British Steel - Dutch Royal Hoogovens Merger: An Anglo-Dutch Marriage not Working Out?

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"I am confident that this strategic merger of two strong companies will create a unique group which will be to the long-term benefit of shareholders, customers and employees."

- John Bryant, Chief-executive Officer, Corus, 1999.¹

"Without creating a workable model for decision-making during the merger, Corus was papering over the cracks. The Corus management was much too narrow in its mandate of what constitutes cultural differences. I am not convinced that they fully thought through the implications of allowing the different cultural norms to exist."

- Duncan Angwin, mergers and acquisitions expert at the Warwick Business School. ²

Introduction

In late 1999, British Steel merged with Dutch Royal Hoogovens (Hoogovens) to form the Corus Group Plc (Corus), the third³ biggest steel company in the world with a market capitalization of $6 billion.⁴

British Steel had a share of 61.7% in the new company, while Hoogovens had the remaining 38.3%. Corus was listed on the London, Amsterdam and New York Stock Exchanges. The merger was initiated to help revive the ailing British Steel which had incurred a net loss of £81 million in the year ended 31 March 1999. The aim of the merger was to attain operating economies by combining the facilities of the two companies to eliminate duplication and remove overlaps in marketing, accounting, procurement, logistics, R& D and other functions. The new group planned to save £194m per year through "terrific cost savings in overhead costs, purchase, logistics and adjusted best practices".5

However, the company soon realized that managing cultural differences between the British and Dutch arms was not an easy task, and just three years after its formation, in early 2003, Corus's stock market valuation had shrunk to only $230 million from $6 billion in 1999.

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1] "Corus announces large scale redundancies, European industrial relations observatory on-line," www.eiro.eurofound.eu.int, 2001.

2] "Corus of disapproval," People Management; Vol. 9 Issue 7, p16, 3p, 2c, April 2003.

3] Two steel producers that were bigger in size to British Steel include: Posco of South Korea and Japan's Nippon.

4] "Corus, the ambitious Anglo-Dutch steel giant flounders," www.indiainfoline.com, April 2003.

5] "Business: The Company File, British Steel Merges with Dutch Rival," news.bbc.co, 1999.