Take some tea, add some salt, plug in the software, check out your customer on the phone, double-check the time, load your stuff on a truck, then drive down to your favourite five-star hangout in your favourite passenger car built with the world’s finest steel. That’s what you call a deal. What’s it? You may ask. We’ll give you a clue: OK TATA! Ratan Tata, if you please.
India’s economic reforms, now in their 21st year, have run almost synchronously with Ratan Tata’s tenure at the helm at Bombay House, ever since JRD Tata vacated his saddle in 1991. It’s been an eventful two decades. Soon after taking over as chairman of Tata Sons, Ratan Tata had said: “My goal is to attain market leadership or at least be one of the top three players. Otherwise, we must seriously consider getting out of a business.”
By 2012, Tata seems to have almost reached the goal he set out for himself when he took over the mantle. But this has come at the cost of return on equity which is middling by Indian standards.
Tata Tea is the world’s second largest branded tea company today, Tata Salt, the country’s No. 1 salt brand and among India’s most trusted brands. Tata Consultancy Services, Asia’s top software services exporter, Tata Communications the world’s number one carrier of wholesale voice minutes, Titan, the country’s top watch maker and jewellery retailer, Tata Motors, the world’s fourth largest truck and bus manufacturer and the third largest manufacturer of passenger cars.
Indian Hotels too is the country’s largest operator of hospitality brands ranging from Taj at the top end to Ginger at the bottom. And Tata Steel is Europe’s second largest producer of steel. The Tatas also operate one of the world’s largest under-sea cable networks. And with 38 listed companies, the Tatas are India’s largest private sector corporate group by market capitalisation at Rs 4,94,810 crore against Mukesh Ambani’s Rs 2,71,979 crore (at the time of going to press).
As Ratan Tata himself said once: “A successful brand is one that has demonstrated a certain character over a period of time, which it does through its interaction with the consumer. Our tea, salt, trucks, buses, cars and watches help us develop customer intimacy, while companies like TCS and Indian Hotels provide customer interaction with specific stakeholders.” Could Tata have asked for more? If one goes by the vision statement he carved out for the Tata Group way back in 1983 after taking over as chairman of Tata Industries in 1981, the world should have been his oyster. Yet, his achievement so far, has been one of soaring ambition. And why not?
An architect by training from Cornell, the young Ratan Tata washed aeroplanes at the local flying club to gain flying hours as the government restricted foreign currency spending by individuals abroad in the socialist ’50s. That attitude of finding a way out to keep his dreams alive is what makes one of post-liberalisation India’s truly great corporate legends.
The making of Ratan Tata
Flashback to 1962: “Most people don’t know that I have spent six years in Jamshedpur in Telco. Beginning in 1962, I spent two years on the shop floor, then in the engineering division with projects and finally as technical assistant to Mr Nanavati, director-in-charge, in the managing agency days. That is what the chief executive used to be called then.” So said Ratan Tata on 25 April, 1993.
Life in the early years at Tata was never hunky-dory for Ratan. Not until he came into his own, after 20 years in the waiting. After the Telco stint, Ratan was sent on a short stint to Australia before being put in charge of the group’s sick companies. “I was given two sick companies supposedly to train me. First Nelco, and then I had also to take over the ailing Central India Textiles,” Tata would recall later. The crown jewels were the preserve of professional managers. JRD ‘Jeh’ Tata believed in corporate democracy. So, he had carved out the Tata empire among his many powerful satraps. While the mercurial Russi H Mody ran Tata Steel, Darbari Seth controlled Tata Chemicals and Tata Tea, Homi Sethna Tata Electric, A H Tobaccowala Voltas, Freddie Mehta textiles, Nani Palkhiwala Tata Exports, Ajit Kerkar Indian Hotels, Simone Tata Lakme, Xerxes Desai Titan and J J Bhabha publishing.
