Quit option is not the easiest of choices for a value-conscious group such as the Tatas. Yet, Tata Steel has been forced to embark on this extraordinary course of action. Tata Steel’s decision to sell or shut down all its British operations, nevertheless, has not come as a surprise. Caught in a pincer-like situation, it has very little option but to give in to the harsh market reality. When Tata Steel acquired the U.K firm Corus in 2007 in what many considered an over-sized bid, the then Chairman Ratan Tata termed it as `a defining moment’ for the company. Since then, nothing went the way Rata Tata originally had scripted for the company. Events have indeed conspired to pour cold water into the `steely’ ambitions of the Tatas in the U.K. If the 2008 financial melt-down had dealt a body blow to global business, subsequent happenings have ensured that the world economy continues to struggle in a business environment, which is riddled with unfair trade practices. Time was when Britain dominated the world steel industry. China’s ascendancy as world’s largest steel producer has since reduced the U.K. into a marginal player. The slow-down in China has complicated the picture with the Chinese steel flooding the global market, triggering a crash in prices. All these have compounded Tata Steel’s misery. A hardening pound has only worsened its woes. So much so, the company suffered an asset impairment of over two billion pound in the U.K. Rough estimates suggest that the company’s European operations have lost almost $5 billion since 2010. The company’s net debt stood at over $11.3 billion at the end of December last. Tata Steel’s decision to reject a turnaround plan for its plant at Port Talbot in South Wales has, predictably, sparked off a wider concern across Britain. A few months ago, Redcar steelworks, owned by SSI, a Thai firm, went bust. And, Caparo Industries called in the administrators. Tata Steel’s decision may yet push a desperate British establishment to reconfigure its policy thought-process to provide a credible response to the emerging challenge.
Lessons to be learnt
From an overall shareholder value perspective, the decision by Tata Steel is welcome as it is bold, and can be faulted only for the inordinate delay in arriving at. The Corus misadventure, nevertheless, holds a lesson or two for Indian business houses. Name and fame alone do not matter in the modern business world. Picking the winning formula and playing it hard in the global market place are the only ways to not only survive but also stay ahead. The sale decision, in a way, is indeed an admission of failure by Tata Steel. Yet, it also gives a clue or two to the thinking of Cyrus Mistry, who succeeded Ratan Tata as Chairman of the Tata group a few years ago. Surely, this is a game re-defining call by the Tatas.
