Abstract
This article examines the involvement of business groups in consolidation activity. An important component of the Monopolies and Restrictive Trade Practices Act was “the concentration of economic power in the hands of a few” which has been de-emphasized as per the amendment made in 1991. The new Competition Act mainly deals with the case-by-case analysis of market competition rather than ownership concentration. The competition regulation in its current form is mainly focusing on the concept of “economic efficiency” and not addressing the “social fairness” concept. The involvement of business groups in consolidation activities results in multiplier effects as they are already part of a diversified and well-structured umbrella of business with horizontal and vertical linkages. This article observes the active involvement of big business groups in mergers and acquisitions (M&As) activity across various product lines. Further, many such M&As are leading to capacity expansion not only in various overlapping products (i.e., horizontal linkages) but also in the vertical line of business, in which the affiliate firms of the group are engaged. This may be beneficial to the group as a whole since the cost of intermediary inputs supplied to various affiliate firms can be reduced. The study points to consider the “ownership and group effect” and the resulting synergy creation more carefully while assessing competition.
I. The Context
One of the major goals of the Monopolies and Restrictive Trade Practices (MRTP) Act was to limit the “concentration of economic power in the hands of a few” which has been de-emphasized as per the Amendment of the MRTP Act made in 1991. That indirectly shows, the concentration of economic power and the monopolies are considered less problematic from the point of the changed economic scenario. In other words, dominance is considered essential to compete internationally to a certain extent. Dominance has been supported on account of deriving economies of scale. It has been pointed out that the size of Indian firms is far less compared to that of foreign firms, which act as a barrier when competing with foreign firms. Later, a new competition regime was enforced in India (i.e., the Competition Act, 2002), which has replaced the three-decade-old MRTP Act, 1969. Under the new Act, competition assessment is made at the narrow level product markets. In this regard, the point made by Chaudhuri 1 regarding localized or product-wise concentration becomes important. He has mentioned, though product-wise concentration is important and reveals glimpses of the nature and extent of the concentration of economic power, it is inadequate for a full understanding of the problem. As the economy grows, the product-wise concentration may show a declining trend. And most importantly, the economic power exercised by the top business groups is not only on a particular product or group of products but over a large number of economic activities simultaneously. Under the new competition regulation, there is a clear deviation of regulatory focus from “economic concentration” or “controlling monopolies” to “promoting competition.” The current regulation follows the rule of reason approach, that is, the pros and cons of every mergers and acquisitions (M&As) are assessed in terms of the trade-off between efficiency generation vis-à-vis monopoly creation, to find out the likely impact on competition in the “relevant product market” 2 and “relevant geographic market.” 3 The evaluation of the effect of a particular M&A on “relevant product market,” without taking into account the “ownership” of the firms involved, may lead to the concentration of economic assets in the hands of big business groups due to the diversified nature of groups and a large number of affiliated firms. This in turn may impact future product competition. Although the Competition Commission of India (CCI) is engaged in discharging the role of competition regulator of India, the concentration of assets in few hands has not been within its purview. This is because the competition regulation in its current form is mainly concentrated on the concept of “economic efficiency” and not addressing the “social fairness” concept comprehensively. 4 Recent studies on M&As have noticed that the big business groups in India are actively involved in consolidation activities across various sectors. 5 This could be an indication of the big business groups taking advantage of the current regulations to expand their already established large domain. 6
The Monopoly Inquiry Commission (MIC) Report (1965) 7 clearly stated that concentration of economic power is a central problem, and the monopolistic and restrictive practices can be considered as the two major “functions” of such concentration of economic power. An appropriate definition of “concentration of economic power” is not an easy task. Hence, the concentration of economic power is defined in terms of country-wise concentration and product-wise concentration for the report, which are the key factors of this phenomenon. Two important kinds of concentration of economic power exist in the industries. They are (i) product-wise concentration and (ii) country-wise concentration. Product-wise concentration occurs where “in respect of the production and distribution of any particular commodity or service the controlling power whether because of ownership of capital or otherwise is in a single concern or comparatively limited number of concerns or though in a fairly large number of concerns, these concerns themselves are controlled by only a single-family or a few families or business houses.” It can be also called “industry-wise” concentration if the industry is engaged in the production of one product. The second term, that is country-wise concentration occurs when a large number of concerns engaged are in the production or distribution of different commodities are in the controlling hands of one individual or family or group of persons, whether incorporated or not, connected closely by financial or other business interests. Here, the concentration of economic power is clearly considered to exist. Hence, MIC distinguishes both product-wise concentration and the ownership-wise concentration while defining the concentration of economic power.