Ratan Tata took over as Telco chairman only when an ailing Sumant Moolgaokar called it a day in December ’88. So, as Darbari Seth would recall years later: “In law and in theory, all Tata companies are autonomous and thus constitute a Commonwealth of nations.”
Soon after taking over as chairman of Tata Industries in 1981, Ratan Tata set his vision rolling for the group’s future. Those were the days of the 21st century dream of Rajiv Gandhi, who was soon to take charge as India’s prime minister and initiate the first moves to unshackle Indian industry from the licence-permit raj, deeply entrenched during the reign of his mother Indira Gandhi. By the end of 1982, the assets of the Tata group stood at Rs 2,430 crore and those of the Birla group Rs 2,005 crore. In 1983, Ratan Tata laid out his vision of the future in a bold policy document titled the ‘Tata strategic plan’. The plan implied rationalisation, focus and cohesion. It questioned the entry of the group companies into industries where they would directly compete with each other. But, it was also a period in the history of Tata when the satraps held sway and Ratan Tata operated on the periphery. No wonder Ratan Tata’s plan found few takers.
Justifying the plan subsequently, Tata said: “You must remember there was an explosion of technology in the West in the late ’70s: the super mini-computer, parallel processing, artificial intelligence, the convergence of computing and communications into information technology and bio-technology. So, I thought, the Tatas should be in these areas. I argued why shouldn’t the Tatas enter those fields of recent technological advancement which have application potential in India, like super computing or artificial intelligence — both of which are software driven, tissue culture for plants, new composite materials and telecommunications.” Tata Industries proposed to set up a new project for the manufacture of large super computers with the latest technology in the field. Artificial intelligence, a new field providing software application for companies, was another area he wanted to enter.
But with little or no support from the satraps, Ratan Tata launched Tata Industries into oil drilling (Hitech Drilling), computer software (transforming TCS), and setting up Tata Honeywell and Tata Unisys) and telecommunications (Tata Telecom).
Tata found his big opportunity in telecommunications when Rajiv Gandhi opened the sector to private sector participation. Tata Industries filed an application for setting up an electronic PABX project in technical collaboration with a Canadian company. In contract oil drilling, the group tied up technical and financial arrangements with Forex Neptune. The Tatas also planned to enter biotechnology to help improve plantation yields and introduce new crops.
In the years to come, Tata Consultancy Services was to emerge as India’s biggest software exporter. As Tata said then, “Our intention is to build up the project with the small nucleus already created by the Tata Consultancy Services at Pune.”
Rebuilding the empire
By 1990, three or four areas were clearly emerging as centres of future focus. Ratan Tata believed the group must build on its newly-developed interests in telecommunications and electronics, and on its existing strengths as a sophisticated engineering group, to go into areas such as aerospace, defence and possibly, public switching systems.
A second area where he saw immense potential because of the Tata reputation with investors was financial services, while agriculture was identified as a third area of expansion with an explosion in farmers’ incomes.
However, plans for building a super computer never really took off till 2007 when the Tata Sons subsidiary Computational Research Laboratories-built supercomputer Eka was ranked the fastest supercomputer in Asia. Also, the group remained a fringe player in oil drilling, biotechnology and financial services. An ambitious plan to launch an airline in partnership with Singapore International Airlines got enmeshed in bureaucratic red tape and had to be abandoned, and after soiling their hands in telecom equipment manufacturing, the Tatas actually took the services route once telephony services were thrown open to private investment. It’s viability too remains a question mark. Despite roping in NTT Docomo as a strategic partner the company has yet to break into the top league by revenue market share or subscribers.
Ratan Tata justified his plans as being in tune with the group’s founding vision. As he was to subsequently say, “Jamsetjee Tata was looking at the new frontiers of Indian business, when he launched the first ventures of the group. He set up the Empress Mills in Nagpur, the cotton growing centre — and remember, at that time simulated the necessary humidity by installing a moisture spraying system. He saw limestone and coal in the middle of what was then a jungle and set up a steel mill in Jamshedpur. Jamsetjee Tata took a national view and so, inevitably, we were in basic industries and infrastructure.”
