By Sohrab Darabshaw
In part one of Stayin’ Alive, Sohrab Darabshaw explained how Indian steel companies are using mergers and acquisitions to keep in business in the difficult global economy. Here in part two, he examines how subsidiaries and quasi-independent investment arms are being reabsorbed by their parent companies.
Tata Steel International Australasia (TSI) is a division of giant global steel supplier Tata Steel of India. It supplies stainless steel, engineering steels and composite floor decks to the New Zealand and Pacific Island markets.
Quoted in one of its press releases, Steel and Tube Chief Executive Dave Taylor said the acquisition of New Zealand-based TSI would further strengthen the company’s position as New Zealand’s leading steel distribution company in construction, manufacturing and rural business around the country.
Tata Steel, itself, boasts of an annual crude steel capacity of over 29 million tons per annum (MTPA). The company reported a growth of 12.55 percent in crude steel production in FY 2013 to 2014. While hot metal production was 9.90 million tons resulting in a rise of 11.74 percent in FY 2013 to 2014, saleable steel production was higher by 12.72 percent year-over-year at 8.95 MT.
Like Tata Steel, JSW is another company that’s been making moves. Despite a tough business environment, JSW has exceeded the guidance for crude steel production by 0.17 MT, and achieved crude steel production of 12.17 MT in FY 2013-14, showing a growth of 43 percent over the previous year.
The company bought a 26 percent stake in Vallabh Tinplate, currently operating a 60,000 MTPA tinplate manufacturing facility in the state of Punjab. In 2012 to 2013, JSW had produced 8.52 MT of crude steel despite continuation of the iron ore crisis in the southwest Indian state of Karnataka.
In the UK, at the start of April, Servosteel (Holdings) announced the acquisition of Steelstrip Services, formerly Essar Steel Processing & Distribution UK Ltd, which was once part of one of India’s largest steel makers, Essar Steel. Phillip Guest and Mark Anderson, who were respectively CEO and CFO of the former Essar owned company, completed a Management Buy-out (MBO) of the business which changed its name to Steelstrip Services Ltd and will trade as SERVOSTEEL.
Tata Steel, meanwhile, is said to be seriously working on absorbing its own unlisted investing arm, Kalimati Investment Co. Ltd. It was this time last year that Tata Steel had announced that it would merge Kalimati with itself, retroactive to January 2013. In March, Tata Steel said in a filing at the Bombay Stock Exchange that the boards of both companies extended the date of their planned merger, known officially as a scheme of amalgamation, by a year to March 31, 2015.
Some analysts say the merger was really a case of boosting the equity reserves of the parent, Tata Steel, while others feel it would help shore up the company’s profits.