To achieve the product-wise concentration, the MIC used concentration ratios based on the value of assets (in the absence of sales data). Hence, MIC is considering sector-wise concentration along with concentrated ownership. The report considered high concentration to exists when the top three producers’ share is 75% or more, medium concentration is registered when the share of top three producers are between 60% and 75%, and low concentration is applicable when the top three producers’ share is between 50% and 60%, and when the share of three top producers is less than 50%, concentration is considered to be nil. The outcome of the MIC report has been enormously discussed in India while framing the industrial policies.
II. A Look at the M&As Literature
Being a subject of crucial significance from the point of consumer welfare, consolidation strategies have been widely studied in the international context as part of state policy formulation. Compared to the initial merger waves of the United States and the United Kingdom that started in the 1890s, M&As in India is of recent origin (mainly post-1990s). The existing Indian literature on M&As pertains to issues such as overall postmerger performance, motivating factors, sector-specific issues, efficiency generation, competition and market structure, foreign acquisitions and nationality issues, and so on. 8 In general, these studies have found that M&As are an important strategy to withstand the challenges posed by global integration and increased competition. However, the overall post-M&As performance is not always encouraging. Recent studies observed that many leading firms across various sectors disappeared through M&As. However, a sustained increase in market shares is not visible after consummating the transaction. This may be due to the inefficiencies generating after entering into consolidation. There are also studies on the postmerger integration and found that in many cases, the deal fails due to the absence of synergy creation. It is also important to mention that there were several studies on sector-wise competition issues. However, most of these studies have been done in the background of the MRTP Act.
An important observation from the literature is the greater involvement of big business groups in M&As. It is observed that M&As between related management were intended to increase the controlling stake to ward off the possible takeover threat. 9 Big business groups are not only consolidating themselves but also are acquiring control over totally unrelated firms, which enable them to strengthen and diversify their business operations. Studies revealed that in most sectors, the leading firms are engaged in multiple numbers of consolidation activities, and in most cases, these are owned by big business groups to expand their domain and to reduce risk and derive synergies. Group consolidation activity and resultant dominance have both positive and negative implications, which need to be examined empirically to reach policy-relevant conclusions. So far, there has not been any attempt to unravel the role of consolidation strategies in fostering economic concentration among big business groups in India. The implementation of the Competition Act marked a paradigm shift in competition regulation in India. Various issues linked to the consolidation strategies of business groups including the extent, motives, and implications are still unknown to academia as well as policy makers. The present study is an attempt to fill this gap.
A. Types of Competition Effects via Business Group M&As
The literature on business groups identifies three types of diversification. They are (i) horizontal lines (ii) vertical lines, and (iii) conglomerate diversification. 10 The horizontal line includes the groups which are focusing on similar product lines, for example, groups that focus on automobile and the related business, basic metals and related products, and so on. This enables them to strengthen their competitiveness in their core area of production. Similarly, business groups also diversify into the vertical line of business activities, that is, in the buyer–seller relationship. This is mainly applicable when the firms procure raw materials and such other intermediary goods from others. When the group firms engage in such lines of business, it becomes easy to procure such items, and thus, the synergy creation is also high in the process. In this way, the firms can control the cost to a great extent. For example, if an automobile manufacturer has tire producing firms under the same business umbrella, it creates both forward and backward linkages. Further, when the automobile producing group engage in the basic metals business, there will be lot of synergies since the steel and such metal requirement of the affiliate firm can be met by the same group affiliate firm which obviously creates forward and backward linkages. The third line is, conglomerate, where the affiliated firms engage in different business lines, which doesn’t have any type of linkages or buyer–seller relation. For example, affiliated firms engage in pharmaceutical production and the automobile sector. Here, it can be noticed the degree of diversification increases in the case of a conglomerate line of business, whereas the specialization or product concentration increases in the case of horizontal lines, which are less diversified.
Similar to the above discussion on business groups, the literature on M&As identifies three types of consolidation activities. They are (i) the horizontal deals, (ii) vertical deals, and (iii) the conglomerate deals. The horizontal deals are the deals in which firms producing similar products consolidate their operations. Whereas the vertical deals occur when the firms in buyer–seller relation consolidate their operations. These two types of deals are more important for competition assessment. This is because the likelihood of creating market barriers is higher under these two cases and the competition authorities generally treat these deals with special caution. The third, that is, conglomerate deals occur in unrelated business activities. Hence, these deals may not directly threaten the existing level of competition. However, it is possible that in some circumstances, the consolidated firm may reduce or withdraw from the production of unprofitable areas of business operations, which may adversely affect the existing consumers for those products, particularly when there is no or less alternate supplier for those products.
