British Steel - Dutch Royal Hoogovens Merger: An Anglo-Dutch Marriage not Working Out?
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Case Code: BSTR144 Case Length: 20 Pages Period: 1999-2004 Pub Date: 2005 Teaching Note: Available |
Price: Rs.500 Organization: British Steel, Dutch Royal Hoogovens Industry: Steel Countries: UK, Netherlands Themes: Cross-border Mergers & Aquisitions |
Abstract Case Intro 1 Case Intro 2 Excerpts
Excerpts
Rationale Behind the British Steel-Hoogovens Merger
On October 6, 1999, British Steel and Hoogovens merged to form Corus, one of the leading manufacturers, processors and distributors of steel and steel based products in the world (Refer to Exhibit IV for the status of the two companies prior to the merger). The merger deal was valued at £3.9 billion and the combined group was expected to produce 22.5 million tonnes of steel per year. Corus established 20 business units worldwide, delivering innovative solutions to a broad range of markets, including the construction, automotive, packaging, aerospace, energy and engineering industries. In the memorandum submitted by Corus to the Science and Technology Committee of the House of Commons, (part of the UK parliament) on April 5, 2000, it was stated that the strategy of the new company would be to create value by providing innovative metal application solutions to attractive market segments where leading positions could be achieved...
The Organizational Structure
According to analysts, the merger of British Steel with Hoogovens was motivated by financial and market considerations and HR's involvement in the process was not well defined. Allan Johnston, executive director responsible for HR in British Steel, stated that the aim of the pre-merged entities was to acknowledge the differences that existed between the two companies and therefore create a very decentralized management structure. According to him, the new company showed willingness to accept the differences in the way business was conducted in the Netherlands and the UK, and therefore important policy-making, bargaining, work councils and union relationships were all devolved rather than being centralized. Corus was registered as the parent company of Corus UK Limited and Corus Nederland BV, both of which were wholly owned subsidiaries...
Problems Galore
In 2000, Corus's UK operations lost £350 million and the share prices dropped to stand at half the value that prevailed during the time of the merger. This led to the resignation of the joint Chief Executives, John Bryant and Fokko Van Duyne in late 2000, who were replaced by Sir Bryan Moffat (Moffat). In 2003, just around three years after the completion of the merger, the severity of the company's problems seemed surprising, especially given the fact that the global steel prices had been on the path of recovery during the past year. The company's rationalization of R&D efforts failed to bring about the desired results. Restructuring of the UK R&D facilities and closure of a number of steel producing units resulted in large scale labour unrest. This affected productivity and the UK arm of the merged entity continued to show poor results. The cultural mismatch between the two subsidiaries was also a cause of concern for the management...
What Analysts Had To Say
Though there were conflicting views on the synergies achieved from the merger, one view that analysts generally agreed upon was that if the environment had been more hospitable then there might have been a more gentle coalescence between the two sides. But the downward spiraling steel prices, the increasing value of the pound, declining demand and the resulting losses, which led to large scale restructuring and downsizing pushed the pace of change faster than the combined entity could absorb. Analysts tracking international mergers and acquisitions pointed out that the disappointing performance of Corus in the post merger period was not untypical of other merged firms. Looking at several previous experiences of mergers, one found that profitability usually failed to live upto the expectations of the management at the time of the merger. But in this case, it was widely believed that better HR management at the time of the merger could have improved the outcome for Corus...
Exhibits
Exhibit I: Global Steel Supply-Demand
Exhibit II: World Steel Prices: Declining Trend
Exhibit III: The US Steel Industry
Exhibit IV: Status of the Two Companies Prior to the Merger
Exhibit V: Sales Offices and Market Segment
Exhibit VI: Organization Structure
Exhibit VII: Employee Distribution
Exhibit VIII: Corus Financial Performance
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