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Tata Steel planning to amalgamate seven group companies with itself

ICICIdirect Research 23 Sep 2022 DISCLAIMER

What's Buzzing 

The Tata Steel board has approved the amalgamation of seven group companies with itself, which includes Tata Steel Long Products, Tinplate Company of India, Tata Metaliks, TRF, Indian Steel and Wire Products, Tata Steel Mining and S&T Mining. Each of the amalgamation is subject to approvals from relevant authorities. 

Context 

Under the new proposed amalgamation scheme, Tata Steel will give 67 shares for every 10 shares of Tata Steel Long Products. For Tata Metaliks, Tata Steel will give 79 shares for every 10 shares of Tata Metaliks. Tata Steel will give 33 shares for every 10 shares of Tinplate and 17 shares for every 10 shares of TRF. 

Our Perspective 

The proposed scheme of amalgamation has been undertaken to realise better synergies of business of the entities involved in the scheme. The proposed scheme would lead to operational integration and better facility utilisation, rationalisation of logistics costs, operationalised efficiency, simplified structure and management efficiency, etc. The merger will result in utilisation of each other’s facilities in a more efficient manner. There can be collaboration on marketing and distribution network of entities. Overall, with the proposed amalgamation, the resources of the merged entities can be pooled to unlock the opportunity for creating shareholder value. This development augurs well for Tata Steel as it will aid the company (Tata Steel) to drive operational synergies across its whole value chain and diversify its product basket by including ductile iron pipes, tinplate, etc. The proposed amalgamation will also help in reducing higher royalties paid by its subsidiaries (Tata Metaliks and Tata Steel Long Products) on iron ore sourcing. Some of subsidiaries have net cash balance sheet (Tata Metaliks, Tinplate) and strong cash flow, which would be a favourable addition for Tata Steel.

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