Tata Steel to merge 7 group companies, simplify holding structure

In a major move to consolidate its metals and mining businesses and simplify the holding structure, the Tata Steel board has approved the merger of six subsidiaries and an associate company into the steel major.

The decision involves listed entities — Tata Steel Long Products, The Tinplate Company of India, Tata Metaliks, and TRF.

Tata Steel owns a majority stake in its subsidiaries — Tata Steel Long Products, The Tinplate Company of India, Tata Metaliks, The Indian Steel & Wire Products, Tata Steel Mining, and S&T Mining. The board also approved the amalgamation of associate company TRF (34.11 equity holding) into Tata Steel.

Apart from consolidation operations, the proposed amalgamation is aimed at driving synergies. “The net present value of the synergies will be over Rs 1,000-1,500 crore across all the companies that are proposed to amalgamate with Tata Steel,” said Koushik Chatterjee, executive director and chief financial officer, Tata Steel.

The proposed amalgamations are aimed at enhancing management efficiency and driving sharper strategic focus across businesses, based on the parental support from Tata Steel leadership.

“We had planned to organise operations in four verticals — long products, downstream, mining, and infrastructure. But we realised that it was best for the businesses to be part of Tata Steel. We would run the verticals as strategic business units within Tata Steel, so that they could be managed nimbly,” Chatterjee said.

In addition, he explained that Tata Steel would now be able to provide financial strength to these businesses. “We can grow these businesses which are strategically aligned to Tata Steel,” he said.

The synergies shall be driven through raw material security, centralised procurement, optimisation of inventories, reduced logistics costs, and better facility utilisation. “On completion, there would be further opportunities towards reduction of overhead and corporate costs. Each of the proposed amalgamations would be value-accretive for shareholders,” the company statement said.

According to analysts, the move shall result in lower iron ore cost for Tata Steel Long Products and Tata Metaliks.

The consolidation is in continuation with Tata Steel’s drive to simplify the group holding structure. Since 2019, Tata Steel has reduced 116 associated entities (72 subsidiaries have ceased to exist, 20 associates and joint ventures have been eliminated, and 24 companies are currently under liquidation).

The board considered the proposal based on independent fairness and valuation opinions, and followed the process laid down under the Companies Act, 2013 and the Securities and Exchange Board of India Regulations, Tata Steel said.

The proposed merger was approved by Tata Steel’s board and all the amalgamating companies. An earlier scheme of amalgamation of Tata Metaliks into Tata Steel Long Products – approved in November 2020 – has been withdrawn.

The decision to withdraw it was taken because of significant changes in underlying business conditions for both companies, resulting in a dilution of the inherent benefits that were initially envisaged, Tata Metaliks said.

Board-level changes were also announced in Tata Metaliks. Sandeep Kumar will step down as managing director of the company with effect from October 31, 2022, and take up another assignment within Tata Steel system, and Alok Krishna will assume the position of managing director from November 1, 2022. He is currently the managing director of TRF.

Each scheme of amalgamation shall now move into a defined regulatory approval process, which includes approval by stock exchanges and the NCLT, Tata Steel said.