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Last Wednesday, Tata Steel announced a plan to sell off its long products division in Europe to the Geneva-based Klesch group, raising concerns yet again on whether the Corus acquisition was worth the hefty price of $13 billion.
Within a span of eight years, Corus, Europe’s second-largest steel company, has gone through several changes, witnessing its capacity almost halve from the acquired 21 million tonnes annually.
With debt crisis hitting the European market, Tata Steel Europe had to slash 3,500 jobs of the company’s 42,000-strong workforce, divest two aluminium smelters and cut production by idling blast furnaces at three sites in the region to align production with demand in FY09. The mothballing of blast furnaces at Teesside was part of it.
Even as Tata Steel held its reins tight enough to avert any more losses, underlying market conditions continued to remain stubbornly shaky, testing the company at every level. This was evident from the declining deliveries at Tata Steel Europe, which continued their weakening trend through FY12. All was going well in the beginning in FY07 but with economic slowdown worsening in Europe, Tata Steel had to finally bite the bullet. The company announced a $1.6-billion goodwill impairment charge for the loss of value of Tata Steel Europe.
“The impairment is primarily due to a weaker macroeconomic and market environment in Europe, where the apparent steel demand has fallen significantly in 2012-13 by almost eight per cent, which in aggregate results is almost 30 per cent since the emergence of the global financial crisis in 2007. The above underlying condition is expected to continue over the near and medium term and has led to the downward revision of cashflow expectations underlying the valuation of the European business,” Tata Steel stated.
According to its 2011-12 annual report, Tata Steel's consolidated goodwill stood at Rs 17,354 crore ($3.2 billion) and a lion’s share of that was on account of the $13-billion Corus acquisition in FY07. In effect, therefore, Tata Steel had written off half its goodwill accrued.
Starting from shutting smelters to taking an impairment charge, Tata Steel has done it all for its European operations. Despite this, the company was unable to help the axe falling on its plans of raw material security. In the first quarter of FY15, Tata Steel had to sell its 35 per cent stake in the Benga coal block in Mozambique, following a decision by the Rio Tinto Group, which majority-owned the asset, to sell its entire stake. Tata Steel took a one-time impairment charge of about Rs 1,600 crore on Benga.
Tata Steel wanted the European arm to have at least 25 per cent raw material integration and a lot of it was to come from the Benga coal project. With the Benga stake gone, the company’s plans on this front has also fizzled out.
When it was acquired in FY07, former chairman Ratan Tata had said:
“Corus acquisition has been structured in a manner that ring-fences the company’s balance sheet and protects our shareholders’ interests.”“The company has satisfied itself that the acquisition of Corus in no way jeopardises long-term shareholder value or the dividend paying capacity of the company. I believe that when one looks back at this acquisition, even at this price, it will be seen as a bold visionary move,” he had said.
Not many would agree with that now.
LOW ON GAS
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Tata Steel Europe had to slash 3,500 jobs out of the company’s 42,000-strong workforce
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The company had to divest two aluminium smelters
- lt also cut production by idling blast furnaces at three sites in the region in order to align production with demand in FY09