The ’90s, he felt, provided an opportunity to carry forward that dream. By his own admission, the Tatas had been unable to grow and modernise, sometimes because of pre-emptive lobbying, as in the case of manmade fibres. Their passenger car proposal in collaboration with Honda in the mid-’80s was rejected. Tisco was not allowed to expand in the manner that was needed and its entry into special steels was thwarted.
As one of the group satraps Freddie Mehta was to say in August 1990: “In the 1970s, every single application by the Tatas (for industrial licence) went into the waste paper basket.”
Meanwhile, the weight of the satraps and the curbs of the licensing era had brought about an unhealthy rivalry between the group’s two biggest companies, Tisco and Telco (later Tata Motors). “In terms of synergy, an unfortunate distance has existed between the two (Tisco and Telco), rivalry almost.” It was time for Tata to remove these irritants and work towards having them operate as sister concerns, which is how they had operated once. Anyway, among them, Tisco and Telco contributed to almost half the group’s turnover (even today, the two together account for almost 60 per cent of the group’s $100 billion turnover).
The ’80s gave Tata the opportunity to mould the group in his vision. But it was only a beginning. With the opening up of the economy in the early ’90s, time had finally arrived for Ratan Tata to script his own tryst with destiny. Which is why, Jerry Rao, then vice-president and chief executive of Citibank in India would say: “The 1990s is the decade of the Tatas.”
The early years of the ’90s saw the government and investors place an unprecedented faith in the Tatas, who were looking at investing Rs 5,000 crore in fertilisers, a new petrochemical complex at Haldia in partnership with the state’s Marxist government, and an oil refinery. The refinery never materialised but Tata Chemicals is now a leading private sector manufacturer and marketer of fertilisers.
In November 1991, the industry ministry issued a fresh letter of approval for the Tata-IBM joint venture. In December that year, Tata Timken’s equity offer of Rs 20 lakh worth of shares to the Indian public was oversubscribed 3,700 times and the cumulative issue of equity and debentures 71 times.
It was also time to add new shine to the Tata crown jewels Telco and Tisco. Traditionally, Telco had been in the medium to heavy vehicles space, and later, into LCVs. Telco needed to modernise and update its vehicle line, before getting into passenger cars. “I helped conceptualise the Sierra which along with the Estate, are the bridge, so to speak, between commercial vehicles and passenger cars,” Tata would say. By the ’90s, the Sierra and the Estate gave way to two workhorses from the Tata stable, the Sumo and the Safari — a 4-wheel drive SUV. Both proved highly successful in the market. But from then on, Telco had to also choose between two market segments for passenger cars — a low priced, high volume car or a larger low-volume car. Initially, Tata opted for a large, upmarket car of international standards. It was the beginning of his “Asian car” dream.
Yet, by 1998 that dream gave way to a path-breaking passenger vehicle, Indica, incorporating the power of a mid-size vehicle at almost entry-level price, competing with the likes of Zen and Santro. Indica, had its genesis in the phrase ‘India car’ and went on to become one of the best selling models in the crowded passenger cars market. Telco, since renamed Tata Motors, continues to sell the upgraded Indica in its different variants. The success of its passenger car venture saw Tata Motors being listed in the New York Stock Exchange (NYSE) in September 2004 to become the first Indian engineering and motor entity to do so and the second Tata company after VSNL.
The year 2004 also saw Tata Motors take over Daewoo Commercial Vehicle Company. The Korean company was involved in Tata Motors’ efforts to make its global truck platform -- Prima range of multi-axle trucks, tractor-trailers and tippers.
Ratan Tata’s other major initiative involved Tisco, since rechristened Tata Steel. For years, Tisco had been the largest money-spinner for the Tatas. But it also reaped the dividends of a closed economy, with no real competition, and a massive and redundant workforce. For Tisco to be a meaningful player in the liberalised system when other private sector players started eating into its space, the company had to reinvent itself as a leaner organisation with efficient scale of operations.