From the above discussion, it can be seen that the purpose behind the creation of business groups and that of consolidation activities is somewhat similar when it is analyzed from the producers’ point of view. Under both situations, one of the major business interests is to reduce the cost of production and thereby to increase efficiency and profitability. This can be achieved by generating synergies using both the group affiliation as well as the consolidation channel. In addition, consolidation enables these groups to further strengthen the market power of various products. Thus, the consolidation activities undertaken by the business groups may create “multiplier effects” compared to that undertaken by the standalone firms. These deals may also help to lessen future competition by taking over potential competitors, both experienced firms and start-ups. This is not to undermine the fact that each deal is different, which needs to be assessed separately. It is also true that all consolidation activities are not to harm competition. Some deals undertaken by the incumbent firms ultimately result in increased competition among the top firms in the relevant sector. This will result in increased consumer welfare, either through the reduction in prices or increased quality of products or services.
Here, we shall see how the Indian group affiliated firms used consolidation activities. Whether they are engaged in a similar line of business activities or in vertical integration. Also to see whether this helped them to generate synergies as discussed above. The next session discusses the data and methodology followed in the study.
III. Data and Methodology
The study used the Venture Intelligence database on M&As which cover M&As from January 2004 onward and the Centre for Monitoring Indian Economy’s (CMIE) PROWESS database to gather information on M&As. In order to understand the purpose of transactions and the way it reflected on the relevant product market competition, qualitative information is also very important, for which we have used media reports, CCI orders, company websites, and such secondary sources of information.
We have examined two aspects to arrive at the major subsector to be focused on. They are (i) subsectors in which business groups mainly concentrate their business operations and (ii) subsectors in which the business groups have undertaken a large number of M&As. The second factor is more important, while the first one provides the overall context in which the firms operate. The study has also looked into the general concentration levels based on previous studies. Combining all these factors such as business groups’ presence in various subsectors, the extent of consolidation activities, and the general concentration levels, automobiles, basic metals, and various types of machinery are found to be the major subsectors in the manufacturing sector to be focused. Out of this, we have selected the basic metals for qualitative analysis.
IV. M&As Undertaken by the Top Business Groups
It is observed that the Indian business groups mainly generate their revenue from service sector activities. Top groups generate around 37% of their revenue from manufacturing activities. Within manufacturing, basic metals and automobiles are the major contributors. Sales generated from high-tech sectors are very low. The pharmaceutical sector is the major high-tech activity undertaken by the other groups and private Indian firms. The following are the major sectors in which the top business groups engaged in consolidation activities: IT and IT-enabled sector consists of 18% of all transactions (134 of 732 majority deals). Automobiles is the second top sector with ninety-two transactions (13%). Next coming sectors are basic metals (48, 7%), energy (45, 6%), banking and financial service (41, 6%), food and beverages (39, 5%), engineering and construction and telecom (30, 4%) each, machinery (29, 4%), pharmaceutical (25, 3%), media and entertainment (22, 3%), shipping and logistics (22, 3%), and so on. 11 In general, out of these, automobiles, basic metals, food, and beverages are the major subsectors coming under the manufacturing sector.
From Table 1, it is clear that a large number of M&As are associated with a handful of business groups. Other group’s engagement is comparatively low. The top business groups such as Tata, Mahindra, Reliance, Birla, and so on, are intensively involved in consolidation activities. The top business groups are also at the forefront of the acquisition activities. Most of these groups were buyers rather than sellers in the transaction. Since each group consists of a large number of subsidiaries and associated firms, it is difficult to capture each and every group. Hence, the rest of the study shall focus on one major consolidation intensive group, that is, Tata in basic metals.
Transactions Related to the Business Groups in India.
Source: Compiled from Venture Intelligence Database as in Saraswathy, supra note 5.
V. M&As Undertaken by Tata Steel in Basic Metals
Tata has made fifteen acquisitions in this subsector. Three of these acquisitions can be termed as intragroup acquisitions as both the acquirer and the target are related to the Tata group. All other eleven deals undertaken are unrelated M&As. And it is important to say that out of these deals, twelve are undertaken by Tata Steel. It is also observed that Tata steel is the top Tata Company engaged in the business of basic metals. Excluding the two related acquisitions, there are ten unrelated acquisitions. Tata Steel is one of Asia’s top steel producers and India’s largest integrated private-sector steel company with crude steel production of 5.3 million tons. A peculiarity of Tata Steel is the integrated production structure with ownership from mining to final output generation. This is considered to be one of the most profitable and value-creating companies in the world. 12 Tata Steel has undertaken many important acquisitions especially the deals undertaken outside India, which substantially increased the capacity of Tata Steel horizontally as well as vertically. Appendix Tables A1 and A2 show the M&As undertaken by Tata Steel based on the Venture Intelligence Database and PROWESS database of CMIE.
