This article has been written by S. Hemalatha pursuing a Diploma in M&A, Institutional Finance and Investment Laws (PE and VC transactions) at LawSikho, and has been edited by Shashwat Kaushik.
It has been published by Rachit Garg.
Table of Contents
Introduction
The concept of merger and amalgamation took shape in India after the 1990s, i.e., after economic liberalisation. According to the Companies Act 2013, ‘merger’ means a combination of two or more entities into one. The effort involves not only combining the assets and liabilities of two distinct entities into one but also combining their organisational structures. A merger is the simple term for the joining of two distinct business entities into one new entity. The merger can take place for any of the reasons listed below:
- Due to increased competition;
- Technology adoption;
- Business expansion and globalisation;
- Due to changes in market dynamics;
- To diversify the risk; or
- To increase the brand’s value.
What are different types of mergers
Different types of mergers include:
A brief overview of Steel Authority of India Limited (SAIL) and ISSCO plants
SAIL (Steel Authority of India Limited) is a Maharashtra-based company that operates one of India’s largest steel plants. Five integrated plants and three special steel plants, most of which are located in India’s eastern and central regions, are used to produce the iron and steel used by SAIL. These plants are conveniently located near domestic raw material sources. They are owned and run by The Ministry of Steel, a department of the Indian government.
SAIL’s history can be traced back to Hindustan Steel Limited, which was established in Rourkela in 1954. The growth of this industry started to shape itself with the second five-year plan, which planned for rapid industrialisation in India. On December 2, 1972, the draft of the policy statement with the idea of creating a holding company to manage input and output under one roof was presented to Parliament in an effort to further accelerate the growth of the steel plants. The capital of Rs. 2000 crore was allocated for the incorporation of SAIL on January 24, 1974. With this, SAIL started its journey in India.
The Indian Iron & Steel Company (IISCO) is one of the integrated plants of SAIL, which was one of the first steel plants in India incorporated in 1918 at Burnpur. The plant first started operation as Bengal Iron Works at Kulti, West Bengal, in 1870. Later, it was merged with Bengal Iron Works in 1936 and then with Steel Corporation of Bengal in 1952. Now the Indian Iron and Steel Company (IISCO) has been amalgamated with the Steel Authority of India Limited (SAIL) with effect from February 16, 2006.
Decision of merging SAIL and IISCO
The government has decided to merge the 130 years old Indian Iron and Steel Company (IISCO), the country’s oldest steel plant, with SAIL to give it new life. When IISCO merges with SAIL, it will be the fifth integrated unit of SAIL in West Bengal. The following are the major reasons for the amalgamation of SAIL and IISCO:
- By joining forces with SAIL, IISCO would be able to raise the necessary funds;
- After merging, the continual losses of IISCO, which has been on the red list for the past 30 years, would take on a new form.
- Because of the merger, IISCO could be modernised.
- This merger will benefit both IISCO and SAIL. The IISCO uses one of the largest deposits of iron ore in the country, and now SAIL can fully utilise it. SAIL will be putting money into the modernisation of iron ore extraction as well as the plant at Burnpur
- SAIL’s own iron ore deposits of around 800 million metric tonnes are spread over Jharkhand, Orissa, and Chhattisgarh. With the decision to merge with IISCO, SAIL’s deposits will increase to more than 3.2 billion metric tonnes.
- The government will forgive about 900 crore of debt owed by IISCO.
Due to all these reasons, the government has decided to merge IISCO and SAIL. The merger took effect on February 16, 2006. After merger, IISCO steel became the 5th integrated steel plant of SAIL and was renamed as IISCO Steel Plant (ISP)
Benefits of the merge
After a merger with IISCO, the largest steelmaker in the nation’s reach has been further expanded. The SAIL further grows in size with five integrated steel plants under its fold. The very intention of the merger is an expansion and modernization of IISO. The government has allocated Rs 8,000 crore for the technological upgradation of IISCO, taking its annual hot metal production capacity to 2.5 million metric tonnes by 2011-12 from the present level of 0.85 million metric tonnes at the time of the merger.
The fact that IISCO’s flourishing iron ore mines at Chiria in Jharkhand are rich in both quality and quantity is another significant positive outcome of the amalgamation for SAIL. SAIL would benefit from their advantageous location.