Ratan Tata’s first priority was to bring in professional management at Tisco. This ultimately forced the departure of its maverick strongman Russi Mody in May 1993. Next, Tata set about rationalising Tisco’s workforce. So, between 1996-2001, he got Tisco to shed 30,000 employees at its Jamshedpur plant from 78,000 to 48,000. There were murmurs of protest from sections of left leaning unions, but not a day’s loss of work was reported. The employees were given a handsome retirement package and most of their social security entitlements retained till their actual age of retirement. At a time when fears of retrenchment raised fears of workers’ unrest across giant public sector enterprises, Tisco effected the country’s biggest and most successful voluntary retirement scheme. The results were for all to see. In the period between 31 March, 1996 and 31 March, 2001, Tisco’s topline grew from Rs 6,349.35 crore to Rs 8,490.78 crore, though it’s bottomline fluctuated between Rs 565.7 crore on 31 March, 1996 and Rs 553.44 crore on 31 March 2001. Much of the fluctuation would have resulted from the massive retrenchment payoffs. But if you look at the full impact, then Tisco, with its much-depleted labour force, posted a topline of Rs 15,876 crore and a bottomline of Rs 3,474 crore on 31 March, 2005. In the meantime, while Tisco’s capacity rose by only 500,000 tonnes between 1991 and 1995, it increased to three million tonnes from two million tonnes between 1996 and 2001.
In 2002, Tisco also planned to set up a Rs 300 crore, 120,000 tonne, ferro chrome plant in Richard’s Bay in South Africa and was closely looking at a titanium plant, billed to be the “metal of the future”. While the former was set up in 2006, the latter set to come up in Tamil Nadu has yet to see the light of the day.
In 2004, Tisco acquired the Singapore-based NatSteel for Rs 1,313 crore. Today, Tata Steel has a capacity of 28 million tonnes spread across the globe.
By early 2005, Tata Steel was looking to buy coal mines in Australia, Indonesia, Mozambique and New Zealand as part of its plans to more than triple production to 15 million tonnes. It did manage to buy stake and an offtake agreement in Riversdale Mining in Mozambique, but got edged out of its ownership albeit at a handsome profit when Rio Tinto acquired control of the company. It will still be able to source coal from the company to fire its European steel making operations.
Ratan Tata also initiated a major overhaul of the group’s tea business. Having earlier acquired the British tea brand Tetley, Tata set about reorganising Tetley’s global operations by 2003. Tetley is now present in a number of markets across the world from Australia to Canada. In early 2003, Tata Tea moved the entire Tetley manufacturing operations at Yara, Australia, to its value-added business operations base in Kochi.
Tata Tea was the largest integrated tea company in the world with 53 estates spread over 24,500 hectares in Assam, West Bengal, Tamil Nadu and Kerala, and accounting for 8 per cent of India’s tea production. Since then, the company has strategically decided to focus on branding and divested itself of all tea plantations spinning off Kanan Devan Hills Plantations Company in 2005 and North India Plantations in 2007. The company also operated a 100 per cent export oriented units (EOU) for instant tea, the largest facility outside the US. Tata Tea’s interests in coffee stems from its subsidiary, Consolidated Coffee now renamed Tata Coffee, which has grown to become the largest integrated coffee plantation company in the world, operating across 19 coffee estates and supplying to Starbucks as well.
Of his efforts to refocus the operations of his key companies, Ratan Tata said: “A true professional must realise that he is managing the company as a trustee of the shareholder and not for himself and his family.”
The ’90s also threw open the challenge of retaining control over the family silver against possible takeover attempts. Traditionally, borne out of the trusteeship approach towards group companies under JRD’s charge, the Tatas maintained minority equity stakes in major group companies. By May 1992, Ratan Tata initiated serious discussions to expand the Rs 3.5 crore equity capital base of Tata Sons, the holding company of the Tata group.