Steel production involves various stages of operation such as cargo preparation, reduction, refining, casting, and rolling. Hence, the ownership of backward and forward resources directly or through the inorganic route of acquisition will generate synergies in production. 13
This is important to mention Tata Metaliks, a subsidiary of Tata Steel involved in the production of pig irons and ductile iron pipes, which provide suitable pig iron grades for automobile castings, tractor castings, engineering, and industrial castings, power generation castings, ductile iron pipes, and fitting castings which are mainly used for potable water transmission and distribution; sanitary and decorative castings; railways and other castings; and pig iron grades for aluminum smelters. 14 This shows the interlinkages between Tata companies and reveals how steel and steel products connect Tata as a group. Next, we shall get into the acquired assets of Tata in and around the steel business to understand how these deals helped in building and strengthening Tata as a conglomerate business group.
A. Acquisition of NatSteel in Singapore in August 2004
Tata Steel acquired a 100% equity stake of NatSteel in the year 2004 for a purchase value of approximately US$282 million. As per the deal, NatSteel spun off its entire steel business operations into a wholly owned subsidiary called NatSteel Asia Pte Ltd., which was followed by the 100% equity capital acquisition of NatSteel Asia by Tata Steel. It is important to raise the question, how the deal helped Tata Steel. At the time of the acquisition, media reported that this acquisition enables Tata Steel to expand its installed steel capacity to more than 7 million tons from the existing 4 million tons along with the 1 million capacity expansion which the company was already undertaking at that time.
NatSteel was one of the leading industrial groups with a presence in twelve countries through its joint ventures at the time of the acquisition. The deal enabled Tata to take over control of various steel rolling and melting capacities in various locations. It provided a steel melting capacity of 6 lakhs ton in Singapore and also a steel rolling capacity of 9 lakhs. Similarly, Tata Steel could widen its operations in Malaysia with 13 lakhs ton rolling and a similar melting capacity. In China, it got 2.7 lakhs ton melting capacity and 6.32 lakhs ton rolling capacity. In the Philippines and Vietnam, it got 3.5 and 1.2 lakh ton rolling capacity, respectively. 15 Hence, it can be said that this acquisition is mainly aimed at capacity expansion in South Asia.
Along with the capacity expansion and market expansion, it is also reported that the deal enables Tata to supply its low-cost pig iron to all the newly acquired capacities. Pig iron is the intermediary good used for steel production, for which Tata has its own iron ore and coal, which enable them to supply at very low cost. Further, when the expansion plans are compared with that of the cost of acquisition, the deal is around three times cheaper compared to the direct capacity expansion plans. 16
B. Acquisition of Millennium Steel Company, Thailand in December 2005
Tata Steel entered into a definitive agreement with Cementhai Holding Company, which is a 100% subsidiary of the Siam Cement Company to acquire its shares in Millennium and also to invest additional equity. Millennium Steel is formed through merging three firms, that is, Siam Iron and Steel in 2001, Siam Construction Steel, and NTS Steel group in 2002. This was the dominant steel producer in Thailand at the time of acquisition with a capacity of 1.7 million ton per annum especially for producing long products for construction and engineering steel for the auto industry. 17 Hence, this acquisition was also aimed at capacity expansion and market expansion. Besides, the acquisition also provides vertical linkages to the steel and automobile business of Tata. This further strengthened the position of Tata Steel in South Asia.
C. Acquisition of Corus in 2007 with US$12 Billion
In 2007, Tata Steel won the battle with other competing players for purchasing Corus with a deal value of US$12 billion. 18 This was the largest deal ever undertaken by Tata till then. It is to be remembered that the Corus itself was born out of a merger between Anglo-Dutch, that is, Koninklijke Hoogovens and British Steel in the year 1999. This deal gradually failed due to postmerger integration issues especially cultural integration. It is reported that this deal was aiming at the recovery of British Steel, which incurred a loss of around £81 million at the time of acquisition. At the time of the acquisition, world-class investment was made in the Dutch side of operations, while the British Steel remained the same. All these led to poor postmerger integration. Labor issues, lack of communication between various departments, along the lack of appropriate leadership led to the low productivity postmerger. As a result, media reports suggest the stock market value of Corus deteriorated during this period. There was a competition for buying Corus since it is one of the prestigious brands and also it was the second-largest steel producer in Europe at that time. The Brazilian company, Companhia Siderurgica Nacional SA and Arcelor Mittal are the examples of companies that approached to buy Corus.
