The Anglo-Dutch steelmaker Corus is set to be taken over by the Indian conglomerate Tata, which raises concerns about the future of some of the companies’ UK sites. To date, there has been no clear indication of whether Tata intends to leave the acquired operations from Corus to their own devices, or whether it intends to reorganise production by removing certain functions from the UK.
The Indian conglomerate Tata looks set to take control of the Anglo-Dutch steelmaker Corus in a deal agreed in early February 2007. The deal marked the culmination of a bidding war for Corus between Tata and the Brazilian group CSN that ended in a formal auction organised by the UK’s Takeover Panel. Having initially offered GBP 4.55 (€6.71 as at 23 March 2007) per share, Tata ended up agreeing to pay a share value of GBP 6.08 (€8.97), valuing Corus at GBP 6.7 billion (€9.9 billion). If this rate is approved by shareholders, the fifth biggest steel company in the world will be created.
Background
Corus was created through the merger of British Steel and Hoogovens in 1999 (UK9908125F). Thereafter, a combination of adverse trading conditions and internal disputes over the direction of the company meant that a troublesome period followed. A series of cutbacks and the redundancies of 8,000 workers led to a reduction in the company’s UK workforce to 24,000 employees. In 2003, the company’s fortunes reached a nadir when the Dutch works council rejected senior management’s plans to reduce debt by selling off the aluminium business to Pechiney (UK0303105F). At that time, the future of Corus was in doubt, but since then the rise in the price of steel has led to a revival in the company’s performance.
Consequences of takeover
The most immediate impact of the takeover for staff concerns the payouts to those who owned shares in Corus. It has been estimated that more than a quarter of the workforce – 7,000 employees in total – have invested in the company’s share scheme and will receive average payments of GBP 6,000 (€8,850). Of greater concern, however, is what the takeover means for the employment security of the workforce in the UK.
In the early stages of the bidding process, the trade union Community, formerly the Iron and Steel Trades Confederation, which represents about 80% of Corus staff in the UK, cautiously welcomed the prospect of Tata taking control. The acquiring company has a reputation for taking its social responsibility seriously and working constructively with trade unions. Tata is still majority-owned by the founding family, meaning that the influence of external shareholders is more limited than in most other multinational enterprises.
However, many analysts have stressed that, due to the higher price Tata ended up paying for Corus, the company will face great pressure to realise significant cost savings following the merger. Indeed, the group’s Chair, Ratan Tata, warned that, while the company was committed to trying to ‘make the UK operations more profitable’, there could be no guarantees concerning job security.
Community is concerned that Tata will substitute some of the functions that are currently carried out in the UK with imports from India. In particular, it has expressed fears that unfinished or ‘slab’ steel which is currently produced at the large integrated plant at Port Talbot in South Wales will be replaced by production at the parent company’s domestic operations. The union believes that investment of GBP 200 million (€295 million) is needed to secure the future of this plant and is pressing Tata to commit this sum. The General Secretary of Community, Michael Leahy, said that the union was ‘willing to work in partnership to drive forward an investment strategy that allows the UK operations to contribute to Tata’s profitability. However, we are not prepared to see an accelerated or slow demise of the UK steel industry. Tata should be under no illusions that we will resist any attempt to achieve this, using all the resources at our disposal.’
Commentary
The takeover of Corus is part of a wave of foreign takeovers of British companies, which reached a record level in 2006. The effects of an international merger or acquisition vary according to the motivation behind it. For example, those which are justified by the acquirer wanting to move into new markets have fewer employment consequences than those that are justified by substantial cost savings from duplicated activities. In this case, time will tell whether Tata intends to leave the acquired operations from Corus to their own devices by allowing them to continue to serve their current markets, or whether it intends to reorganise production by removing certain functions from the UK while dealing with the associated redundancies such a move would inevitably involve.
Tony Edwards, King’s College London