The Tatas have accepted defeat, after throwing a few billion dollars down the Corus drain. In an announcement yesterday (30 March), the group said it will be selling Tata Steel (UK), the erstwhile Corus Steel’s British operations, but will keep the Netherlands part, which is at least profitable.



It is unlikely that there will be too many suitors rushing to buy Tata Steel UK in a downbeat global steel market, but that is another story. The news is that the group under Cyrus Mistry has finally accepted that buying Corus in 2007 at a huge premium was a disaster.



While contested takeovers do often bring with them the winner’s curse of having overpaid for an asset, the Tatas are not unique in having made this mistake. What they will probably not admit is the two underlying mistakes that enabled this unwarranted gamble on Corus: a mistaken belief in conglomerate culture, and an even more mistaken belief in giving the promoter too much say in how capital is allocated within the group.



Put simply, a lot of the profits earned from Tata Consultancy Services have been blown up on Corus.



The Corus acquisition is not just a defeat for the Tatas, but for the Ratan Tata stewardship of the group. Ratan’s arrival as group head in the 1990s marked a decisive shift away from his predecessor JRD Tata’s approach of decentralising the group’s decision-making to energetic satraps who effectively ran their companies as part of a voluntary federation of near independent fiefs. Thus JRD spotted leadership talent and allowed them to run their companies almost like they owned them. It was only JRD’s personality that made Tatas a group, for the likes of Russi Mody (Tata Steel), Darbari Seth (Tata Chemicals), Sumant Moolgaokar (Tata Motors) and Ajit Kerkar (Indian Hotels, which runs the Taj chain) did not need to be told what to do – and they would have resented it too. Under JRD, and thanks also to the climate of suspicion that surrounded big business in the licence-permit Nehru-Indira era, the Tatas managed to keep their companies with very low shareholdings.



As a product of the liberalisation era, Ratan Tata saw the need for greater shareholding in key group companies, and to make the group think more like a group. As he battled and gradually defeated the Modys, Seths and Kerkars for control of group companies, the group ended up being manned by CEOs loyal to Ratan Tata, and who looked up to him for key decisions, even if it meant just a nod of approval.



Ratan Tata made the group more promoter-driven, and a more closely-knit conglomerate, with crossholdings between group companies enabling it to raise the Tata stakes to levels where predators could be kept out.



It is this larger-than-life promoter involvement that drove the Tatas to seek global glory with the purchase of Tata Tetley (now well digested), Corus and Jaguar Land Rover. In the last two, Tata got lucky with the latter, but unlucky with the former. JLR turned out to be lucky because it was being sold fairly cheap by Ford Motor, and the market for luxury cars was about to boom with the rise of China’s rich brat-pack entrepreneurs. JLR made it big in China, and it became so profitable that it had the resources to rescue even the mother ship, Tata Motors. Corus, on the other hand, was just the opposite: it was bought with huge debt at the wrong time, both in terms of an about-to-crash global economy, followed by a precipitate collapse in the steel market.



That Ratan Tata should take some of the blame, if not most of it, for Corus, and the credit for JLR, is obvious because these acquisitions were driven by his passion for globalisation.

Tata Steel was the group’s flagship, and Ratan probably wanted to leave a legacy by taking it to new heights; in cars, he had a personal passion, which also explains why he converted a truck-maker into a car-maker, first with the Indica, and then with the Nano. Both were close to Ratan Tata’s heart, especially cars. Both steel and cars will now have troubled legacies, and it was the fortuitous acquisition of cash-generating JLR that saved the day, for neither Nano nor the Indica is going great guns today.

