Ritz-Carlon hotel by Tata’s hotel arm, the Taj Group, the proposed Corus acquisition appears just another milestone in the global journey of the Tatas. A close scrutiny of all these acquisitions reveals certain common underlying threads, which does make for an interesting study.
Acquisition target: Bigger than acquirer
Tata Tea’s acquisition of Tetley Tea in 2000 did raise many eyebrows and left enough doubting on the future of the new entity. The reasons:
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Tetley tea was over four times the size (net worth) of Tata tea
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Leave alone Tata, no Indian company had ever made an acquisition of this size in the history of corporate India. The question on eveybody’s mind was whether Tatas would be able to pull if off. Ratan Tata, though, had better thoughts on his mind and with, “It is a bold move and I hope that other Indian corporates will follow”, made the roadmap lot more clearer to the entire corporate India.
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Tata Steel’s proposed acquisition of Corus Steel too has quite similar characteristics. With steel capacity of over 18 million tonnes, Corus is over four times the size of Tata Steel with 4.4 million tonnes capacity.
Tatas global footprint
Tata Tea’s acquisition provided Tata tea a sound and well established distribution network in the big European market. Quite similarly, the Corus acquisition, if it goes through, would provide Tata Steel access to the customer relationships and the distribution network of Corus. However, it also provides Tatas access to the value added product manufacturing capabilities and the strong R&D capabilities of Corus Steel
Leverages cost arbitrage between host country and IndiaTatas would be able to play on the tremendous labour cost arbitrage that still exists between India and the developed world. With steel making costs in India being a fraction of the cost in UK and Netherlands, analysts expect the combined entity to benefit tremendously on account of low cost manufacturing base in India. However, the actual benefits would depend upon the Tata Steel’s ability to outsource substantial part of the steel manufacturing operations outside Europe into India. Some market observers see the proposed manufacturing expansion plans announced by Tata Steel in last year or so to tie perfectly with this global strategy.
“It looks like a storm is gradually brewing up in Bombay House over last 2-3 years. I don’t think Corus’ acquisition would slow down Tatas in their pursuit of more global opportunities. I wouldn’t be surprised if we see the global contours of the Tata Empire being extended a bit more in the years to come” says a market observer.
A second coming of the Tatas… Did you say?
