Business Strategy

1. British Steel - Dutch Royal Hoogovens
Merger: An Anglo-Dutch Marriage
Not Working Out?

2. INTRODUCTION
• In 1999- British Steel merged with Dutch Royal Hoogovens
to form the Corus Group.
• Market capitalization of $6 billion.
• Shares- British Steel -61.7%, Hoogovens 38.3%.
• The aim of merger• Cultural differences between the British and Dutch
Business units
• In early 2003, Corus's stock market valuation had shrunk to
only $230 million from $6 billion in 1999.
• A power struggle at several levels of management after the
merger.
• Reduced productivity

3. THE EUROPEAN STEEL INDUSTRY
• Increased production of steel by the five largest steel companies in
Europe from 1980 to late 1990.
• Post 1990
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Overproduction
Stagnating demand
Southeast Asian crisis
Economic slump in Asia
Restrictive trade policies of the US
Falling prices affected the European steel industry adversely.
• Steel employment had shrunk radically from 800,000 workers in 1980
to fewer than 280,000 in 1999.
• Increasing competition
• Bargaining power of customers

4. The UK Steel Industry
• The global slump in the steel industry
• Increasing imports and decreasing exports
• The overvalued pound
• The industry underwent extensive restructuring
• To reduce costs, many steel workers were laid off –
• The number of people employed in the steel
industry went down from 300,000 in 1970 to an
estimated 22,000 in 2003.

5. RATIONALE BEHIND BRITISH
STEEL AND DUTCH ROYAL
MERGER
• One of the leading manufacturers, processors
and distributors of steel and steel based products
• Merger valued at £ 3.9 billion
• Corus group was expected to produce 22.5
million tones of steel per year
• Corus established 20 business units worldwide
• To create value by providing innovative metal
application solutions to attractive market
segments where leading positions could be
achieved

6. RATIONALE BEHIND BRITISH STEEL
AND DUTCH ROYAL MERGER (cont..)
 Changes in the international market
- Consolidation amongst major players
 Strategic considerations of the partner
- To diversify to other markets and reduce
dependence on its manufacturing base
 Improved customer service
- To seek a wider international approach

7. RATIONALE BEHIND BRITISH STEEL
AND DUTCH ROYAL MERGER (cont..)
• Became the only company that provided fully engineered
components and sub-assemblies made of several metals
• Became active in all major markets
• More effective utilization of existing capacity
• Growth in areas such as logistics, sales, purchasing and
product and service development
• Enhanced financial strengths
• Improvement in R& D resulted in increased customer support
activities and development of new products and innovative
solutions
• Cost reductions and shareholders benefited

8. The Organisation
• The Merger was motivated by the Financial and Market
Conditions and HR’s role was undermined.
• To acknowledge the differences and to create a Decentralised
management structure.
• Corus was the parent company with 2 subsidies Corus UK and
Corus Netherlands.
• The operations were organised into individual business profit
centres.
• The 4 divisions included: Strip Products, Long Products,
Distribution and Building Systems & Aluminium Division.
• The company had 50,900 employees (2004)

9. Problems Faced
• In 2000, Corus’s UK arm lost £350 million, the share
prices dropped to half of the price at the time of the
merger.
• The various problems that hampered this Merger
were:
1. Restructuring of the Plant Facilities (Cost Cutting)
2. Restructuring of R&D.
3. Cultural differences and mis-cooridinations.

10. Restraucturing of the Plant Facilities (Cost
Cutting)
• Corus’s Carbon Steel operations incurred a loss of £301 million.
• Following this it ordered large scale Restructuring of UK asset base.
a)
The UK flat products capacity was reduced by 3 million
tones per annum in accordance with domestic demand.
b) This lead to a considerable reduction in
manpower of the company–
6k people to loose their jobs in the next 2 years.
c) This caused an uproar in the government and
worker unions – strike at Ijmuden
plant (Netherlands) in 1999.
d) The management blamed the high value of
Pound for Cost Cutting and job losses.

11. Restructuring of R&D
• The Corus Group Focused on removing the overlapping
in R&D between the UK and Netherlands Wings by
retaining the best R&D activities of the former
Companies.
• Synergizing the R&D to reduce cost and improve efficiency.
• Reduction in number of R&D Centres– caused considerable job
loss.
• R&D expenditure Budget – reduced efficiency.
• Shift in the location of R&D Centre – cultural issues and
mismanagement

12. Cultural Mismatch
• Doubt about the credibility of the set-up.
• Dutch culture versus Anglo-Saxon.
• Minimum of coordination between the two subsidiaries.
• Corus pulled out of a Brazilian acquisition.
• “Selling of Dutch Diamonds”

13. The lesson of the Corus Group case study
can be summarized as:
• Absence of clear leadership
• Severe lack of communication between
departments had branches can be the downfall of
the joint venture. low morale of the labor force
• Poor productivity
• Poor organization

14. Analyst’s Reviews
• Conflicting views on the synergies achieved from the merger.
• Disappointing performance of Corus in the post merger
period
• Profitability usually failed to live up to the expectations of the
management at the time of the merger.
• Better HR management at the time of the merger could have
improved the outcome for Corus
• Factors of downsizing:Limited consultation, reorganization of work, the power
struggle and large scale downsizing which brought fear and
loss of morale, the loss of the export market and the universal
decline in demand in the steel industry.
• Need of clear strategies and a well defined organization
structure