This would cement, financially and legally, the centralised group concept as sketched out by Tata in his ‘strategic plan’ of December 1983. But, he had to wait a full decade for the abolition of the monopolies part of the MRTP Act in July 1991 to be able to execute his plan. Till then, Shapoorji Pallonji Mistry, a Mumbai-based real estate magnate had been the largest single shareholder of Tata Sons. He had acquired most of his holdings mainly by buying the shares from the late Dorab Tata — JRD’s brother who died a few years ago, and from Rodabeh Sawhney, JRD’s sister. One important reason why these shares went to Mistry was that under the articles of association of Tata Sons, any shareholder who wished to sell his or her shares would have to first offer them to the existing shareholders. Since the several Tata trusts that accounted for most of the promoter holdings were forbidden to buy shares and JRD never had a large personal fortune, Mistry was well placed over the years to take up these offerings. This had to change.
Ratan Tata hit upon a grand strategic plan to shore up Tata equity control over the group companies. In early 1996, Tata Sons proposed the ‘brand equity scheme’ to create a broad-based corporate governance cell that would play an advisory role for the 60-odd group companies, and set up various audit committees to ensure that the companies functioned in a transparent and ethical manner maintaining the dignity of the House of Tata. The plan implied group companies paying an annual brand loyalty fee to Tata Sons. To effect this, Ratan Tata worked out a three-tier structure to levy royalty fees. Starting 1996-1997, all blue-chip companies under Tata fold that had incorporated Tata in their name, were to pay the highest royalty of 0.25 per cent on their net turnover or five per cent of their net profit, whichever was lower. The companies in this category included Tisco, Telco, Tata Yodogawa, Tata Elxsi, Tata Investment Corporation, Tata Unisys, Tata Timken, Tata Chemicals, Tata Tea, Tata Power, Tata Exports and Tata Finance.
The second category of companies, including those that leveraged the Tata name to market their products, were asked to pay 0.15 per cent royalty or five per cent of the net profit, whichever was lower. These included Voltas, Indian Hotels, Rallis India, ACC, Timex Watches, Tinplate, Titan Industry, Merind, Special Steels, Andhra Valley and Tata Hydro.
A third category, deemed as group members, were to pay the lowest royalty of 0.1 per cent. These included Hi-Tech Drilling, Asian Coffee, Consolidated Coffee, Forbes, Gokak, FAL Industries and Goodlass Nerolac.
According to then Tisco vice-chairman and managing director, J J Irani: “The royalty collected by Tata Sons would be exclusively used for strengthening the Tata brand within India and in the international market. In the era of competition, positioning the company’s product is vital and that itself requires large investment.”
By October 1996, it was clear that two recent moves at Bombay House — a 1:5 rights issue in September 1995, and the decision to charge group companies a fee for using the Tata brand name, would help the group’s holding company Tata Sons get closer to consolidating its control over the Tata group and warding off takeover threats. A stronger Tata Sons would drive Ratan Tata’s vision, one which would see Tata Sons as a company providing definitive group direction and with a firm say as to where the group was headed in the future. Tata Sons would be the vehicle, the central entity, like Tata Industries, for promoting joint ventures strategic to the growth of the Tata group. And the fee for the use of Tata brand name that was aimed at ensuring adherence to the Tata code of conduct would be a deterrent for predators. Quite clearly, the Tata name wouldn’t be available for use by any company that was not part of the Tata group.
The rights issue resulted in five major group companies along with their subsidiaries, collectively owning over 12 per cent in Tata Sons. This stake was created in 1995 by acquiring the rights renunciation of Tata Sons, largely from charitable trusts. These companies did not have any shareholding in Tata Sons prior to 1995. The shareholding pattern of Tata Sons as of March 1995, was public charitable trusts at 79 per cent, bodies corporate at 17 per cent, and directors and others at 4 per cent.