The availability of large infrastructure facilities with IISCO will help expand the capacity of SAIL’s annual production. The Inter-plant synergy of IISCO can be better exploited for an improved and complementary product-mix. Moreover, IISCO has experienced manpower with a good work culture, and SAIL, with its financial and managerial capabilities, can be pooled for faster growth of SAIL and IISCO.
Progress of ISSCO (ISP) after merging
During its early expansion in 1953-55, it was the only Indian company to be quoted on the London Stock Exchange. The plant has gradually faced decline due to non- rehabilitation of equipment and the lack of upgrading technology. Even though several modernisation programmes have been formulated by Indian and foreign consultants, the status of the IISCO has declined due to the non implementation of the schemes. So the Union Government has decided to merge the IISCO with the SAIL for its betterment. Since the merger has been effected since February 16, 2006. It has been renamed the IISCO Steel Plant (ISP), from where the journey of the ISP reaches new milestones along with the growth of SAIL.
The following graphs depict the progress of the ISP (IISCO Steel Plant) since its amalgamation.
| Random Annual Years of Sale | Total salable Steel in Metric Tonnes |
| Before Merge | |
| 2003 – 2004 | 11026 |
| 2004 – 2005 | 11030 |
| After Merge | |
| 2007 – 2008 | 13044 |
| 2010 – 2011 | 12887 |
| 2013 – 2014 | 12880 |
Table -2 Growth of salable steel before and after merge
| Years | Turnover (in crores) |
| 2018 | 57975.21 |
| 2019 | 67468.10 |
| 2020 | 62569.95 |
| 2021 | 69964.28 |
| 2022 | 104335.39 |
Technologies that are adapted after merging
The adaptation of modern technology after merging
| Modernised Unit | Facility | Annual Production Capacity |
| Coke Oven Battery | 7 M Tall X 74 Ovens | 0.78 MT Gross Coke |
| Sinter Plant | 2 X 204 M2 | 3.8 MT Gross Sinter |
| Blast furnance | 1 X 4060 M3 | 2.7 MT Hot Metal |
| Basic Oxygen Furnance | 3 X 150 tonnes | 2.5 MT Crude Steel |
| Billet Caster | 2 X 6 Strand | 1.67 MT |
| Beam Blank Caster | 1 X 4 Strand | 0.8 MT |
Pros and cons of merging IISCO (ISP) with SAIL
Pros of merging SAIL and ISP
- As Asia’s largest iron ore deposit, Chiria Town in the Singhbhum district of Jharkhand offers an additional benefit to the SAIL’s raw material resources, and its convenient location makes it simple for incoming and outgoing materials.
- The knowledgeable, skilled, and dedicated manpower of IISCO (ISP) is an added advantage in the merger of SAIL and IISCO.
- The merger ensures a country wide market for ISP steels
- Upgradation of modern equipments and new technology make the 5th integrated plant of ISP perform well in the growth of SAIL
- There are certain sections of product where SAIL- ISP has complete monopoly
- IISCO was exposed to more facilities, both financially and technologically, after merging with SAIL
Cons of merging SAIL and ISP
- After merging with giant steel production companies like SAIL, the competition in the market increases many fold.
- The use of the iron ore resources of IISCO by a giant like SAIL may deplete the resources more quickly.
- International competition and pricing may pose a threat to integrated units like IISCO (ISP).
Conclusion
The analysis of the merger of SAIL and IISCO has brought about various facts, such as the importance of the IISCO merger, India’s contribution to the world steel market, the current usage of new technologies, and its turnover. In order to sustain the global competitive market and steel production, the merging of weaker and stronger companies will help mitigate the problem of closure.
References
- https://www.sail.co.in/en/plants/iisco-steel-plant/facilities
- https://sail.co.in/en/sail-news/iisco-amalgamated-sail
- https://economictimes.indiatimes.com
- https://frontline.thehindu.com/economy/article30224909.ece
- Annual Report of SAIL 2010-2011
- Annual Report of SAIL 2013- 2014
- Annual Report of SAIL 2018- 2019
- Annual Report of SAIL 2020- 2021
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