In June 2012, JSW Steel completed the merger of JSW Ispat with itself. As per the merger scheme, shareholders of JSW Ispat would get one JSW Steel share for every 72 shares they hold. Post-merger, JSW Steel promoters had 35% stake in the company. Through a merger, JSW Steel was aiming at various benefits, including synergy in operations and reducing the borrowing cost of JSW Ispat.
Looking Back: WHAT CONVINCED JSW STEEL?
JSW Steel’s move to acquire Ispat Industries is a win-win deal for both the companies. The positives that persuaded JSW Steel to go ahead with the acquisition of Ispat include:
JSW will get to consolidate its position in the domestic steel manufacturing industry and emerge as the largest steel producer with a total capacity of 14.2 million tonnes per annum (MTPA) and achieve significant benefits in terms of raw material RM negotiation, economies of scale, better access to bulks import and finished steel exports.
The deal will bring significant advantages, particularly in alternative steelmaking technologies and house multiple modern steel-making technologies under one roof enabling flexible production processes.
The deal will bring in opportunities to leverage on each other’s marketing and distribution platforms to expand market reach. Moreover, it will help reduce marketing, general and administration overheads via better utilization of infrastructure and elimination of redundancies.
The 3.3 MTPA integrated steel plant at Dolvi is advantageously located on the western coast of Maharashtra. The plant is located in a close proximity to a port which can handle cargo of up to 10 MTPA. It will also provide the unit with logistical advantages in importing raw materials and savings on freight cost.
The deal ensures de-risking of JSW Steel’s single location upstream profile. Post-merger, the company can focus more on high-end value added and downstream products which will help in brownfield expansion.
The deal will result in considerable financial benefits to JSW Steel. Realize significant financial benefits via accelerated utilization of unabsorbed tax losses at JSW Ispat as well as optimal use of depreciation on further capital investments. As on Sep 2012, ISPAT had an accumulated loss of Rs 97 billion, on which the company would get deferred tax benefit besides making optimal use of depreciation on further capital investments. (Source: Emkay Global report dated Sept 02, 2012)
Ispat can benefit from sourcing key raw materials such as coking coal, pellet, power and iron ore from the JSW group at relatively low rates rather than depending on higher cost of imports thereby reducing its operating costs substantially