When Tata Steel announced the completion of the deal in 2007, Tata Steel stated that, “…The enlarged company will have a pro forma crude steel production of 27 million tonnes in 2007 and will be the world’s fifth-largest steel producer with 84000 employees across four continents.” 19 As it can be seen from Table 2, at the time of the acquisition, the revenue of Corus was more than three times the revenue of Tata Steel. Similarly, the crude steel production capacity of Tata was only 5.3 million tons, and that of Corus was 18.2 million tons. From the foregoing discussion, it is clear that Tata Steel increased its production capacity through acquisitions. The deal also enables Tata Steel to expand the market in Europe, especially in the United Kingdom and Netherlands.
Revenue and Production of Tata and Corus at the Time of Acquisition.
Source: Compiled from Tata Steel, supra note 18.
a For the financial year 2005–2006. bFor the year 2005.
It is also important to mention that, Corus is also strong in other vertically related areas like automotive, construction, and packaging. The deal was expected to create the second-largest steel producer in the world with a presence in forty-five countries. Hence, from this deal also both horizontal and vertical lines of product-market expansion are visible. Along with this, the market expansion seems to be much more in the deal.
D. The Buyout of Ryerson’s Stake in Tata Ryerson JV in 2007
Tata Steel and Ryerson of United States formed a JV in the year 1997 with an equal equity stake. Ryerson Tull was the largest distributor of industrial raw materials with more than 100 service centers across the United States, Canada, and China. The turnover of Ryerson Tull at that time was more than US$6 billion. This JV intended to bring steel service center solutions to industrial customers in India. Tata Steel bought the equity stake held by the partner in 2007 when Ryerson Inc. was acquired by Platinum Equity, which is a private equity firm. 20 This JV has facilities in Kolkata, Pune, Jamshedpur, and Singur. The JV was the retail distributor of galvanized sheets and coils of Tata Steel. Further, control over this JV was important for Tata since this JV was supporting Tata Motor’s small car project, and thereby it has exposure to the group’s plans in the automobile sector. 21
E. Acquisition Plans of Structure Steel Engineering Pte. Ltd. (SSE) and Vinausteel Ltd. in Vietnam in 2007
Although in 2007 March, Tata Steel through its wholly owned subsidiary aimed at acquiring rolling mills capacities in Vietnam’s, that is, 100% stake in SSE Pte. Ltd. and 70% stake in Vinausteel Ltd., both held by Vietnam Industrial investments for a consideration of around US$41 million, the deal couldn’t materialize since it lost a bid to Prudential Vietnam Securities Investment Fund Management Company. This deal was expected to increase the rolling mills capacity along with the market expansion plans in Vietnam. Further Vinausteel was one of the best-known steel brands in Vietnam. 22
F. Acquisition of Rawmet Ferrous Industries in February 2013
Tata Steel entered into an agreement with IMR Metallurgical Resources AG, Rawmet Commodities, and other shareholders of Rawmet Ferrous (RFI) to acquire a 100% equity stake in RFI. RFI’s alloy plant in Orissa has a capacity of 16.5 semiclosed electric arc furnaces with 50,000 tons high carbon ferrochrome capacity. Further, at the time of the acquisition, RFI was also setting up a ferroalloy plant along with the waste-based power plant and coke over battery costing around Rs. 327 crores. Tata Steel’s Ferro Alloys and Mineral Division (FAMD) had a capacity of 50,000 tons at the time of acquisition. 23
FAMD is the largest nonsteel business unit of Tata. This is set up as an integrated value chain commencing with mining beneficiation, ferroalloys business, chrome, and manganese ores business for which coastal areas of Odisha are rich. FAMD is one of the leading manganese producers in India and is also a leading supplier of dolomite pyroxenite. FAMD offers three brands under its umbrella, Tata Tiscrome, Tata Silcomag, and Tata Ferromag. Tata Tiscrome is widely used as an alloying agent in the production of carbon and stainless steel since it offers corrosion resistance, which increases the life of stainless steel. 24 Through this deal, RFI provides both horizontal and vertical linkages along with the increased capacity of resources. 25
G. Acquisition of Tinplate Company of India
Tinplate is one of India’s major producers of tin-coated and tin free steel sheets. The export share of the company is around 25%. Southeast Asia, West Asia, and Europe are the major export destinations of Tinplate. Export is mainly meant to the end users, that is, can makers. 26 When Tata Steel acquired Corus in 2007, it was expected that the deal will benefit Tinplate since Corus has a presence in packaging steel used for packing food, drinks, and aerosols. Specifically, the deal was expected to strengthen engineering in packaging. At that time, Tinplate faced with multiple challenges such as increasing input prices and worsening export. 27 Tata Steel gradually increased its share in Tinplate to 73.45% in 2012 from 59.44% till then. 28 There have been reports that the dependence of Tinplate increasing on the parent firm over time. 29
