A Marriage Made in Heaven ?

That’s how the merger of British Steel and Hoogovens to form Corus was sold to us prior to the fact. To say that the reality differed substantially from the promise is clearly somewhat of an understatement. Because this topic is potentially litigious, I’ve deviated from my usual practice of blogging from memory alone, and I’ve consulted a few online resources to make sure that my personal account of events doesn’t contradict the public record – some of these resources are listed below.

Anyhow, what I remember of the run-up to the merger was how the cultures of the two companies were said to be very similar indeed, and how synergies could be gained from joining the two companies. Only later did we hear that the capitalisation of British Steel versus Hoogovens was such that the former had to shed some capital which we were told was by paying off Hoogoven’s debt (who were short of cash after an overambitious investment programme), and giving the shareholders a handsome dividend. At least that was the word doing the rounds, but I haven’t been able to see this confirmed in the resources I’ve checked, so not sure how much truth the rumours contained.

What I do know is that the word “synergy” started to get a bad name when in short succession (and I’m restricting myself to South Wales only) it resulted in the closure of Welsh Labs, Ebbw Vale and the heavy end in Llanwern. Words like “unfair” started being used, since we didn’t see the Dutch side of the company make any similar sacrifices, all under the banner of “We [i.e. IJmuiden] are making a profit and you are not”. We also took a dim view when the Dutch side blocked the sell-off of the aluminium part of the business to Pechiney in what was widely seen to be blackmail that could easily have brought the company to its knees, rather than just reducing the share price to a low of 6 pence. At the same time there was a definite move for a demerger, no more so than when Usmanov used the low share price to buy up shares and then demand a presence on the board for a director with just such a view.

We were only vaguely aware of how the Dutch must have seen the bruiser style of management favoured by Brian Moffat (and which at the time was still prevalent in the UK side of the business), and the British habit of shooting from the hip rather than come to a considered consensus. What we were very much aware of, being on the receiving end of this behaviour, was what we perceived as arrogance and selfishness. In fact, looking back on things, we couldn’t understand how the side who seemed to get all the benefits of the merger and very few of the drawbacks could try to lead the company to a bloody civil war. In the end, the arrival of Philippe Varin as a peacemaker did calm things down, but (again seen from the perspective of the UK side of the business) at the cost of transferring more and more of the central business activities (like R&D or IT) to IJmuiden, leaving the UK side of the business with the sole task of producing for the UK market. The head office may still have been in London, but the centre of gravity for the business clearly moved to IJmuiden.

The outcome of it all ? What started off looking like a near-takeover of Hoogovens by British Steel has now been completely reversed. In the end British Steel’s cash was not the futureproofing which proper investment in modern assets could have given. Throughout the later Corus years most of the investment went to IJmuiden, again covered by the same banner “We [i.e. IJmuiden] are making a profit and you are not”, a situation only partly reversed when Tata Steel came on the scene. But as covered in an earlier blog, it all was a bit too little too late, and the investment engine finally spluttered to a halt when it proved how much damage had been done by decades of underinvestment, and how much would have to be spent to make up for those lost decades.

  1. Corus: The merger that got things wrong (European Leadership Platform)
  2. Corus Group plc – Company Profile, Information, Business Description, History, Background Information on Corus Group plc (Reference for Business)
  3. Where the Corus marriage went wrong (Daily Telegraph)
  4. Corus falls into open disharmony (The Scotsman)
  5. Corus rebuffs Usmanov’s attempt to gain boardroom representation (The Guardian)

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