The Shapoorji Pallonji group was allowed to augment its stake from roughly 17.45 per cent to about 18.39 per cent, strengthening its position as the single-largest independent shareholder in Tata Sons. Today, Cyrus Mistry steps into Ratan Tata’s corner room at Bombay House as Tata Group chairman on the strength of that shareholding.
According to Tata, “Tata Sons had to raise money for future activities, which is primarily for investing in group companies and strengthening our group in general. Second, we are creating strategic crossholdings so that we do not become easy takeover targets.”
Tata also clarified: “(Earlier), there wouldn’t have been anybody barring the government who could have endeavoured to displace us. And there was no Indian group at that time that would have had the funds to make an open offer, and probably no way a foreign company could have bought into any of our companies. That, in a manner of speaking, changed by 1991. There were Indian groups that had that kind of money and there were ways that foreign companies could invest in our various companies. We are vulnerable today and have to protect ourselves.”
By May 1997, Tata also embarked on a move to create a common system within the group enabling transfer of star managers from one company to another as part of his efforts to create a unified corporate group rather than loose band of companies. According to Tata the group was trying to, “identify bright and shining stars in individual companies and try and create a mechanism whereby those individuals can, in fact, see opportunities in other group companies, be identified, be moved around and see career growth in the group as a whole.”
By September 1997, Tata Management Training Centre (TMTC) was working to herald a change in the group, forge a new identity of a single federation and a uniform system of values. Tata wanted to develop TMTC on the lines of General Electric’s Management Development Institute at Crotonville, as a centre hosting specialised benchmarking faculties as for automobile engineers.
In 1997, he also commissioned McKinsey to help streamline operations and prepare a blueprint for the future. McKinsey saw the greatest potential for the group in automobiles, energy, telecom and infotech, leisure and hospitality, teas and processed commodities. Given Tisco’s pre-eminence in the group, the shocker was the absence of steel from the club class. But Tata had his own ideas: “As a refocused group, we will have fewer companies in fewer businesses, perhaps having undergone some amalgamations and some divestments.” Which is why, Tata sold of toiletries manufacturing company, Tomco and personal care company Lakme to Hindustan Lever. As the group’s entry into petrochemicals in partnership with the West Bengal government at Haldia was draining the group’s resources, he also decided to exit that joint venture.
After attaining consolidation by early 2004, Tata started work on yet another blueprint to make the Tata brand a household name in global markets. The group corporate centre (GCC) identified specific geographies and a team of top Tata executives were tasked to work on identifying cost-effective media to promote the Tata brand in these markets, according to Tata Sons executive director R Gopalakrishnan. The targeted markets included the United Kingdom, South Africa and the Asean region.
In South Africa, Tisco had a ferro chrome plant and Tata Motors was a key bidder for the government’s taxi replacement project. In southeast Asia, Tata Motors had acquired the Daewoo truck facility in South Korea, while TCS and Tata Technologies had operations in Singapore. The group also had a significant presence in Thailand and Malaysia.
If the ’90s were the coming-of age decade for Ratan Tata, the decade of the Y2K saw Tata launch himself on a voyage of global conquest dramatically altering the character of the group in size, its centre of gravity in terms of revenues and its reckoning as a global leviathan. Aggressive acquisitions also diversified the group away from emerging markets concentration and brought in skills of operating in mature developed economies. The M&A path has also made the group one of the UK’s top manufacturing employers.
The acquisition of the much bigger Tetley in 2000 by Tata Tea, till then a poor cousin of Unilever in the Indian market, emboldened Tata to take a leap of faith and snap up acquisition opportunities that presented themselves.
At the same time, the group was not oblivious to the opportunities at home. 2001 saw the formation of Tata AIG — a joint venture with American International Group, marking the Tatas re-entry into insurance (the group’s insurance company, New India Assurance, set up in 1919, was nationalised in 1956). TCS took advantage of the privatisation programme of the BJP-led National Democratic Alliance government to acquire control of public sector company CMC. In 2002, Tata Sons acquired control of VSNL in the privatisation process and planned an integration of the business into the groups telecom plans. “We will develop those synergies over the next few days or weeks. By and large, we will try to find synergic solutions,” Tata had said.