H. Acquisition of Usha Martin Ltd. (UML) in September 2018
This acquisition is carried out through Tata Steel’s subsidiary, Tata Sponge Iron Ltd. in September 2018. UML is considered to be a well-known wire rod manufacturer with significant equity in the market place. The deal value is Rs. 4,094, which was paid at the time of the transaction, and an amount of Rs. 640 crore was held back at that time on account of pending transfer of some assets including mines and so on. This deal was expected to immensely help Tata Sponge to expand its capacity. Tin Sponge is one of the market leaders in pig iron and is known for the consistent quality of pig iron. At the time of this acquisition, Tin Sponge had a capacity of 3,90,000 TPA of sponge iron and was generating 26 MW power through waste heat recovery technology (Tata Steel, April 2019). This deal provided ownership of UML’s specialty steel plant in Jamshedpur with 1 Mn TPA capacity. This plant manufactures alloy-based long products, functional iron mine, a coal mine under development, and captive power plants. 30 Hence, this deal was mainly aiming at capacity expansion and market expansion. Just before this acquisition, Tata Steel increased its stake in Tata Sponge to 51% from the then 39.74%. 31
I. Acquisition of Bhushan Energy Ltd. and Bhushan Steel Ltd. (BSL) in 2019
In 2019 June, National Company Law Tribunal cleared the acquisition of Bhushan Energy for a consideration of Rs. 800 crore. Bhushan Energy was having a debt of Rs. 2,336 crore for the financial year 2015–2016. Pursuant to the deal, Tata Steel will hold 99.99% of equity shares of Bhushan Energy, which was incorporated in Odisha in 2005.
In addition to this, Tata Steel acquired shares in the debt-ridden Bhushan Steel through its wholly owned subsidiary, Bamnipal Steel Ltd. Postacquisition, Tata Steel controlled a 72.65% stake in Bhushan Steel. 32 This deal is also carried out as per the Corporate Insolvency Resolution Process of the Insolvency and Bankruptcy Code 2017.
CCI as per the order dated April 25, 2018, cleared this deal saying that it will not create any competition concerns in the relevant market in India. From the Order of the Commission, it is visible that the deal provided substantial addition to the then existing capacity of Tata Steel. 33 Commission identified four areas where the product market overlap exists. They are (i) Hot rolled coils and sheets and plates, together it is denoted as HR CSP, (ii) cold rolled coils and sheets (CR CS), (iii) surface coated products (SCP) which includes galvanized products (GP) and color coated products (CCP), and (iv) flat steel tubes and pipes (T&P) which includes precision and nonprecision T&Ps.
Table 3 shows how important was BSL for Tata Steel in terms of adding capacities across various stages of steel production. This information is compiled from the order of the CCI. Due to confidentiality provisions, the order gives only the range of market shares across various categories. Relevant data pertain to the year 2016–2017. It can be seen that BSL had a substantial presence in all listed products of Tata Steel. In terms of installed capacity, the acquisition enables Tata Steel to add 5%–10% each in the HR CSP segment, CR CS segment, and SCP-GP segment. Further 10%–15% percent is added in precision tubes which comes under T&P. A similar capacity is added in nonprecision tubes too which is mainly API pipes used for oil and gas manufacturing, where Tata steel did not have the facilities to manufacture.
Capacity Addition through Acquisition of BSL (2016–2017).
Source: Author’s compilation from Competition Commission of India, Order on Combination Registration No. 2018/03/562(2018).
Note: Prec denotes precision tools and NP denotes nonprecision tools. BSL = Bhushan Steel Ltd.; HR CSP = hot rolled coils and sheets and plates; CR CS = cold rolled coils and sheets; SCP = surface coated products; T&P = tubes and pipes; GP = galvanized products; CCP = color coated products; TSL = Tata Steel Ltd.; BPSL = Bhushan Power & Steel Ltd.; TIIL = Tube Investment of India Ltd.; SAIL = Steel Authority of India Ltd.
From Table 3, the presence of competitors is also visible. JSW was the major competitor for Tata Steel in all categories except T&P, where Tata Steel also has a weak presence. JSW had a 20%–25% market share in terms of installed capacity and sales-based market share in the HR CSP segment. Tata Steel’s presence before the acquisition was only 15%–20% both in terms of capacity and sales. The addition of BSL enabled to increase the combined presence of Tata Steel BSL to 20%–30% in terms of capacity and 25%–30% in terms of sales. Hence, in terms of capacity expansion, Tata Steel exceeded JSW and in terms of sale, both became equal.
