INTRODUCTION

The process of mergers and acquisitions has gained substantial

importance in today's corporate world. This process is extensively used
for restructuring the business organizations.
In India, the concept of mergers and acquisitions was initiated by the
government bodies. Some well known financial organizations also took
the necessary initiatives to restructure the corporate sector of India by
adopting the mergers and acquisitions policies.
The increased competition in the global market has prompted the
Indian companies to go for mergers and acquisitions as an important
strategic choice. The trends of mergers and acquisitions in India have
changed over the years. The immediate effects of the mergers and
acquisitions have also been diverse across the various sectors of the
Indian economy.
India has emerged as one of the top countries with respect to merger
and acquisition deals. In 2007, the first two months alone accounted
for merger and acquisition deals worth $40 billion in India.
MERGER
Merger is defined as combination of two or more companies into a
single company where one survives and the others lose their corporate
existence. The survivor acquires all the assets as well as liabilities of
the merged company or companies. Generally, the surviving company
is the buyer, which retains its identity, and the extinguished company
is the seller. Merger is also defined as amalgamation. Merger is the
fusion of two or more existing companies.

TYPES OF MERGERS
Merger or acquisition depends upon the purpose of the offeror
company it wants to achieve. Based on the offerors objectives profile,
combinations could be vertical, horizontal, circular and conglomeratic
as precisely described below with reference to the purpose in view of
the offer or company.
(A) Horizontal combination:
It is a merger of two competing firms which are at the same stage of
industrial process. The acquiring firm belongs to the same industry as
the target company. The main purpose of such mergers is to obtain
economies of scale in production by eliminating duplication of facilities
and the operations and broadening the product line, reduction in
investment in working capital, elimination in competition concentration
in product, reduction in advertising costs, increase in market segments
and exercise better control on market.
(B)

Vertical combination:

A company would like to take over another company or seek its merger
with that company to expand espousing backward integration to
assimilate the resources of supply and forward integration towards
market outlets. The acquiring company through merger of another unit
attempts on reduction of inventories of raw material and finished
goods, implements its production plans as per the objectives and
economizes on working capital investments. In other words, in vertical
combinations, the merging undertaking would be either a supplier or a
buyer using its product as intermediary material for final production.
The following main benefits accrue from the vertical combination to
the acquirer company:
(C)

Conglomerate combination:

It is amalgamation of two companies engaged in unrelated industries

like

DCM

and

Modi

Industries.

The

basic

purpose

of

such

amalgamations remains utilization of financial resources and enlarges

debt capacity through re-organizing their financial structure so as to
service the shareholders by increased leveraging and EPS, lowering
average cost of capital and thereby raising present worth of the
outstanding shares.
ACQUISITION
An Acquisition usually refers to a purchase of a smaller firm by a larger
one. Acquisition, also known as a takeover or a buyout, is the buying of
one company by another. Acquisitions or takeovers occur between the
bidding and the target company. There may be either hostile or friendly
takeovers. Acquisition in general sense is acquiring the ownership in
the property. In the context of business combinations, an acquisition is
the purchase by one company of a controlling interest in the share
capital of another existing company.
TYPES OF ACQUISITION
There are different types of Acquisitions/takeover:1. Friendly takeovers
2. Hostile takeovers
3. Reverse takeovers
1. Friendly takeovers
Before a bidder makes an offer for another company, it usually first
informs that company's board of directors. If the board feels that
accepting the offer serves shareholders better than rejecting it, it
recommends the offer be accepted by the shareholders.

2. Hostile takeovers
A hostile takeover allows a suitor to bypass a target company's
management unwilling to agree to a merger or takeover. A takeover is
considered "hostile" if the target company's board rejects the offer, but
the bidder continues to pursue it, or the bidder makes the offer without
informing the target company's board beforehand.
3. Reverse takeovers
A reverse takeover is a type of takeover where a private company
acquires a public company. This is usually done at the instigation of the
larger, private company, the purpose being for the
Private company to effectively float itself while avoiding some of the
expense and time involved in a conventional IPO. However, under AIM
rules, a reverse take-over is an acquisition or acquisitions in a

TATA STEEL CORUS

About the acquisition

Date 30th Jan 2007
Acquirer Tata Steel Limited
Target Company Corus Plc.
Stake 100%

Deal amount US $ 12201 m

Sector steel
TATA-STEEL
Tata Steel has established by Indian Parsi Businessman Jamsetji
Nusserwanji Tata in 1907, exactly in the year when British American
Tobacco (BAT) has started its first factory in India.
Tata steel formerly known as TISCO and Tata Iron and Steel Company
Limited is the world's seventh largest steel company. Tata Steel is also
India's second-largest and second-most profitable company in private
sector with consolidated revenues of Rs.132,110 crore (US$29.33
billion) and net profit of over Rs.12,350 crore (US$2.74 billion) during
the year ended March 31, 2008.
Tata Steel is listed on BSE (Bombay Stock Exchange) and NSE (National
Stock Exchange) and employs about 82700 (as of 2007) people.
It started with a production capacity of 1, 00,000 tones has
transformed into a global giant its revenue in 2005-2006 was US$ 5.0
bn.
The company was also recognized as the world's best steel producer
by World Steel Dynamics in 2005.
Tata also entered into exports as Tata Exports, which is the most
successful and the largest export house in India.
The company produces crude steel and basic steel products, and
makes steel for building and construction applications through Tata
BlueScope Steel, its joint venture with Australia's BlueScope Steel.
Tata Steel has also set up joint ventures for the development of
limestone mines in Thailand, the procurement of low-ash coal from

