TATA Steel Merger

TATA Steel’s decision to merge four listed and three unlisted companies, a total of seven of its subsidiaries, into itself is part of the ‘triple S’ plan of Tata Sons chairman N.

Chandrasekaran to make the salt-to-software conglomerate of $128 billion, sprawled across more than 90 companies, into a leaner and ‘future-ready’ organisation where the three S signifies ‘Simplify’, ‘Synergise’ and ‘Scale’.

From the first integrated steel plant to being a fully integrated steel plant, it has taken 115 years for TATA Steel to reach there.

The amalgamation of the seven subsidiaries is not expected to have an impact on TATA Steel’s credit profile as apart from the financials of TRF, all six amalgamated entities’ financials are already consolidated into TATA’s as they are majority-owned subsidiaries of TATA.

When compared to TATA Steel, the earnings of TRF are not significant. Even after the consolidation, the EBITDA of TATA Steel will remain unchanged.

TRF’s earnings are not significant compared to Tata Steel, so the latter’s EBITDA (Earnings before interest, taxes, depreciation, and amortisation) will remain unchanged post the consolidation.

The merger will also not impact TATA Steel’s leverage position as it is expected that the transaction will be a share swap. With the merger, Tata Steel management expects a cost saving of Rs 1,000-1,500 crore a year from the deal.

The subsidiaries involved in the merger procured raw materials separately except for coking coal which was procured by the TATA Steel Group. With the merger, the procurement cost will be lower for all entities, and there will be similar synergies in sales and marketing.