In CR CS too, the main competitors are JSW, Steel Authority of India Ltd. (SAIL), and Essar for which the installed capacity was 15%–20%, 10%–15%, and 5%–10%, respectively. Tata Steel had only a 10%–15% share. The deal made Tata the equivalent player as JSW in this product. It is also important to mention that in terms of the sales-wise market share, Tata Steel was having 15%–20% against the JSW’s figures of 20%–25% and SAIL’s 25%–30% share. Here also Tata Steel could add 5%–10% share which enables to become equivalent with JSW.
In the SCP segment, the major competitors are JSW, Bhushan Power & Steel Ltd. (BPSL), and Essar with the respected installed capacities of 20%–25%, 10%–15%, and 5%–10%. Within SCP, Tata Steel could add 5%–10% for GP and 10%–15% additional capacity for CCP segment, which enabled to compete with JSW which owns around 20%–25% and 15%–20% shares based on installed capacity and sales. The combined entity’s share went up to 15-20 percent for both GP and CCP based on installed capacity as well as sales. Under the CCP category, the presence of Tata Steel was very low before the deal.
In the case of the T&P segment, the presence of Tata Steel was less than that of BSL. Within this, for precision tools, Tata Steel had only 5%–10% installed capacity as well as sales-based market share in this, whereas BSL had 10%–15% in terms of capacity and 15%–20% in terms of sales. Hence, the combined presence increased to 20%–25% in terms of capacity and 25%–30% in terms of sales. More importantly, for this category, the combined entity became the market leader with the second-best competitor Apollo Tubes holding 15%–20% market share each. With this deal, the combined entity could enter into the nonprecision tools market also. In this segment, top competitors are having only less presence.
VI. Concluding Observations and Discussion
Consolidation activities are intended to bring in synergies creation. The involvement of business groups in consolidation activities results in multiplier effects as they are already part of a diversified and well-structured umbrella of business with horizontal and vertical linkages. The active involvement of top business groups in the M&As activity is clearly observed. It is noticed that the top business groups in India are also top in consolidation activity across various subsectors, which may often result in forward and backward linkages. A qualitative analysis of the deals undertaken by Tata in basic metals revealed that the multiple number of M&As undertaken by Tata helped in expanding capacities not only in various overlapping products (i.e., horizontal linkages) within basic metals but also helped in the vertical line of business, in which the group affiliated firms are also engaged. Such vertical linkages also projected reducing the cost of intermediary goods used by affiliate firms, which is obviously a good business model. Consolidation was crucial in getting access to various new market locations across the globe, strengthening the market leadership, access to cheap raw materials, and so on. In general, the acquisitions are beneficial not only for a particular affiliate firm but also the group as a whole since the group is a diversified unit with forward and backward linkages. Competition regulators need to consider the ownership characteristics, “group” effect, and the resultant synergies more carefully in the future.
Footnotes
Appendix
Mergers and Acquisitions Undertaken by Tata Steel based on PROWESS.
| Date | Deal Type | Company Type | Company Name | Price/Swap Ratio |
|---|---|---|---|---|
| April 25, 2019 | Merger | Target | Bamnipal Steel Ltd. | |
| April 25, 2019 | Merger | Target | Tata Steel B S L Ltd. | 0.052 |
| February 27, 2019 | Acquisition | Target | Tata Metaliks Ltd. | 1,795.6 |
| December 1, 2017 | Acquisition | Target | Bhubaneshwar Power Pvt. Ltd. | 2,550 |
| January 25, 2017 | Acquisition | Target | Creative Port Devp. Pvt. Ltd. | 1,200 |
| December 23, 2016 | Acquisition | Target | Brahmani River Pellet Ltd. | |
| April 11, 2013 | Merger | Target | Tata Metaliks Ltd. | 0.187 |
| April 11, 2013 | Merger | Target | Tata Metaliks Di Pipes Ltd. [Merged] | |