Indian Hotels acquired the sea facing Regent Hotels (now Taj Land’s End) in the same year while Tata Teleservices acquired Hughes Telecom (India) and renamed it as BSE-listed Tata Teleservices (Maharashtra).
2003 saw the coming of age of India’s software exports industry with the leader TCS crossing the billion-dollar revenues mark. Competitors too worked hard to get admission to the billion-dollar club, creating a virtuous cycle of growth. The year also marked the Taj Mahal Palace hotel at Colaba in Mumbai turning 100, and the launch of CDMA mobile services under the Tata Indicom brand.
The next year saw the Tatas tapping the global capital markets with Tata Motors listing on the NYSE following in the footsteps of VSNL. “It is a great privilege for us to be listed on the New York Stock Exchange, and we hope it will provide our overseas investors with greater opportunities to enhance their interest in the company. We are confident that the company will benefit from the capital market access that this listing provides, and from the adoption of the comprehensive corporate governance standards,” he had said then.
Meanwhile, Indian Hotels respond to Tata’s challenge of focusing on bottom of the pyramid business solutions by launching the IndiOne hotel chain which aimed to give clean, secure accommodation at a price of under Rs 1,000 per night. This concept was refined further keeping in mind customer feedback and the budget hotel chain has since been rebranded as Ginger.
2004 was also momentous for the group as TCS, which was hitherto a unit of Tata Sons, became an independently listed company. “We will use the proceeds to restructure the financials of Tata Sons and continue to promote Tata companies. We will also increase our stake in other Tata companies,”' Tata said while launching the mega public issue of TCS. “All of us are proud of this issue. In the new avatar, we continue to play a predominant role in the global IT services market. We really came to a conclusion that a corporate identity is better than known as a private company,”' he added.
Launched in July 2004, it was the largest private sector initial public offering (IPO) by a private sector company in the Indian market till then, raising nearly $1.2 billion. More importantly the floatation gave a precious currency to Tata Sons which it could encash to fund major investments and a bulwark to maintain its AAA rating. Today, TCS alone accounts for more than half of the market cap of all the Tata group firms that are listed on the bourses.
A $102 million deal in March 2004 brought Daewoo Commercial Vehicles, one of South Korea’s largest exporters of trucks, into the Tata fold. In keeping with the Tata strategy of not shaking up management of the acquired companies, the group only seconded few staffers in areas like finance to Korea while trying to leverage synergies in areas like purchases. “This is a historic occasion for Tata Motors and the Tata Group. I am happy to note that this is the largest acquisition by any Indian company in Korea and I look forward to increasing our presence in this country. Korea is a shining example of what can be achieved with diligence and dedication, and I am sure we will learn a lot from operating in South Korea,” said Tata.
In November 2004, VSNL, as it was then known, acquired Tyco Global Network in the USA as part of a decisive strategy to reduce its dependence on the Indian market where its monopoly on ISD services had been abolished. In June 2004, Tata Chemicals bought out Hindustan Lever Chemicals.
In February 2005, Tata Steel, the world’s lowest-cost steel producer, acquired Singapore-based NatSteel in a $285 million deal instantly giving it a footprint across southeast Asia. With materials and engineering -- two of the largest contributors to the group’s revenues -- making their mark with acquisitions, it was but natural that others would have to follow. The year also saw Tata pursue his ambition of acquiring marquee hotels overseas picking up the lease and management rights to the Pierre on Fifth Avenue in New York City and purchasing a hotel in Sydney.
On the domestic front too much was brewing with Noel Tata acquiring control of the Landmark range of bookstores from the TVS family.
