TATA WINS CORUS

contents
Introduction TATA & Indian Steel Industry Global steel industry TATA steel Background Corus Background About the deal Financing the deal Why Tata Steel goes for cash deal? Post acquisition strategies Synergies from the deal SWOT analysis of Tata Corus The end word of the deal

Introduction
Tata acquired Corus- which is four time larger than size and the largest steel producer in UK The deal- creates the world s fifth largest steelmaker India s largest ever foreign takeover Over past five year, Indian companies made a global acquisitions for $10 billion. Tata bid almost equals this amount

Cont..
Tata acquired Corus on the 2nd of April 2007 This acquisition process has started long back in the year 2005 Corus was involved in a considerable number of Merger & Acquisition (M&A) deals and joint ventures (JVs) before Tata

Vision TATA STEEL

We aspire to be the global steel industry benchmark for Value Creation and Corporate Citizenship

Tata & Indian Steel Industry

Tata steel established by Jamesetji Tata in 1907, exactly in the year when British American Tobacco (BAT) has started its first factory in India. Started operating in the year 1912. Unique concepts
8-hour working days leave with pay and pension system

Later the concept implemented lawful and compulsory practice for the Indian employees From Tata steel they started various businesses like
Oil mills, Airlines, Publishing, Motors, Consultancy services etc in a short span of 30 years

Cont..
Indian steel industry- most important component for the development of nation The finished steel production has grown from 1.1 million tones in 1951 to 31.63 million tones in 2001-02 Shows good economy development India s major market for steel and steel items include USA, Canada, Indonesia, Italy, West Asia The major steel items of export include
HR coils, plates, CR and galvanized products, pipes, stainless steel, wire rods and wires

Global steel industry

China is the highest steel producing country in the world Its production of 355.8 million tones in 2005 and 418.8 million tones in 2006 According to International Iron and Steel Institute (IISI) till 2010 the average demand for steel would be 4.9 per cent per year during 2010 and 2015 the growth is expected to be 4.2 per cent IISI forecasts the global steel demand would be 1.32 billion tones by 2010 and 1.62 billion tones by 2015

Tata steel background

In the mid- 1990s, Tata steel emerged as Asia s first and India s 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.

SWOT analysis of Tata Steel

-Low Cost production. -Easy access to raw material. - Low Debt Equity Ratio. - Quality of Steel was not of International standards. -Non availability of latest R&D facility

SWOT

- To become a World leader in low cost and high quality steel products.

- To Compete with other big global players

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. 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 major plants operates

UK, Netherlands, Germany, France, Norway and Belgium

Supplier to many of the demanding markets worldwide

construction, automotive, packaging, engineering

SWOT analysis of Corus

World s ninth largest and Europe s second largest steel producer. - Wide range of products of high technology.

- High operational Cost. - Lack of Access to raw material

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

Reasons for Corus accepting bids

To extend its Global reach through TATA. 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.

About the deal

TATA Acquired CORUS on 2nd April 2007 . The deal price was US $ 12.11 Billion. On 17 Oct, 2006 TATA s bided 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 world s 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 Steel s UK Special Purpose vehicle(SPV) named Tata Steel UK.

Why Tata Steel goes 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 Share Swap would have diluted Tata Steel s Equity base which was not in favor of Tata shareholders.

Post acquisition strategies

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. Top management of the company remained same.

Synergies from the deal

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. 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.

SWOT analysis of Tata Corus

Strengths : Easy Access to quality raw material. New technology for producing high value products. Reach in 4 continents and 45 countries. Economies of Scale and production. Weakness : Cost of production per unit bound to increase. High Debt equity ratio. High dependability on the growth of market. A lot of stress on the cash flows of combined entity.

Cont..
Opportunities : To become global player in steel industry. Takeover more companies successfully. Increase in production capacity beyond 56 mn tons by 2015 Threats : Cultural Diversifications are not easy to integrate. Markets should continue to grow. Rising cost of raw material. Rising terrorism and political unrest among nations.

The end word on this deal

If TATA steel were to create, from scratch, 19 million tonnes of steel making capacity comparable in quality to what Corus possesses Besides, setting up a new factory, a 3 to 5 years project if everything goes well, has great execution risk. With Corus in its fold, Tata steel can confidently target becoming one of the top 3 steel makers globally by 2015

I believe this will be the first step in showing that Indian industry can step outside the shores of India in an international market place and acquit itself as a global player - Ratan Tata