With steel as the lynchpin of his global plans, Ratan Tata ensured a dramatic transformation of Tata Steel. By a. paul, s. nahata
Alison Richard, Vice Chancellor, University of Cambridge told B&E, “Whenever a company decides to go global, it has to start from the thought process of the leader. Very small details can play a major issue in playing globally.” It was in the year 2004 that the Ratan Tata led Tata Steel – which had at that time a steel producing capacity of 4 million tonnes per annum (MTPA) – took the most praiseworthy giant stride for any Indian steel corporation when it gobbled up the considerably significant Singapore based NatSteel Asia, a 2 MTPA steel producer, for $343 million. Ratan Tata’s shrewdest focus was on transforming the steel value chain dramatically. His tactic was to supply low cost steel produced in India to NatSteel, which would then churn out a high-value finished product to cater to quality-intensive global industries like aerospace, automobiles, construction etc. In 2005, the target for was the 1.7 MTPA Thailand based Millennium Steel, which Ratan Tata successfully negotiated for $130 million! In the same year, he also acquired a significant 5% stake in Australian Coal Mines.
But the most brilliant of all moves Ratan Tata has ever made came in the year 2006, when this exemplar leader bid for Corus – a mammoth 18.3 MTPA UK based steel corporation. He closed the deal at a whopping $12.1 billion in January 2007. Though he became an immediate toast of the nation, random criticism for the overly priced deal by experts and analysts alike came in from all quarters. In fact, Standard & Poors immediately downgraded Tata Steel’s credit rating from BBB to BB, a grading that holds even today for the firm because of the massive debt servicing levels due to the Corus buyout. Even the share price of Tata Steel suffered massively at that time, going down from Rs.537 on October 5, 2006, to Rs.419 on March 6, 2007, what with shareholders on a selling spree. But the ever-confident Ratan Tata had then told his detractors that shareholders, who’re thinking in the short term, will rue their decision to sell Tata Steel’s shares. Prophetically, exactly one year after the deal, the share value rose thunderingly to Rs.988, settling to more sensible levels as on February 3, 2008, to Rs.776.
Alison Richard, Vice Chancellor, University of Cambridge told B&E, “Whenever a company decides to go global, it has to start from the thought process of the leader. Very small details can play a major issue in playing globally.” It was in the year 2004 that the Ratan Tata led Tata Steel – which had at that time a steel producing capacity of 4 million tonnes per annum (MTPA) – took the most praiseworthy giant stride for any Indian steel corporation when it gobbled up the considerably significant Singapore based NatSteel Asia, a 2 MTPA steel producer, for $343 million. Ratan Tata’s shrewdest focus was on transforming the steel value chain dramatically. His tactic was to supply low cost steel produced in India to NatSteel, which would then churn out a high-value finished product to cater to quality-intensive global industries like aerospace, automobiles, construction etc. In 2005, the target for was the 1.7 MTPA Thailand based Millennium Steel, which Ratan Tata successfully negotiated for $130 million! In the same year, he also acquired a significant 5% stake in Australian Coal Mines.
But the most brilliant of all moves Ratan Tata has ever made came in the year 2006, when this exemplar leader bid for Corus – a mammoth 18.3 MTPA UK based steel corporation. He closed the deal at a whopping $12.1 billion in January 2007. Though he became an immediate toast of the nation, random criticism for the overly priced deal by experts and analysts alike came in from all quarters. In fact, Standard & Poors immediately downgraded Tata Steel’s credit rating from BBB to BB, a grading that holds even today for the firm because of the massive debt servicing levels due to the Corus buyout. Even the share price of Tata Steel suffered massively at that time, going down from Rs.537 on October 5, 2006, to Rs.419 on March 6, 2007, what with shareholders on a selling spree. But the ever-confident Ratan Tata had then told his detractors that shareholders, who’re thinking in the short term, will rue their decision to sell Tata Steel’s shares. Prophetically, exactly one year after the deal, the share value rose thunderingly to Rs.988, settling to more sensible levels as on February 3, 2008, to Rs.776.
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
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