Integrated steel producer with facilities in Jamshedpur; 15 subsidiaries across India and Sri Lanka.
Febrary 2005: NatSteel Asia, Singapore
December 2005: Millennium Steel, Thailand
Value of acquisitions
Capitalising on the favourable environment for steel in the global market, Tata Steel has been making all the right moves to position itself in strategic locations.
Managing director B Muthuraman explains the company's strategy in pragmatic terms: "In my view, globalisation is a method by which you put the right part of the value chain in its right place in the world, and link it up properly — finishing facilities in places where customers exist, and primary manufacturing facilities in places where manufacturing is competitive."
Tata Steel's two major acquisitions in 2004-2005 are good examples of how the company is implementing this growth strategy.
The Asian beachhead
The year 2005 was a good year for the company. It began with the investment in NatSteel Asia, and ended with the company bagging Thai steel major Millennium Steel. The successful conclusion of these two deals marked an effective transition for Tata Steel from being a leading domestic player to a strong regional player in the East and South East Asian markets. The company's footprint now extends to every market in the region, big and small.
The NatSteel acquisition not only allowed Tata Steel to establish a beachhead in seven countries across the region, namely Singapore, Thailand, China, Malaysia, Vietnam, the Philippines and Australia, but also provided it with a customer base for close to two million tonnes of steel.
As a brand, NatSteel's strong equity in the region was yet another strategic gain for Tata Steel. The company's strong human resources and management effectiveness is also an inheritance of immense value.
Operationally, NatSteel's finishing facilities across the region now provide Tata Steel with the necessary support for upstream capacity expansions in India, as well as access to knowledge and expertise in downstream processing of rebars and wire rods.
The acquisition of Millennium Steel, Thailand's dominant steel producer, consolidated Tata Steel's gains from the NatSteel deal. Millennium's three operating units give the company a cumulative capacity to produce 1.2 million tonnes of steel per annum through the electric arc furnace route. Along with a long products rolling capacity of 1.7 million tonnes a year, geared towards the construction and automotive sector, Millennium provides Tata Steel strategic space in the heart of the ASEAN region, enhancing its market position in South East Asia.
The acquisition of NatSteel was a major breakthrough for Tata Steel, in more ways than one. This was the company's first experience of doing a large, multi-country, multi-location M&A, and there were rich lessons to be learnt from this experience and the integration processes that followed.
With over fifteen legal entities operating in seven countries in tandem with at least five JV partners, NatSteel was a large and complex organisation. Integration processes had to occur at different levels, in different countries and different cultures. Says Mr Muthuraman, "People issues are critical; once they are managed well, integration at all other levels becomes easier."
The strategy seems to be working. It is a little over a year since the merger and the synergies between the two entities are already unlocking sustainable value for Tata Steel. In fact, the lessons learnt in the course of the NatSteel integration are now being fruitfully applied in the Millennium case too.
The successes from these two major M&As have whetted Tata Steel's appetite for more. Even as talks with the South African steel and vanadium producer Highveld are progressing, clearance for a greenfield ferrochrome project has been received from the government of South Africa. The project, located at Richards Bay is all set to become the company's first production outpost outside the Asian continent.
Tata Steel's 50:50 JV with Australian major BlueScope Steel is another move aimed at going further downstream into construction solutions and ensuring future growth and expansion into new areas. The JV will enable Tata Steel's foray into the business of zinc and aluminium metallic coated steel, painted steel and roll-formed steel products. With a design centre in Pune, four manufacturing locations in India and a network of sales offices across the SAARC region, the new venture enhances the company's plans for going global.
Meanwhile, Tata Steel has not been quiet on the domestic front either. The company's plans for organic growth and backward integration in India are progressing at an impressive pace.
An MoU has been signed for setting up a five-million tonne greenfield integrated steel plant in the Bastar region of Chhattisgarh. And, after the completion of its one-million tonne expansion programme at Jamshedpur, Tata Steel has now initiated a further two-million tonne expansion programme. Plans have also been announced for setting up of a large integrated greenfield steel plant in Jharkhand, with an initial capacity of 5 million tonne per annum. Work is also in progress to set up a six-million tonne integrated, steel-cum-mining, project in Orissa.
Apart from the existing backward integration with its own iron ore mines and collieries, the company has enhanced its competitive advantage in raw materials further, buying a five-per cent interest in the Carborough Downs coal project located in Queensland, Australia. Its backward and forward integration plans include the development of a deep-sea port in Orissa.
Tata Steel has set ambitious goals for itself and is geared towards establishing itself amongst the ranks of the top 10 global steel producers in the coming decade. The company intends to boost its current annual output of 8.7 million tonnes to 15 million tonnes by 2010, and take it upwards to 30 million tonnes by 2030.
Given the scorching pace Tata Steel has set for itself, more stunning moves on the M&A front can definitely be expected.