When Tata Bought Corus

We’re in 2006 and Philippe Varin had finally managed to achieve his ambition to find a buyer for Corus. In fact there were two, one a Brazilian company called Companhia Siderúrgica Nacional (CSN), the other one being the Indian company Tata Steel, part of the large Tata conglomerate. The timing for a sale seemed to be good, since Corus appeared to have recovered from a rough patch where the share price had tumbled to a low of 8p (during a short period of investor’s panic when the markets thought Corus could go under). What followed was a bidding between CSN and Tata, one that led the latter to one, but only by paying a premium of more than £4 per share.

At this stage I must admit that this was the only occasion where I benefited financially from market fluctuations. I had been part of of a share-save scheme where I bought up £50 worth of shares per month which was automatically deducted from my pay packet. When the scheme started we were promised a pay-out price of about 120p, so anything that was bought at a lower price was profit – which it was for most of the period that I was in the share-saving scheme. Hence Tata paying more than £4 a share was quite a handsome return to my investment.

So when Tata finally won, that was one reason to be satisfied. There was, however, also the feeling that Tata really wanted to invest in plant equipment in the hope of getting a good return on their investment. Something that was not expected to happen should CSN have won the battle. For them the expectation was that in the end all the iron & steelmaking facilities would exist in Brazil, they would ship slabs to Europe, and we would be just a set of rolling mills for them close to the European markets.

So that was the situation in 2007 : we had a new set of owners who really seemed to interested in making us work and grow into a profitable outlet for their steel. Maybe longer term plans would have meant more liquid steel production in India and less in Europe, but for the medium term it would mean a boost for the steelmaking facilities in South Wales. But then the bank crash of 2008 happened, and that changed the whole picture : since then the UK part of Tata Steel has not made a profit, and the losses, despite moves to minimise them, appeared to grow. At the same time, the pension scheme continued on its downward trend and needed more money pumped in to keep it cash-neutral. And then the Chinese economy started to slow down, and its exports to mushroom, and we all know what the outcome of that development was : losses which until this point proved manageable started to look in an alarming way like haemorrhaging, so that less than 10 years of ownership had turned into a financial nightmare.

It clearly was something that in hindsight has proven to be an unwise investment, and even at the time the markets were dubious about what seemed to be an overpriced acquisition. But could anyone really say at this time that it would become such a monster of a financial hole ? Even a year ago it only just started to become apparent that we were on a slippery slope when we had made the £50 million annual plan loss in the matter of 3 instead of 12 months. For a hindsight analysis that is worth a read, there’s this on from the Daily Telegraph : The deal that hamstrung Tata Steel.


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