‘You can’t let two quarters decide the valuation of a company’

As senior executives of Tata Steel and German steel maker Thyssenkrupp gathered in Brussels for the formal signing of the joint venture for their European steel operations, T.V. Narendran, managing director, Tata Steel, spoke about the contours of the deal and the logic behind the valuation.

What does the Thyssenkrupp deal mean for Tata Steel?

From a Tata Steel point of view, we have been trying to create strong and sustainable businesses. In India, we have always been structurally strong but we have not had the size.

In Europe we’ve had the size but not the structural strength. So, what we’ve been doing in the past few years is grow in India to a size and scale that is important to have in India, which is a growing market, and to have a business in Europe that is structurally strong. I think the partnership and JV (joint venture) with Thyssen helps us create that.

How satisfied are you with the terms of the agreement?

It was difficult. Thyssenkrupp had its own pressures and they have shareholders who were demanding a relook. Our point of view was that you can’t let two quarters decide the valuation of a company.

One of the reasons we didn’t have great quarters in the last two was that we were carrying out significant investments particularly in the Netherlands, to upgrade facilities there. The operating team in ThyssenKrupp understood that and that this was a good solution where you keep it at 50:50 but you are given warrants which they can encash, which are triggered only when you do an IPO.

You have something in hand which is not going against the structure or philosophy of the joint venture.


Under the pact, Thyssenkrupp will decide on an IPO but what criteria would be used to determine its timing?

When you do an IPO you want the business to be on a strong footing. Thyssenkrupp has the right to decide on timing but the timing will depend on how quickly we can realise the synergies and get the right value from the market.


What will be key to the success of the JV?

The synergies are very significant [€400 to €500 million annually) — we have detailed plans and we are on track on that.

With this joint venture (JV), we have two of the best sites in Europe — Port Talbot has structural challenges which are nothing to do with the people but inherent in the site but we are well positioned. We have a strong franchise.

We have to make sure the integration happens well.


How are the U.S. steel tariffs impacting European firms ?

In terms of direct exports to the U.S., the pain is not as much as we had feared because many of the customers in the U.S. don’t have any other option but to buy the steel we send to them. So, particularly for the packaging industry they have given us the price increases that are required to cover the cost of higher tariffs. I feel in some sense the U.S. customers are paying a higher price for it than globally what customers are paying. We are less concerned about what we are selling into the U.S. We are more concerned about what could come our way because the U.S. has introduced these measures.


How will Brexit shape the joint venture?

We have a strong footprint in the continent and a significant position in the U.K. so we are well positioned. If the U.K. closes up, we have a footprint there, if it doesn’t , it is as it is today.


It’s been a tough road since the 2007 Corus acquisition.

The first year of course was great but the crisis was obviously something that no one anticipated — either the severity or intensity of the crisis. European steel demand did not recover for 10 years. It was a unique set of circumstances: a lot of things we thought would go right went wrong but to me what we did was we worked very hard over the past ten years, and we didn’t give up.

We had the restructuring of our businesses and sold some of them and took some tough calls. Our people in Europe worked very hard and we grew in India. When we acquired Corus, we were 4 million (tonnes a year) in India and 18 million here so most of the capital was invested here. Over the past ten years, as we’ve gone about restructuring Europe and reduced Tata Steel’s European footprint from 18 to 10 million, in India we’ve grown from 4 to 13 million so as a consolidated company we are in a much stronger position today and this continues. The learnings for us in our industry is how important it is to be structurally strong: you have to be the last man standing.


How has the European business benefitted India?

One of the reasons for coming into Europe is that there are a lot of learnings from sophisticated mature markets that we can take back to emerging and growing markets. It helps to give us a preview of what to expect in Indian markets —having an insight into mature markets helps us plan better. Many products that are developed here have also been developed or are being developed in India.


Was the 2007 acquisition the right step for Tata Steel?

At the time it was the right decision. You must think of what was happening in the industry, it was consolidating very rapidly. Had we known there was going to be a global financial crisis 12 months down the road I don’t know what we would have done. Everyone would have sat on capital at the time rather than spend it.

In our industry, it is important to make a call. There is never a perfect time but I think we have the confidence to have outlasted many difficult cycles and we will continue to deal with them.

In terms of direct exports to the U.S., the pain (of U.S. tariffs) is not as much as feared

Source: Read Full Article