Tata Steel’s
decision to merge seven group companies with it, announced Friday, was the
culmination of months of planning and two dozen board meetings on Thursday that
ran well beyond midnight, according to TV Narendran,
the steelmaker’s managing director. The market did not take the announcement
favourably and the shares of the listed companies among the seven took a
beating Friday. Narendran tells ET’s Nehal Chaliawala and Satish John that the
share-swap ratios were arrived at after following all due processes and that
there are long-term benefits for all parties involved. Edited Excerpts:
What
was the rationale behind this merger and the timing of it?
We had anyway planned to simplify our structures. We said some time back that
we will have clusters and at that point in time we were thinking of merging
(Tata) Metaliks with (Tata Steel) Long Products. Then the acquisition of
Neelachal (Ispat Nigam)
happened, which is under Tata Steel Long Products,
so Long Products became big in itself. And then we have this EAF (electric arc
furnace) facility coming up in Punjab, etc. So, given the size and scale of
some of these businesses and the fact that for growth they would need support
from Tata Steel — capital support as well as the ability to build facilities
because Tata Steel has a very strong engineering and projects team — it made
sense to merge them. Because from one listed company to another, it would
become very onerous to manage everything. And then we said if we are doing it,
let's do it all at once. It simplifies the structure below the parent very
significantly and also brings in a lot of synergy onto the table.
What
kind of cost savings and synergies are you looking at?
There are multiple areas. Firstly, even in terms of governance simplicity, a
lot of management time gets saved because you're no longer running so many
listed subsidiaries. The second part is, of course, access to capital,
engineering and project capabilities. Then the corporate structures get
reduced, and a lot of the corporate costs can get shared. The third area is
procurement related. The smaller companies can plug into Tata Steel's vendor
base. Tata Steel itself can benefit from a more extended value chain. Between
Tata Steel Long Products and Tata Metaliks,
they run a similar kind of smaller blast furnaces. So, a lot of operational
synergies we can derive out of that.
Then there are revenue leakages because the MMDR (Mines and Minerals
Development and Regulation) Act was changed. Earlier you could supply iron ore
to your subsidiaries from your captive mines, but now the royalty rates are
different even for subsidiaries. So, there's leakage just because your
structure is like this which will now be avoided.