Everybody loves a goodfight, and rooting for the home team is normal practice—be it during a cricket game or a takeover battle. So, the current of national pride that has coursed through India after the acquisition of Corus by Tata Steel is understandable. Spectators love to internalize the success of the players, and a bit of flag-waving makes for an interesting side show.
But there is a line that should not be crossed. Unfortunately, that is what seems to be happening in the aftermath of the Tata victory over Brazil’s Companhia Siderurgica Nacional (CSN) in the battle for Corus. The reports in various newspapers that government ministers are promising to help Tata Steel finalize the deal suggest that spectators, albeit very influential ones, want to be part of the game. That is unwarranted.
“What’s wrong?” you may ask. After all, economic nationalism seems to lurk behind so many dark corners of our globalized world. We’ve seen this in the past few years. The French government conveniently called Danone a strategic company and scuttled Pepsico’s plan to buy it. Italy tried (in vain) to prevent ABN Amro’s takeover of Banca Antonveneta. The US Congress prevented the sale of oil company Unocal to a Chinese energy company. There was huge political opposition to the sale of six major US ports to DP World of Dubai. There was the raw-knuckled lobbying by the incumbent Arcleor management and its political supporters to keep the Indian L.N. Mittal out of the European steel giant.
These are the more well-known examples of economic nationalists coming in the way of global takeovers. But we should not forget that for every one such example, there are hundreds of other deals that have sailed through. And no such hurdle seems likely in the case of Tata-Corus. First, Britain has a far better record than its European neighbours as far as foreign investment goes. Second, this is a friendly takeover. The Indian government should desist from jumping into phantom battles. They may just spark off a real one.
Why should anyone other than Tata Steel’s stakeholders be concerned? The idea that select companies should be treated as national champions is a thoroughly discredited one. Korea had few qualms in disembering and selling parts of its mismanaged former “national champion” Daewoo, whose trucks business was, ironically, bought by another Tata company in 2004.
Tata Steel is a champion, but a global one. True, it was set up by a remarkable Indian, is headquartered in this country, has its manufacturing facilities here and mainly employs Indian workers. But more than a fifth of its equity is owned by foreign investors (only a bit less than what the Tatas own). After the merger with Corus, it will make most of its steel in Europe, where it will employ thousands of workers. It will adhere to European regulations and pay taxes in several countries.
Tata Steel will be less of an Indian company in a few years. Just as Microsoft will be more of an Indian company after it further raises its head count here and Indian investors get more freedom to buy its shares. The point is that most of the major companies are truly global in the way they organize production and allocate capital. A global merger such as the one between Tata and Corus is just another example of cross-border capital allocation. The promised synergies will come from redesigning the production chain across national borders. At the end of the day, the acquisition of Corus is about business. And it is not the business of governments to intervene, either to help or hinder. To the credit of the Tatas, they have stayed clear of the muddy waters of economic nationalism. Because they realize that there is still a lot to do—from raising money to integrating two disparate companies to assuaging the fears of Corus employees. This is why Tata Steel’s shareholders are more worried about the consequences of the merger than government ministers. It is their money on the table.
Should the government intervene to help Tata’s deal with Corus? Do write to us at firstname.lastname@example.org