How Signora Steel slashed 10,000 jobs at Corus
By Tom Mcghie
Last updated at 9:00 PM on 09th May 2009
The date had been in the calendar for months: April 7 - Kirby Adams's first day as chief executive of the UK's steel giant, Corus.
But as the 53-year-old Atlanta-born steel tycoon was being given the low-down by his new colleagues at the modest Mumbai offices of Corus's Indian parent company Tata, Adams was interrupted by the arrival of an unexpected letter.
It was from the chief executives of four foreign steel producers that were responsible for buying nearly 80 per cent of steel from his Redcar plant in Teesside.
It was short and brutal. The steel bosses were tearing up their ten-year contract there and then. As far as the consortium of Italians, Koreans,
Swiss and Argentinians were concerned, the market had changed and they were out. 'I could not believe it,' said Adams.
'I was expecting a welcome card or maybe a cake, but not this. It was simply outrageous.'
At one stroke the consortium led by Marcegaglia, the Italian steel specialist company led by one of the country's toughest chief executives, 43-year-old Emma Marcegaglia, dubbed Signora Steel, had consigned one of the UK's largest steel plants to the scrapheap.
Not only did the consortium's decision spell the end for an estimated 3,000 steel workers in the area, but a further 7,000 jobs in the supply train are also threatened.
Cancellation is expected to spark mammoth litigation. On hearing the news, Gordon Brown predicted it would result in an international dispute-and he pledged to help Corus to win back the order.
For owner Tata, it is a savage blow in what is turning out to be a desperately difficult year. The recession has also played havoc with its other major acquisition - Jaguar Land Rover (JLR). So bad are its problems that its UK conquests could ultimately lead to its own destruction.
For it has emerged that Tata has pledged shares worth at least £1.4 billion to secure loans and it has used large portions of its UK acquisitions to secure debts. It risks losing control of them should it default.
Trouble started about a year ago. When Tata spent £6.2 billion in 2007 to buy Corus, it thought it was on to a good thing - even though it had perhaps overpaid in what was a tough bidding war. The steel industry had been booming since 2004 and was enjoying its most profitable time for decades.
But that all changed in 2008. Since then the global recession has slashed demand by 50 per cent. Plants that had been booming on sky-high prices discovered - like Redcar - that life in a recession is tough.
It was the same grim story for JLR. Up for grabs last June, Tata, perhaps mesmerised by the glamorous marques, paid £1.15 billion. For the first few months all went well, but then the recession arrived and demand for expensive four-wheel-drive cars vanished. Even a further £900 million in investment did not do the trick.
The company is involved in lengthy and tricky negotiations with the Government and is hinting that without help the business could close.
But while Tata ponders its future in the UK, Adams is still coming to terms with what he regards as 'the immorality' of the consortium's behaviour. 'They signed a ten-year, legally binding contract,' he said. 'For years they made vast profits out of the deal.
'Now that the steel prices have changed and demand has slumped, they have just dropped it. In doing this they have thrown 3,000 workers who have done their best for the company to the wolves.
'They did not use some of the profits to pay back in the bad times. They just broke the agreement. We would never do something like that. It is totally immoral.'
Sources at Corus believe the consortium made a £520 million profit in the first four years of the deal.
What is even more galling for Adams is that in January the Italians came over with the Koreans and signed a memorandum to buy the whole Redcar plant.
One union official who was present when the Italians arrived said: 'They were laughing and Antonio [Emma's brother] was saying what a great place this was and how they looked forward to coming here. That's a joke now.' Calls to Marcegaglia were not answered, which comes as no surprise to Adams. 'We have tried very hard to find out what they are thinking, but without much success,' he said.
Those who know Emma are not surprised. She has earned a formidable reputation for her hard-headed business dealings. While heading Italy's equivalent of the CBI, Confindustria, she was given the nickname Black & Decker for her 'tenacity and determination'.
Its unlikely that the iron-willed woman who runs the family company's steel manufacturing business at Mantua near Verona, will buckle under the threats from the UK, even if they are backed by the Prime Minister. She knows that the steel business is in the grip of recession and with a glut of plants her company could make better deals elsewhere.
Legal action will take months, if not years, but in the meantime thousands of workers in Redcar are facing a bleak future.
The company reckons it has 90 days to sort out the mess. However, it is pessimistic that it can find new customers in that time and does not believe it will be able to transfer enough work to keep Redcar operating economically. The plant will have to be mothballed and workers, who can earn up to £40,000, will be out of work.
Adams said: 'The consortium wanted a divorce no matter what. And the victims are this loyal workforce. It's a terrible day.'