Australia and coking coal from Mozambique, and the setting up of a

deep-sea port in Orissa in India.
The company is exploring opportunities in the titanium dioxide
business in Tamil Nadu, India, and will soon be producing high carbon
ferrochrome from its plant in South Africa.
CORUS STEEL
Corus Group was formed through the merger of Koninklijke Hoogovens
and British Steel on 6 October 1999.
Corus is Europe's second largest steel producer with main steelmaking
operations primarily in the UK and the Netherlands
It employs 47,300 people worldwide and 24,000 people in the United
Kingdom. It is listed on the London Stock Exchange, Euro next
Amsterdam and the New York Stock Exchange.
Company has four divisions: Strip product, Long product, Aluminium
and Distribution and Building system
The company has a wide variety of products and services which
comprise of the manufacturing of electrical steel, narrow strip, plates,
packaging steel, plated steel strip, semi finished steel, tube products,
wire rod and rail products and services.
Corus has an annual turnover of $18 billion.
Total debt of Corus was GBP 1.6 billion.
It has revenues of $ 18.06 billion and profit of $ 626 million.
The company is regarded as the largest steel producer in the UK with
10,142 million of annual revenue (for 2005) and a work force of 50
000 employees.

DETAILED CASE STUDY:On January 31, 2007, India based Tata Steel Limited (Tata Steel)
acquired the Anglo Dutch steel company, Corus Group Plc (Corus) for
US$ 12.20 billion. The merged entity, Tata-Corus, employed 84,000
people across 45 countries in the world. It had the capacity to produce
27 million tons of steel per annum, making it the fifth largest steel
producer in the world as of early 2007.
Before the acquisition, the major market for Tata Steel was India. The
Indian market accounted for sixty nine percent of the company's total
sales. Almost half of Corus' production of steel was sold in Europe
(excluding UK). The UK consumed twenty nine percent of its
production.
After the acquisition, the European market (including UK) would
consume 59 percent of the merged entity's total production.
Commenting on the acquisition, Ratan Tata, Chairman, Tata & Sons,
said, "Together, we are a well balanced company, strategically well
placed to compete at the leading edge of a rapidly changing global
steel industry".
Financing
Tata Steel outbid the Brazilian steelmaker Companhia Siderurgica
Nationals (CSN) final offer of 603 pence per share by offering 608
pence per share to acquire Corus.
Tata Steel had first offered to pay 455 pence per share (valuing it at
4.3billion) of Corus, to close the deal at US$ 7.6 billion on October 17,
2006. CSN then offered 475 pence per share (valuing it at 4.5billion)
of Corus on November 17, 2006.

Finally, an auction was initiated on January 31, 2007, and after nine
rounds of bidding, TATA Steel could finally clinch the deal with its final
bid 608 pence per share, almost 34% higher than the first bid of 455
pence per share of Corus.
Synergies
There were many likely synergies between Tata Steel, the lowest-cost
producer of steel in the world, and Corus, a large player with a
significant presence in value-added steel segment and a strong
distribution network in Europe. Among the benefits to Tata Steel was
the fact that it would be able to supply semi-finished steel to Corus for
finishing at its plants, which were located closer to the high-value
markets.

Learning Outcomes For Students:

PRE POST ANALYSIS OF TATA AND CORUS STEEL LTD.

Tata steel and corus steel

Sr.
no.
A
1
2
B
1
2
3

RATIOS
liquidity
ratio
current
ratio
quick
ratio
solvenc
y ratio
debt
equity
ratio
long term
deb/equit
y
total

PRE
MERGER
VALUES

POST
MERGER
VALUES

PRE MERGER

POST
MERGER

2004

2005

2007

2008

MEAN

SD

MEAN

SD

0.66

0.69

1.69

3.81

0.68

0.021

2.75

1.499

0.39

0.33

1.37

3.52

0.36

0.042

2.45

1.52

0.75

0.39

0.69

1.08

0.57

0.255

0.89

0.276

0.72
0.75

0.37
0.39

0.68
0.69

1.07
1.08

0.54
0.57

0.247
0.255

0.88
0.89

0.276
0.276

4
C
1
2
3
4

5
6
7

assets to
owners
fund
interest
coverage
ratio
profitabi
lity ratio
dividend
per share
PBIT
margin
G.P
margin
N.P
margin
Return
on
capital
employe
d
Return
on
net
worth
return on
long term
funds

13.2
7

24.01

26.19

8.35

18.64

7.594

17.27

12.61
5

10
26.1
2
31.6
5

13

15.5

11.5

2.121

15.75

0.354

36.44

33.97

16
37.0
4

31.28

7.297

35.51

2.171

40.17

39.84

35.95

6.025

38.77

1.513

16

23.72

23.53

37.7
23.4
3

19.86

5.459

23.98

0.071

38.7
7

56.06

27.71

17.1
1

47.42

12.22
6

22.41

7.495

38.6
7

49.21

29.95

21.5
2

43.94

7.453

25.74

5.961

17

48.10
5

12.26
8

22.63
5

7.743

39.4
3

56.78

28.11