Tata Steel Acquisition of Corus

GROUP 2:
Barbie Jain
Sachin Kandari
Nelisent Purti
Ram Garg
Ram Kumar D
Sohom Karmakar
 Tata Steel Background
Tata Steel a part of the Tata group, one of the largest diversified business
conglomerates in India.
Founded in 1907,by Jamshedji Nusserwanji Tata.
Started with a production capacity of 1,00,000 tones, has transformed into a
global giant
In the mid- 1990s, Tata steel emerged as Asias first and Indias largest
integrated steel producer in the private sector.
In February 2005, Tata steel acquired the Singapore based steel manufacturer
NatSteel, that let the company gain access to major Asian markets and
Australia.
Tata steel acquired the Thailand based Millennium Steel in December 2005.
Tata Steel generated net sales of Rs.175 billion in the financial year 2006-07.
The companys profit before tax in the same year was Rs. 64.14 billion while
its profit after tax was Rs. 42.22 billion.
SWOT Analysis of Tata Steel
Strength Weakness

-Low Cost production. - Quality of Steel was not of

International standards.
-Easy access to raw material.
-Non availability of latest R&D
- Low Debt Equity Ratio. facility

SWOT

- To become a World leader in low

- To Compete with other big global
cost and high quality steel
players
products.

Opportunity Threat
Reasons for Tata Steel to Bid
To tap European Mature Market.

Cost of acquisition is lower than setting up of Green field plant &

marketing and distribution channel.

TATA manufactures Low Value ,long and flat steel products ,while
Corus produce High Value Stripped products.

Helped TATA to feature in Top 10 players in world.

Technology Benefit.

Economic of scale.

Corus holds number of patents and R&D facilities.

 Corus Background

Corus Group plc was formed on 6th October 1999, through

the merger of two companies, British Steel and Koninklijke
Hoogovens,
Company had four divisions: Strip product , Long product ,
Aluminium and Distribution and Building system.
Corus has manufacturing operations in many countries with
major plants located in the UK, The Netherlands, Germany,
France, Norway and Belgium
Supplier to many of the most demanding markets worldwide
including construction, automotive, packaging, engineering
SWOT Analysis
Strength Weakness
Worlds ninth largest and Europes
second largest steel producer.
- High operational Cost.
- Wide range of products of high
technology. - Lack of Access to raw material

SWOT
- To merge with a company to eliminate
duplication and remove overlaps in - Increasing losses resulting to winding
marketing, accounting etc. up of company
- To get access to raw material and -
growth markets through merger.

Opportunity Threat
Reasons for Corus for
Accepting Bids
To extend its Global reach through Tata Steel
To get access to Indian Ore reserves, as well as virgin market for
steel
To get access to low cost materials
Saturated market of Europe
Decline in market share and profit
Deal Specifics

TATA Acquired CORUS on 2nd April 2007 .

The deal price was US $ 12.11 Billion.
On 17 Oct, 2006 TATAs bidded at 455 pence per share and price per
share was 390 pence at that time.
TATA Steel, the winner of the auction for CORUS declares a bid of
608 Pence per share.
TATA Surpassed the final bid from Brazilian steel maker COMPANHIA
SIDERURGICA NACIONAL (CSN) of 603 pence per share.
The combined entity has become the worlds fifth largest steelmaker
after the deal.
Financing the Deal

