Corus tunes into the overtures from a Russian duo: STEEL: In today`s steel industry, many of the big companies of the past are in danger of being overtaken by newer, nimbler rivals, says Peter Marsh
For the past 31 years, Alex Gorgievski has owned and run the Big Truck
restaurant, less than a mile from the Rouge steelworks in Dearborn, Michigan.
He has watched as Rouge has turned from being one of the US's most
vibrant industrial sites to entering bankruptcy late last year.
Now, however, Mr Gorgievski is feeling more upbeat, following the Dollars
285m (Pounds 170m) acquisition two months ago of Rouge Industries, the
company that owned the plant, by Severstal, Russia's biggest steelmaker.
"There is talk of the Russians investing in the plant and there is a bit
of excitement in the air," he says.
On the other side of the Atlantic, a similar story could be unfolding. The
main character is Anglo-Dutch Corus, the world's sixth-biggest
steelmaker that has been a corporate disaster since it was formed from a
merger between British Steel and Hoogovens of the Netherlands in 1999.
Corus has attracted the attention of two of Russia's best-connected
metals magnates, who are interested in influencing its strategy and might
even be keen to bid for the company. The chief attraction for Alisher Usmanov
and Oleg Deripaska - who have built a combined stake in Corus of 11 to 14 per
cent with Mr Usmanov even demanding a seat on the board - is probably
Corus's large steelworks at Teesside in north-east England. Corus
intends to spin the works off and they could be integrated relatively easily
into the Russians' existing interests.
The story illustrates how in today's steel industry many of the big
companies of the past are in danger of being overtaken by newer, nimbler
rivals. Many of the younger companies are based in developing areas of the
world and have been helped by assimilation of western steelmaking technology,
lower labour costs and closeness to the biggest future markets for steel.
Lakshmi Mittal is an Indian entrepreneur who is chairman and owner of LNM,
which has expanded rapidly by acquisitions in the past five years and is now
the world's second-biggest steelmaker after Arcelor of Luxembourg.
He says Philippe Varin, an urbane Frenchman who became chief executive of
Corus last May with a brief to turn the company round, should take the
Russians seriously. "The steel industry is much more international than
it was and all sorts of companies - whether they are from Russia, China or
Europe - are trying to make the most of the opportunities," he says.
The news that Corus is being stalked by a pair of Russians might be a bit of
a shock for anyone who has just woken from a decade-long coma. In its
hey-day, British Steel was one of the mightiest companies in the UK,
employing 300,000 as recently as 1970. Following privatisation in 1988, it
had a run of success during the 1990s when it made profits of Pounds 1.1bn in
a year.
But since the merger with Hoogovens five years ago, the company has chalked
up total losses of more than Pounds 2bn, with a pre-tax deficit for last year
announced on Thursday of Pounds 255m. The losses have been concentrated on
the UK side of the business, which was hit by the strength of sterling
against the euro and by dwindling demand for steel by a shrinking UK
industry.
With Corus now employing only about 25,000 in the UK, Britain - which only 30
years ago made a tenth of the world's steel - is now 17th in the world
league of steel producing nations, behind Taiwan, Mexico and Turkey.
In the early 20th century, Russia was always considered a steel heavyweight
although it lost ground during the communist period. But since the fall of
communism, several private Russian steel businesses have emerged as credible
operators, among them Severstal.
It is believed that Severstal wants to use Rouge as a bridgehead for gaining
ground in the US. In particular, says Charles Bradford, a New York steel
consultant, Severstal could send to the US semi-finished "slab"
steel from its Russian operations and convert this at the Rouge plant into
higher quality products for use in construction or vehicles.
Even though neither Mr Usmanov nor Mr Deripaska have spelt out their
intentions, they might have something similar in mind for Corus. While Mr
Usmanov owns majority stakes in Russia's Lebidinsky Iron Ore Mine, Nosta
Steel and Oskolsky Special Steel, Mr Deripaska has interests in the steel
industry besides controlling Rusal, Russia's biggest producer of
aluminium.
Not only could the Russian duo feed semi-finished or raw materials to
Corus's plants, they could use technology from these operations to
improve production processes in steel plants inside Russia.
As for Teesside, Corus sees this turning into a stand-alone supplier of slab
steel, operated perhaps by a joint venture in which it has a stake. Following
this thinking, Teesside could fit into a larger Russian-controlled network
production and distribution operation.
The key about the moves involving Corus is that Russia - and other parts of
the world where steel consumption per person is relatively low - is likely to
be the main user of the metal in the next 20 years as the industrial
development of such regions takes off. In the past few years, China - which
this year is likely to produce and use nearly a third of the world's
steel output of 1bn tonnes - has shot to prominence as the world's
biggest steelmaker. The spurt in demand from China is the main reason why
steel prices recently have been buoyant, helping the fortunes of the steel
industry worldwide - even Corus.
Mr Varin, meanwhile, has not disclosed his reaction to the Russian overtures.
But - while underlining that a mixture of cost-cutting, new investments and
revitalised management techniques are sufficient to put Corus on its feet -
he has made clear he is happy to listen to what the duo have to say. One key
point is that - unlike Severstal, which is well-regarded by many steel
analysts - neither Mr Usmanov nor Mr Deripaska have built up any credibility
in running international steel operations.
While most analysts think Mr Varin would be foolish to jump too quickly into
any deals with them, Peter Fish, managing director of Meps, a Sheffield-based
steel consultancy, thinks the broad concept of what they might be offering
looks reasonably valid.
"I think that steelmakers establishing links with each other on a global
basis is the way the industry is going to develop in the next few years and
Corus could decide it wants to take a lead in this," he says.
MITTALWORK LNM, the international steel company owned and run by Lakshmi
Mittal (above) could play a part in influencing the fortunes of Corus, writes
Peter Marsh.
Mr Mittal, a billionaire Indian entrepreneur who has his main residence in
London, had been thought to be interested in acquiring some or all of Corus,
although in recent months he seemed to have cooled to the idea. However, Mr
Mittal told the Financial Times he did not want to rule out LNM from any
potential deals involving the UK plants of the Anglo-Dutch company. "I
would love to have some (steel) activity in the UK," he said. Last year,
LNM made 34m tonnes of steel in operations on four continents. Its production
sites include the US, Mexico, South Africa, Indonesia, the Czech Republic,
Algeria, Germany, Kazakhstan and France. Following the recent acquisition of
a large steel plant in Poland, Mr Mittal is projecting steel output of 41m
tonnes this year, giving sales of about Dollars 15bn (Pounds 8.2bn). It is
thought Mr Mittal might be interested in a joint manufacturing venture with
Corus. This could involve areas such as high-value sheet for car bodies.
"I would not be interested in a deal (involving Corus) just for the sake
of it; it would have to satisfy business logic," he said.
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RUSSIA IN FACTS
