tata steel: Tata Steel consolidation will likely be a complex process, experts say

The Tata Group’s decision to consolidate its metals and resource companies into Tata Steel is likely to be a very complex and time-consuming effort for the group where the merger plan will require stakeholder approvals as well as regulatory approvals.

The group has begun the process of consolidating its seven subsidiaries including four listed companies Tata Metaliks, Tata Steel Long Products, TRF Ltd and Tinplate Company of India Ltd into Tata Steel Ltd. The other three companies are Indian Steel & Wire Products Ltd, Tata Steel Mining Ltd and S&T Mining Company Ltd.

“Each merger plan will require approval from shareholders, creditors and stock exchanges. Further approvals may be required from regulators,” said Sudip Mahapatra, partner at S&R Associate. “Finally, the National Company Law Tribunal (NCLT) will have to approve the program. Typically, such mergers take 6 to 12 months.”

Tata Steel in its regulatory filing said it took this step to improve operational efficiency, including centralized sourcing, which would lead to sourcing synergies and reduced stores/spares through common management of stocks.

According to Chandubhai Mehta, managing partner at law firm Dhruve Liladhar & Co, Tata Steel’s compliance department is expected to remain busy for “a very long time” due to the announcement. “It is a very cumbersome and complex scheme that involves coordination with multiple listed companies, regulators, statutory authorities and shareholders, among others, to consolidate all companies into one,” Mehta said.

The steel giant is seeking better use of common facilities and greater efficiency in debt and cash management.

“The proposed consolidation, as approved by the respective Boards of Directors, is likely to be time consuming given the multiple regulatory interface and necessary approval/no objection requirements, including that of designated exchanges and Jurisdictional Chamber of the National Company Law Court,” said Harish Kumar, Partner at Luthra Law Firm and Luthra Law Office.

This merger is also part of Tata Steel’s ongoing journey to simplify the group’s holding structure. Since 2019, Tata Steel has reduced 116 associated entities, due to which 72 subsidiaries have ceased to exist, 20 associated companies and joint ventures have been eliminated and 24 companies are currently in liquidation.

Nishith Dhruva, managing partner at law firm MDP & Partners, said that lately some mergers have taken longer due to the NCLT backlog. “Besides regime issues like these, the courts hear cases related to the Insolvency and Bankruptcy Code (IBC) as well as disputes over oppression and mismanagement and most benches are overloaded with work,” Dhruva said.

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