So why did British Steel buy Hoogovens? It will generate savings, but fairly small ones compared with the combined operations’ turnover. It gives British Steel a foothold in euro-zone Europe, but this seems a short-term, if sensible, reaction to exchange rate woes.
It is fashionable for players in big, mature industries to attempt to generate value by stripping out overheads and duplication. But in this case, the plan to remove duplication without closing down plants sounds phoney – unless market growth predictions are optimistic enough to allow each plant to specialise.
Without doubt, the deal is driven by the automotive industry, where pressure on suppliers to cut costs is building, following more mega-mergers among car makers. From an industrial viewpoint, getting a foothold in the aluminium market via Hoogoven’s interests is one compelling reason for the merger, given car makers’ interest in weight-saving aluminium parts.
In that case, we should expect the new group to make global acquisitions to this effect. From now on, `British’ and `Steel’ look set to be just part of the story.