Tata Steel took on CSN’s challenge and outbid it in the battle for Corus. Whilst Indian companies have been venturing abroad for some time, no acquisition came close to this one. The Tatas are India’s most respected business group, and news of their triumph will warm many hearts. Some, however, were obviously disheartened, as shown by the massive tumble taken by the Tata Steel shares after the announcement of the Tatas’ win. Mr Ratan Tata said that his investors were taking a short-term view; they will want to ask him how long a view he expects them to take. The fact is that Tata Steel was solidly solvent and almost indecently profitable before the merger. Its reserves were over twice its liabilities, and it was earning over 30 per cent on shareholders’ funds. It is going to merge with a company that produces three times Tata Steel’s output at over three times the cost per ton. To buy Corus it is going to take on substantial debt in foreign currencies. It is not known how the Tatas plan to finance their latest bid — which is 22 per cent above their first one – but it is reasonable to assume that the entire additional cost will be met out of further bank loans. So the debt-equity ratio of the merged company will be at least 4:1. Mr Tata expects to overcome this massive deterioration in financials in the long run. His shareholders will be reckoning on the risk he is taking on — and discounting the shares for the higher risk.

But it is precisely the risk that makes Mr Tata’s gamble exciting. The low cost of hot metal made in Jamshedpur should bring down the average costs of Corus; conversely, the high prices for flat products in Europe should raise the value of raw steel made at home. It is not only the output of Jamshedpur whose value will be raised, but also of the proposed 6-million-ton steel plant that the Tatas propose to build with L&T at Dhamra.

The last five years have seen a quickening of the global pulse. Growth rates in developed countries have risen, India and China have raced ahead, and the demand for steel has been growing faster. There is considerable excess capacity in steel-making, so the demand growth has seen a rise in international trade flows. Steel companies used to be national; but they have been seeing growth across the seas and the need for multiple locations. The consolidation of European steelmakers into Arcelor and then into Arcelor-Mittal was the forerunner; the attempts of Posco and BHP to get a foothold on India’s east coast were a result of the same perception. Now the Tatas have decided to ride the wave and made a bold move to take on global competition. It will change them unrecognizably, but it is all for the better.