Tata Motors — Ratan Tata’s favourite company — launched the Ace mini truck creating a new segment amongst light commercial vehicles (LCVs). To date, the Ace remains the leading goods carrier in its class and is a key factor in Tata’s continued leadership in the LCV market. The company also acquired Hispano Carrocera, a Spanish bus maker, which brought to the company technology to make low floor buses which are used in Europe. This company though, is now almost bust, thanks to a steep drop in sales in Europe.
Tata Chemicals also acquired a strategic stake in Indo Maroc Phosphore based in Morocco to tie-up a key source of raw material for its fertiliser business. The year also saw VSNL acquire Canadian Teleglobe in a $239 million deal, while Tata Technologies acquired INCAT International in a $91.3 million deal. Tata Tea too acquired tea brand Good Earth Corporation in a $32 million deal.
In 2006, the Tatas tied up with the Rupert Murdoch-controlled BSkyB to launch the DTH service Tata Sky which today has the highest revenue market share in India. The year also saw Tata continue to pursue his strategy of building a beach-head in the US by acquiring hotels there with Taj picking up the Ritz-Carlton in Boston, USA.
Tata Chemicals acquired controlling stake in Brunner Mond Group, UK, putting the Indian firm clearly on the path to become one of the world’s largest producers of natural soda ash. Tata redoubled his best on India’s nascent organised retail industry with the launch of Croma.
Tata Steel built on its earlier acquisition in southeast Asia by picking up Millennium Steel in Thailand in a $404 million deal, while Tata Coffee, hitherto a plantation company, decided to get a front end branded distribution play acquiring Eight O’Clock Coffee in the US in a $220 million deal. Its parent Tata Tea made another bold move buying a significant minority stake in the US firm Energy Brands -- the maker of Vitaminwater -- for $ 677 million. The stake was sold a year later in 2007 when Coke acquired the company from its original promoters. The transaction saw Tatas being paid $1.2 billion netting a fine profit in a short span of time.
Defining a century
In 2007, with five years to go until his retirement, Tata showed no signs on stepping off the accelerator. If anything, he was looking to rev up the engine further. He sealed the deal for Tata Steel to acquire the Anglo-Dutch company Corus, the largest cross-border acquisition by an Indian firm till then, catapulting Tata Steel to the world’s fifth-largest steel producer.
“This proposed acquisition represents a defining moment for Tata Steel and is entirely consistent with our strategy of growth through international expansion,” Tata said.
But the Lehman Brothers crisis in 2008 and a recession in the UK and similar conditions in Europe have crimped steel demand on that continent. As a result, the unit has plunged into losses as it’s unable to produce to capacity. In fact, reductions in capacity since the time of takeover meant that the enterprise value per tonne of this acquisition continues to rise. Successive rounds of cost cuts have not done enough to get in step with lower revenues to tango with profits.
Computational Research Laboratories, a division of Tata Sons, developed supercomputer Eka in 2007 and the Taj group acquired the Campton Place Hotel in San Francisco (now known as Taj Campton Place). Tata Capital was established in 2007, marking the re-entry of Tatas into the financial services sector after Tata Finance closed down following a fraud at the firm that left it barely able to meet the Reserve Bank of India (RBI) guidelines on capital adequacy ratio for non-banking financial services companies (NBFCs). Tata had to step in to meet the repayment liability for fixed deposit holders when losses in stock market investments at Tata Finance in 2001 left it unable to meet its public liabilities.
2007 saw Tata Power, which had bagged India’s first supercritical technology-based ultra mega power project (UMPP), integrate backward to acquire a 30 per cent stake in two large coal producing mines of Indonesia’s PT Bumi Resources in a $1.1 billion deal.
The year also saw Tata make a rather ill-advised move investing $212.5 million in Orient Express Hotels to buy a minority stake in the hope of forging a tie-up with the chain to combine their international network of hotels. Instead, Tata’s overtures were rebuffed by OEH which felt associating with the Taj would sully its premium image.
Despite five years of talks and further investment in OEH shares, Tata has only seen the value of this stake decimate while any tie-up remains elusive.