Total Tata Corus deal - US $13.7 billion

Equity component US $ 7.56 billion.
Debt Component - US $ 6.14 billion.
Acquisition was completed through Tata Steels UK Special
Purpose vehicle(SPV) named Tata Steel UK.
This SPV raised US $ 6.14 billion through a mix of high yield
mezzanine and long term debt funding.
For immediate financing Tata Steel UK raised US $ 2.66 bn
through bridge loans.
Rationale for Cash Deal
Immediate takeover was required.
Share Swap deal would have been less attractive to the Corus
shareholders.
Share Swap would have meant FDI and that brings a lot of
regulatory hassles which might not have been accepted by
Corus shareholders.
Share Swap would have diluted Tata Steels Equity base which
was not in favor of Tata shareholders.
And moreover cost of equity at around 15% is higher than that
of debt of around 8%, so paying in cash brings down the cost
of acquisition.
Post Acquisition Strategies:
Integration Efforts
Tata steel's Continuous Improvement Program Aspire with
the core values :Trusteeship, Integrity, respect for individual,
credibility and excellence.
Corus's Continuous Improvement Program The Corus Way
with the core values : code of ethics, integrity, creating value
in steel, customer focus, selective growth and respect for our
people.
As the core values of the two companies were same so Tata
used Light Handed Integration Approach.
Top management of the company remained same.
Potential Synergies
Tata was one of the lowest cost steel producers & Corus was
fighting to keep its productions costs under control
Tata had a strong retail and distribution network in India and
SE Asia. Hence there would be a powerful combination of high
quality developed and low cost high growth markets
Technology transfer and cross-fertilization of R&D capabilities
There was a strong culture fit between the two organizations
both of which highly emphasized on continuous improvement
and Ethics
Economies of Scale
Increase in profitability
Backward integration for Corus and Forward integration for
Tata Steel
Pitfalls of the Deal
High value paid. Approximately 7.7 times its Enterprise Value.
Corus EBITDA was at 8% which was much lower as compared
to Tata Steels 30%.
Debt of US $ 6.14 was raised against the cash flows of Corus.
It was a risky proposition.
Tatas debt equity ratio was adversely affected to 2.74:1 from
1.1 which it was maintaining earlier.
Fast consumption of Tata Steels captive iron ore reserves as
production capacity increased from 5.3 million ( estimated for
50 years at this capacity) to 27 million tons of steel per
annum.
Current Developments
The share of Tata Steel Europe's turnover in
the total turnover of the group has declined
steadily from 2007-08, when it stood at
76.2 percent. In 2014-15, the share was
down to 57.3 percent. While Tata Steel
group witnessed a 6 percent growth in
turnover over the period, Tata Steel Europe
saw a 20 percent decline in turnover.
Clearly, Tata Steel Europe has been a drag
on the group

Tata Steel group saw a decline of 30 percent

between 2007-08 and 2014-15. Tata Steel
Europe, meanwhile witnessed a sharper 53
percent decline. In 2007-08, a
year before the global financial crisis started,
the foreign subsidiary had a 50 percent
contribution to overall Ebitda. The business
never went back to that level of operating
profit after that. The share in 2014-15 stood
at 33.6 percent. In 2015-16 up to December,
the group's consolidated EBITDA stood at Rs
11,165 crore. Tata Steel Europe, meanwhile,
reported an operating loss of Rs 339 crore.
Current Developments
From Rs 53,625 crore in 2007-08,
debt has grown 40 percent to Rs
75,118 crore in 2015-16 (up to
December).

In 2007-08, the group registered a

net profit of Rs 12,350 crore. This
fell 60 percent to Rs 4,951 crore in
the next year. Then there was a loss
of Rs 2,009 crore and in 2010-11,
the group swung back to profit of Rs
8,983 crore. In the course of nine
financial years, the group was in
profit in 6 times.

Tata Steel share price on the BSE has

more than halved from Rs 693.15 in
2007-08 to Rs 324.4 currently. Its
market cap eroded 38 percent during
the period from Rs 50,640 crore to Rs
31,506 crore currently. After the
company announced its intent to sell
the UK business the stock has gained
5.26 percent.
Members Contribution

The team worked as a whole towards the beginning to come up with

a primary research analysis
Various sectional areas for analysis were subsequently identified
A rough draft was prepared to give a structure to the final findings
For final fine tuning, various sections were allocated as follows:
Sachin Tata Background, SWOT and Reasons to Bid
Barbie Corus Background, SWOT and Reasons to Bid
Ramkumar Deal Specifics and Financing the Deal
Ram Rationale and Post acquisition strategies
Nelisent Potential Synergies, Pitfalls of the Deal
Sohom Current Developments
References

Tata Steel corporate website

Financial express.com
ET.com
Moneycontrol.com
Rediff.com
Business Standard
Google finance
THANK YOU