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Tata-Corus: Intergration to ensure $350-mn savings in 3 yrs
BS Reporter in New Delhi | February 01, 2007 09:50 IST
Tata Steel Managing Director B Muthuraman said on Wednesday that the integration of operations of Corus with Tata Steel would result in cost savings of $350 million per year in three years.
This would accrue from synergies in procurement of raw materials and lower marketing expenses.
With a turnover of $24.4 billion, the two companies will have a combined output of 23.5 million tonnes per annum. This global scale -- the combined entity will be the fifth largest player in the world -- will bring in further economies.
Muthuraman said Tata Steel would now have access to mature European markets, thus increasing its geographical reach. On the other hand, Corus will have access to a low-cost slab manufacturer, which would help it tremendously as it is focussed on the global merchant slab market.
Corus's high value-added product mix, including tin plate and specialised galvanised steel, especially for the automotive and construction sectors, will open up new opportunities for Tata Steel.
Besides, Corus has a highly capable research and development team, which again could be of great use to the Indian company.
Since some of Corus's plants suffer from high slab cost production (estimated at around $330-$340 per tonne), the company needs to be supplied with slabs at a competitive price.
Should Tata Steel , whose slab cost is close to $180-$190 per tonne, be able to ship out slabs to Corus, the cost savings could be as high as $100 per tonne, even after incurring freight costs. However, analysts opine that Tata Steel will not be able to ship semis to Corus in the near future. Both companies could also learn from each other's operating practices.
Muthuraman justified the acquisition saying that the cost of a greenfield entity would be in the region of $1200-1300 per tonne while the enterprise value per tonne paid for Corus was $700-$710 per tonne.
Tata Steel is a far more efficient steel producer with an operating profit margin of over 30 per cent, compared with a margin of 10 per cent for Corus. According to Muthuraman, the integration of operations will improve Corus's efficiency and profitability.
Meanwhile, Corus has ruled out any job cuts at its UK operations following its successful acquisition by Tata Steel. Media reports quoted Corus Plc Chief Executive Philippe Varin as saying that the company had no intentions to shed jobs at its main sites in Port Talbot, Scunthorpe and Rotherham and added the deal was the best thing for employees.
"It's very clear what is key is that we have to be globally competitive. To be so, you have to access low-cost production. Therefore, this transaction is in the best long term interests of the employees and is predicated on growth, not job losses," Varin said.