Ratan Tata and Corus chief executive Philippe Varin speak their minds on the path ahead

A week after sealing the $12.1-billion Corus deal, Ratan Tata tells why he was willing to pay more for the acquisition. In an e-mail interview with BW’s Piya Singh, he discusses Tata Steel’s strategy to leverage the strengths of the combined entity and other integration challenges. The Street perception is that the Tatas have paid too much. Analysts are concerned about the industry’s cyclical nature and its impact on future earnings. How would you view the deal price in case of an adverse turn in the business cycle? Globally, the steel industry is witnessing consolidation and changes in the traditional business model. Instead of moving large quantities of iron ore, companies are now moving efficient material which is steel based (deintegrated production). We took into account possible steel price change, and geographical and product mix possibilities while bidding. We are optimistic that we can extract benefits from the acquisition in different scenarios. How far were you prepared to go considering the strategic advantages that Corus offers? I think at this point of time, in the steel industry, the business cycle has been better. We had taken a view that we would not go beyond a point of prudence and we did not reach that limit. The price has been higher than what it was when we started, owing to circumstances that existed. We believe that the price

the most important thing in any post-acquisition integration process between two large companies. Of course. It is important for us to get the respect of people.1 billion to the SPV? Tata Steel is working on the funding structure and financing options.today will. Are you interested in acquiring iron ore assets overseas? We will look at all possible opportunities in line with the company’s strategic direction. Directionally. We are not a company that looks at jobs first. This acquisition is about making an entity more competitive so that jobs can also be secured better. perhaps. It will have access to high value-added product mix and strong market positions in automotive. prove to be one that was worthwhile because the price of steel companies in the coming year will likely be even higher. which is. What are your plans on supply of raw materials to Corus? We plan to improve Corus’s profitability and operational efficiencies. Would the new business model of the two companies necessitate a rationalisation of the workforce? Any new change involves a certain amount of apprehension. there is a great amount of cultural fit between the two companies. . We would first try and improve the productivity and output with the same number of people. do you see any changes for Tata Steel from being a low cost steel maker? The combined entity will emerge as the second-most geographically diversified steel company. The combine will be the second largest tin-plate maker in the world. Could you shed light on the potential financing options for the $8 billion debt to be garnered from banks aside from the Tatas’ commitment of $4. raise their motivation and strengthen the partnership. the same will be announced at an appropriate time. looking back in time. Does the plan include fund-raising through ADRs from group companies? It is too premature to comment on the same. construction and packaging. We expect significant synergies. adopt a philosophy of de-integrated production.

shared services and purchasing — these are the traditional type of synergies in any merger. For example. So. In addition. we will have a very strong performance. Corus has strong R&D and product development capabilities for value-added products in the auto. now has a key role in forging the merged entity’s future. One is what we call synergies. .Philippe Varin. is one name Indians will get increasingly familiar with. The 53-year-old Varin. growth. 5 and the second-biggest global player. It is about sharing of manufacturing practices. who had the tough task of turning Corus around. there will be other ways to create value. linked to the projects of Tata Steel in India today. Why do you think Tata Steel found more value in Corus than CSN? What are your gains in being part of this acquisition? We are at the beginning of the journey. construction and packaging markets. We will have a good platform from which we can participate in the consolidation of the industry that is going to continue. which will complement what Tata Steel is doing in the fast-growing Asian markets. chief executive of Corus. The value creation for the new company has to come from three areas. He tells BW’s Pallavi Roy what lies ahead for Tata Steel and Corus. The third is linked to the option for the future to bring low-cost slabs once Tata Steel has completed its greenfield projects. it is about profitability. It is clear to me that the enlarged company will be No. The second area is about sharing our complementary strengths. I also think that because of the management chemistry at all levels.

As CEO of Corus in the past three years. The next step for us was to find a partner with whom we could play the global game and I am very pleased that we found it in Tata Steel. The company had huge debts and we went into a rights issue in 2003. The first one in 2003 was to restore competitiveness of the company. The second leg is about growth.. which we will look to improve. Our gearing ratio was also very low — at the end of the third quarter. Then we set up the turnaround programme called ‘Restoring Success’. But I am not sure there is a magic figure.Tata Steel’s new vision is to create capacity of 100 million tonnes (mt) over the next few years. If you take the EBITDA/sales of the combined entity. and the board. it is slightly below 15 per cent. has become more international. we have been lucky because the steel industry has been in good shape. We will start below 25 mt. The first is profitability. in particular. Beyond restructuring in the UK. there is a lot of similarity between what we are doing and what Tata Steel has been doing over the past few years. Also. . but not stay there. we have to run on two legs. I share the vision that growth will be a key component of our strategy. We won’t grow for the sake of size. we are a fully refinanced company and we have increased our profitability. Then. To compete in the first league globally. what were the challenges you faced? And to what would you attribute the company’s reasonable turnaround? There have indeed been challenges. but grow in a profitable manner. The third challenge was making a lot of changes in the management. we have increased our focus on safety and customer service. The second challenge was financing. Now.. which was about investing in the UK and restructuring to focus our main steel-making businesses in the UK on three sites instead of five (see ‘This Is Corus’ on page 38). we sold our downstream aluminium business in 2006. it was 13 per cent. Here.

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