| April 10, 2013 | Merger | Target | Kalimati Investment Co. Ltd. [Merged] | |
| January 23, 2013 | Acquisition | Target | Indian Steel & Wire Products Ltd. | 49.1 |
| June 15, 2012 | Acquisition | Target | Tata Steel Long Products Ltd. | 650.2 |
| June 15, 2012 | Acquisition | Target | Tinplate Co. of India Ltd. | 879.2 |
| March 3, 2012 | Acquisition | Acquirer | Tata Sons Pvt. Ltd. | 312.8 |
| January 20, 2012 | Acquisition | Acquirer | Tata Sons Pvt. Ltd. | 7,128 |
| November 18, 2011 | Acquisition | Acquirer | Tata Sons Pvt. Ltd. | 500 |
| September 12. 2011 | Acquisition | Acquirer | Ishares Bse Sensex Mauritius Company | 55.5 |
| September 5, 2011 | Acquisition | Acquirer | Tata Sons Pvt. Ltd. | 246.5 |
| August 17, 2011 | Acquisition | Acquirer | Life Insurance Corpn. Of India | |
| April 13, 2011 | Merger | Target | Centennial Steel Co. Ltd. [Merged] | |
| May 27, 2010 | Acquisition | Acquirer | Preferential Allotment | |
| July 29, 2009 | Merger | Target | Hooghly Met Coke & Power Co. Ltd. [Merged] | |
| April 2, 2007 | Sale of asset | Acquirer | Theis Precision Steel India Pvt. Ltd. | 670 |
| March 7, 2007 | Acquisition | Target | Tata Steel Mining Ltd. | |
| July 23, 2006 | Acquisition | Acquirer | Tata Sons Pvt. Ltd. | 13,932 |
| September 16, 2005 | Sale of asset | Target | Incab Industries Ltd. | |
| December 20, 2003 | Acquisition | Target | Indian Steel & Wire Products Ltd. | 50.4 |
| October 23, 2002 | Merger | Target | Tata S S L Ltd. [Merged] | 0.045 |
| June 25, 2002 | Sale of asset | Acquirer | T M International Logistics Ltd. | |
| January 16, 2002 | Acquisition | Target | Tata S S L Ltd. [Merged] | 60.5 |
| October 19, 2001 | Acquisition | Acquirer | Tata Sons Pvt. Ltd. | |
| September 3, 2001 | Acquisition | Target | Tata S S L Ltd. [Merged] | 144 |
| May 9, 2001 | Acquisition | Target | Tata S S L Ltd. [Merged] | 62.6 |
| May 4, 2001 | Acquisition | Target | Tata Motors Ltd. | 40 |
| December 23, 2000 | Acquisition | Target | Tata S S L Ltd. [Merged] | 471.5 |
| August 23, 2000 | Sale of asset | Target | Industrial Development Corpn. Of Odisha Ltd. | 480 |
| July 21, 2000 | Sale of asset | Acquirer | I B M Corpn. | |
| April 11, 2000 | Sale of asset | Acquirer | Tata International Ltd. | |
| December 16, 1999 | Sale of asset | Target | Wellman Incandescent India Ltd. | |
| July 12, 1999 | Acquisition | Acquirer | Tata Sons Pvt. Ltd. | 1,736.8 |
| July 1, 1999 | Sale of asset | Target | Tata S S L Ltd. [Merged] | |
| May 21, 1999 | Sale of asset | Acquirer | Nuvoco Vistas Corporation Ltd. | 5,500 |
| May 31, 2019 | Acquisition | Target | Bhushan Energy Ltd. | 100 |
| April 25, 2019 | Merger | Acquirer | Tata Steel Ltd. | 0.052 |
| May 18, 2018 | Acquisition | Acquirer | Preferential Allotment | 1,588.8 |
| January 20, 2012 | Acquisition | Acquirer | Bhushan Infrastructure Pvt. Ltd. | 165.7 |
| January 16, 2012 | Acquisition | Acquirer | Bhushan Infrastructure Pvt. Ltd. | 165.7 |
| January 11, 2012 | Acquisition | Acquirer | Bhushan Infrastructure Pvt. Ltd. | 182.3 |
| January 6, 2012 | Acquisition | Acquirer | Bhushan Infrastructure Pvt. Ltd. | 116 |
| January 5, 2012 | Acquisition | Acquirer | Bhushan Infrastructure Pvt. Ltd. | 198.9 |
| February 1, 2006 | Acquisition | Acquirer | Preferential Allotment | 105 |
| August 14, 2002 | Acquisition | Acquirer | Preferential Allotment | 133.9 |
| December 13, 2000 | Merger | Target | Bhushan Power & Steel Ltd. | 121: 123 |
Source: Compiled from PROWESS Database, Centre for Monitoring Indian Economy.
Author’s Note
The study is part of the ICSSR project on The Changing business group Strategies and mergers and acquisitions carried out in ISID.
Acknowledgments
The author acknowledges her heartfelt thanks to Prof. Chalapati Rao, Prof. P. Mohanan Pillai, and Dr. P. L. Beena for their suggestions and encouragement.
Declaration of Conflicting Interests
The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.
Funding
The author(s) disclosed receipt of the following financial support for the research, authorship, and/or publication of this article: The study is part of the ICSSR Research project on The Changing Business group Strategies in India: An Inquiry from the Lens of M&As carried out in ISID.