20219848 Tata Corus Acqusition

8/3/2019 20219848 Tata Corus Acqusition

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PresentedBy:-

AnkurKeshari

Ashish Lal

Priyanka Jain

TATA & CORUS

Presented To:-

Ms. ParulNagar

Date 18th September,2009

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Objectives of Research

Introduction.

Indian Steel Market.

CORUS Steel Industry.

The DEAL.

TATA after Acquisition.

Loss in the 1st Quarter of

2009

Conclusion and

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Indian Steel Market Tata steel industry was the first Indian steel

industry established 1907.

It holds an important place in the Indianbusiness history.

Tata started other business in India in a shortspan of 30 years.

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Cont

Steel industry (heavy industry) is considered as avery influential factor in the modern economy.

India is considered as a major exporter of steelon a world map.

Due to this, antidumping actions has been takenby developed countries.

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Global Steel Market : Overview

IISI forecasts the global steel demand would be1.32 billion tones by 2010.

Much of these demand generated from India andChina

China highest Steel producing country

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Global Steel ranking

Company Capacity(in million tonnes)

Arcelor - Mittal 110

Nippon Steel 32Posco 30.5

JEF Steel 30

Tata Steel - Corus 27.5

Bao steel China 23

US Steel 19

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Corus Steel Industry Formed on 6th Oct 1999, through merger of 2

companies : British Steel and Koninklijke Hoogovens.

Consist of four divisions : Strip products, Longproducts, Aluminum and Distribution, Building system

Operates as an International company

Core business in Manufacturing, Development andAllocation of Aluminum and Steel products and

services Wide variety of products and services

Largest steel producer in UK with 10,142 millionannual revenue and work force of 50,000 employees

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Objectives of Acquisition Higher profitability

TATA current EBITDA is 13% production tonnes

Global No. 6 company

By 2012, EBITDA expected is 25%, production of 40million tonnes giving it the position of Global number2.

To gain access to global steel market and expand

production capacity to keep pace with growingdemand for steel

Jim Leng, Chairman of CorusThis offer from Tata

Steel reflects the substantial value created for Corus

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Objectives of Acquisition TATA looking for mature market in Europe for its

finished products

Corus holds a number of patients and R & Dfacility.

Cost of Acquisition lower than setting up a greenfield plant and marketing and distribution channel.

Corus wanted to reduce its employees cost and

TATA is well known for handling its laboursefficiently.

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Consolidation Synergy As part of its integration process being done at

two levels, the steel makers expects to cross the$450 million target by the end of 2010.

Synergy targets to be achieved included areas ofmanufacturing procurement research anddevelopment, I.T., Finance and capital projects

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Mr. B. Muthuraman (M.D. Tata Steel)

We will make the steel business into an EVA positiveone by 2007 08 through new initiatives, to be calledASPIRE, in all relevant areas of our business.

We will continue to be the lowest cost producer ofsteel in the world by continuous improvement,benchmarking and up gradation.

We will strengthen our partnerships with ourcustomers and suppliers, and create mutually valuecreating opportunities.

Unleash peoples potential and create more leaders.

This Company has had and has many outstanding11


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The DEAL..

Officially announced on April 2nd 2007.

TATAs motive is to capture the market value.

Total value of this acquisition was $12 Billion (608

pence per share except 603 per share).

Corus gained profitable opportunity to exit and a

buyer for some time.

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Ups and down Sep 20, 06 : CORUS uses the strategy to work with low cost

producer.

Oct 06, 06 : Initial offer by TATA is considered to be too low.

Oct 17, 06: TATA kept its offer to 455 pence per share.

Oct 20, 06 : CORUS accepts the offer of 4.3 billion.

Oct 23, 06 : Brazilian Steel Group CSNcounter-offer to TATAs offer. Oct 27, 06 :CORUS criticized by JCB for acceptance of TATAs

offer.

Nov 18, 06 : The CSN approaches Corus With an offer of 475 penceper share

Nov 27, 06 : Board of Corus decides to give more time forshareholders to decide whether it issue forward a formal offer.

Dec 18,06 : Tata increases its original bid for Corus 500 pence pershare, then CSN made its counter bid at 515 pence per share in

cash Jan 31, 07 : Tata had agreed to offer Corus investors 608 pence per

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TATA After Acquisition

Seven member team for this DEAL.

TATA has to pay $12 billion, where 2/3rd was being

financed. After the bidding conflict with CSN, TATA ended up

paying more to CORUS.

Still TATA earned operating profits of $840 million on

sales of 5.3 million tonnes of steel, while CORUS

earned $860 million on sales of 18.6 million tones of14


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SWOT Analysis for TATA Strength

Lowest cost producer in world.

Experience of TATA group in doing global activity.

Stable balance sheet (Low Debt to Equity Ratio).

Weakness

Corus was triple the size of TATA steel in terms of

production.

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Swot Analysis Opportunity

Consolidation trend in Steel Industry

CSNs lost image after failure of 2002 negotiations

To get exposed to global steel market

Threat Brazil company CSN

Russian company Severstal No committed financers to support the possible deal

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Loss in quarter 1 of 2009 - 2010

TATA Steel posted a consolidated net loss (includingCorus) of Rs 2,209 crore ($461 million).

Incurred a profit of Rs 3,901 crore ($814 million ) in theApril-June quarter of FY09.

Sales volume of Indian operations was higher by 22percent but sales from its European operations (Corus)fell heavily.

Group consolidated turnover was Rs.23,292 crores ascompared to Rs. 43,496 crores.

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Formulating a Research Design

Descriptive Study

Fact finding investigation with adequate

interpretation.

Identifies various characteristics of organization.

Prediction is used outside the boundary of

research.

Provides facts for planning action program.18


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Reasons for Failure

Global Economic downturn.

Increase in iron ore and coal prices.

Contraction in demand from the building andautomotive sectors.

Bidding Disturbance from CSN to TATA Steel

455 pence per share is pushed to 608 pence per share

of Corus.

Main Competitors are CSN and SEVERSTAL19


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Defining The Problem

Lower chance of success Size of target company Corus

Other bidding companies like CSN etc.

Higher price per share Less opportunity to build relationship with the

targets management

Local Market reaction

Arranging funds as it was an all cash deal

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Alternates Global Expansion

Taking the TATA trust globally

Joint Ventures with other steel manufacturers

Could have searched for reserves in India,

Singapore etc.

Profitability

Could have diversified its investment

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Alternatives Expansion If TATA steel were to create, from

scratch, 19 million tonnes of steel makingcapacity comparable in quality to what Coruspossesses, It would end up investing 70% to 85%

more than it is paying now.

Besides, setting up a new factory, a 3 to 5 yearsproject if everything goes well, has greatexecution risk.

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Contingency Plan The Contingency plan could have been a joint

venture with mittal steels as it is allready intoprocess of setting up a big steel unit in Orrisa,TATA could have provided them with iron ore

reserves and would have expected share in itsprofits

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Conclusion

I believe this will be the first step in showingthat Indian industry can step outside the

shores of India in an international marketplace and acquit itself as a globalplayer

-Ratan Tata

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20219848 Tata Corus Acqusition

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