As of January 2007, the market capitalization of Tata group of companies was approx US$63 billion or Rs 2,70,000 crore which included only 28 of 96 Tata group companies that were publicly listed.

In 1907 Jamshedji Tata established Tata steel in West Bengal.

It had its own railway networks and the site had adequate supply of iron ore and water.

At that time Tata used to produce 70,000 tons of steel per year.

Acquired Indian Tube Company Limited in 1983 and ferro chrome unit of OMC Alleys Limited in 1991.

Acquired Singapore based steel manufacturer “NatSteel Limited” in February 2005.

Acquired Thailand based Millennium steel in December 2005.

Tata steel’s net sales amounted to Rs. 17,552 in 2006-07

PBT – Rs 6414 crorePAT – Rs 4222 crore

Hoogovens was founded by Govt. of Netherlands on 20th Sep 1918.

Objective for establishing was mainly to enable Dutch industry to become less dependent on importing steel. It became one of the major players in European steel industry.

It was major supplier to Boeing which was major achievement.

It fetched awards for corporate supplier by Volkswagen Audi Group, Toyota and Duracell award for continuous improvement.

On Oct 1999, Hoogovens merged with British Steel Plc to form Corus Group Plc.

Hoogovens held 38% and British steel held 62% stake in new company.

Merger didn’t succeed, by the year 2000 merged entity suffered a loss of £ 1.271 billion which was reduced to £ 404 in 2002.

Varin and Jim Leng, chairman of Corus tried to revive the company’s business.

The duo resorted to major job cuts, purchase and supply chain maintenance

optimization and reduced company’s debts by selling aluminium business to US based company for £570 million.

CSN and Corus had planned an all shares merger in 2002, but the deal broke up.

Corus had decided to join hands with low cost steel producer by Sep 2006.

On Oct 2006, Tata made an offer of 455 pence a share in cash which amounted to $7.6 billion which Corus felt to be too low.

Tata steel maintained the same offer and Corus positively responded on 20th Oct 2006.

• Offers and counter offers were there between Tata and CSN.

• Tata finally was the winner and acquired Corus at 608 pence per share.

• On 31st Jan 2007, Corus share rose by approx 7% to 602 pence on the London Stock Exchange.

• Tata Steel’s shares fell by approx 11% to Rs 464 on BSE.

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 Steel’s Equity base which was not in favour 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.

During the years 2000 to 2007, the global steel industry rapidly expanded in terms of demand and the capacity.

At the time of TATA’s acquisition to CORUS, the outlook for 2008 to 2010 was also very bullish.

By this TATA emboldened to make such a giant acquisition and take such a big risk.

Following table shows the crude steel production of the top 6 crude steel producing nations of 2006-2007. figure are in million tonnes.

COUNTRIES

2007 2006 PERCENTAGE OF CHANGE

CHINA 489 423 15.60

JAPAN 120 116 3.45

UNITED STATES

98 99 1.01

RUSSIA 72 71 1.41

INDIA 53 44 20.45

SOUTH COREA

51 49 4.08

• And by the performance of these 6 countries, the capacity of global crude steel increased by 1564 million tones by 2007 from 1065 million tones in 2000, a whopping addition approx of 47%.

According to World Steel Association, during the period 2208-2010, the world crude steel capacity was expected to grow by 322 million tonnes, an increase of 21% over 2007 with a compound annual growth rate of 6.4%.

While the addition in crude steel capacity in 2007 was 108 million tonnes, 2008 was expected to experience an addition of 90 million tonnes.

• The production of crude steel at 53 million tonnes in 2007 was more than double the production level decade back in 1998 when it was 23 million tonnes, portraying the significant growth in the Indian steel industry.

• India’s production of steel was only 4% of the global steel production (53 m.t.) and china by contrast, produced 36% of the global steel production (489 m.t.).

• And by this only the per capita consumption of china is 6.5 times that of India.

It was, thereof, believed that the Indian steel industry needed a quantum growth in the manufacturing capacity to cater to its domestic demand itself.

Tata Steel ltd.

Tata steel Asia holding Pvt. Ltd.(100%)

Tata Steel UK Ltd.(100%)

Corus Group Pic(100%)

Mode Amount(US $ bn)

Break up of Tata Steel contribution (US $ mn)

Tata Steel UK-Non Recourse Debt 6.14

Tata Steel Asia-Bridge Loans 2.66

Tata Steel-Equity & Debt 4.90

Internal Accruals 700

External Commercial Borrowing 500

Preferential Issue to Tata Sons 640

Rights Equity Issue 860

Rights Convertible Preference shares 1325

Foreign Currency Equity linked Instruments

875

Sub Total 4900

Grand Total 13.70

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.

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.

High value paid. Approximately 7.7 times its Enterprise Value.

Corus’ EBITDA was at 8% which was much lower as compared to Tata Steel’s 30%.

Debt of US $ 6.14 was raised against the cash flows of Corus. It was a risky proposition.

Tata’s debt equity ratio was adversely affected to 2.74:1 from 1.1 which it was maintaining earlier.

Fast consumption of Tata Steel’s 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.

Net sales between FY08 and FY11 fell from Rs 131,000 crore to Rs 118,000 crore. Adjusted net profits (excluding extraordinary items) slipped from Rs 7,359 crore to Rs 6,560 crore over the same period.

It wasn’t the first job cut at Tata Steel Europe, earlier known as Corus. In the past three years, the company has retrenched a little over 3,000 employees, due to the 2008 crash and the 2012 crisis.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.

Compelling logic of TATA STEEL was to gain production capacities in the export markets

Likely Synergies between both the players.1)Tata steel was low cost producer2)Corus has large presence over value added

steel segment3)Benefits of converting the semi-finished steel

to high value added products.

4) Synergies of joint procurement5) Relocate some of the Corus’s capacity to

India6) Benefits of R&D.7) Benefited to Indian automobile Industry.

Joint synergy analysisMany projects were to be undertakenRobust capital structure and financial

flexibilityFormation of teams to form both companies

to work on various synergies.Ultimate aim was of cost- reductionAccess to mature markets of Europe.Aim of Corus to develop new products and

capture growth in India and Asia.

STRENGHS:-

Easy access to quality raw martial.New technology for producing high value products.Reach in 4 continent and 45 countries.Economics 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.

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.

If TATA steel were to create, from scratch, 19 million tonnes of steel making capacity comparable in quality to what Corus possesses, It would end up investing 70% to 85% more than it is paying now.

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 . the company would have an aggregate capacity beyond 50 million tones per annum, if all the planned Greenfield capacities go on stream by then.

We can conclude that if the acquisitions well planned , executed and the necessary precautions taken for the deal a company can achieve its strategic objectives and thus ensure its growth through acquisition.

“ 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

Shilpa Jethva 11soMBA21025Chandni Thakker 11soMBA21052Komal Thanki 11soEBA21046Fatema Dhankot 11soEBA21015