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Mergers & AcquisitionsKaran Shah Kunal Chhatwani Nirav RamiDiploma in Financial ManagementReview I December 11, 2012

1IntroductionMerger - Combination of two or more independent business corporations into a single enterprise where one survives and other loses its corporate identity.

XY+=ZXY+=XAbsorptionConsolidation2IntroductionAcquisition An attempt made by one firm to gain a majority interest in the other firm and thus gaining the legal ownership and control of the business of the target firm.

XY+=X3Classification of M&AsHorizontalA merger in which two firms engaged in the same line of business combine.Often in an attempt to achieve economies of scale and/or scope.

VerticalA merger in which two firms engaged at different stages of production in an industry combine.Often in an attempt to control supply or distribution channels.4Classification of M&AsConglomerateA merger in which two firms in unrelated businesses combine.Purpose is often to diversify the company by combining uncorrelated assets and income streams.

Cross-borderA merger or acquisition involving two firms from different countries of origin.5Motives For Mergers6Economies of ScaleA larger firm may be able to reduce its per unit cost by using excess capacity or spreading fixed costs across more units.$$$Cost Reduction711Combining Complementary ResourcesMerging may result in each firm filling in the missing pieces of their firm with pieces from the other firm.Firm AFirm BFirm AFirm B+=815Utilization of Surplus FundsIf the firm is in a mature industry with few, if any, positive NPV projects available, acquisition may be the best use of the funds.

917Economies of ScopeDiversified product line tends to reduce costs as compared to offering specialization in mere one product.Post-integration (distributed cost)CompanyPPPPPPPPre-integration (more cost)CompanyP1014Motive for MergersDiversificationEmpire BuildingTax ShieldManagerial Effectiveness1118Cost Benefit AnalysisIs there an overall economic gain to the merger?Do the terms of the merger make the company and its shareholders better off?

PV(AB) > PV(A) + PV(B) where PV(AB)=Value of merged company PV(A)=Value of Company A PV(B)=Value of Company B

1223Cost Benefit AnalysisBenefit of merged company PV(AB) - (PV(A) + PV(B))Cost of the merger to company A Cash PV(B)NPV to A = Benefit - Cost =(PV(AB) - (PV(A) + PV(B)) Cash + PV(B) NPV to B = Cash PV(B)Procedure for M&AFive Step ProcessIdentification of suitable candidatesAssessment of TargetFinancial EvaluationNegotiating the DealPost Merger Integration14Procedure for M&ASection 391 to 394 of Companies Act, 1956Examination of object clausesIntimation of stock exchangesApproval of draft amalgamation proposal by respective boardsApproval to the courtsDispatch of notice to shareholders and creditorsHolding of meetings of shareholders and creditorsPetition to courts for confirmation and passing of court ordersFiling of orders with registrars of companiesTransfer of assets and liabilitiesIssue of shares and debenturesBusiness ValuationBusiness valuationis a process and a set of procedures used to estimate theeconomic valueof an owners interest in a business.Standard and premise of value:The standard of value is the hypothetical conditions under which the business will be valued. The premise of value relates to the assumptions, such as assuming that the business will continue forever in its current form (going concern), Going ConcernLiquidationBusiness ValuationBasic Approach of ValuationIncome ApproachBased on future informationValue = Present Values of future residual CF available to capital providersUses projections of cash flows referenced to market parametersDiscounting factor is based on market beta of subject companies and/or comparable listed companyNot impacted by accounting practicesIncorporates all relevant factors of business- assets, risks and competitive positionProblems faced in this are:Future cash flows not easy objective due to various reasonsFinding and appropriate discount rate

Market ApproachBased on past, current & future informationUses historical market price quotation on major stock exchanges, Price to future maintainable PAT/ PBT/ PBITDA / sales amount / sales quantity or NAV multiplesAbove multiples are derived from listed market prices or transacted values of comparable company brand in the marketRelevant multiples need to be chosen carefully and adjusted for different circumstancesProblems faced in this are:No or very few comparable available Lack of availability of credible dataAsset (Cost) ApproachBased on trailing informationArrives at valuation in terms of stated net worth of the companyVariations of this method:Book Value / original cost minus depreciationMarket replacement cost minus depreciationMarket realizable value (break up of asset by asset sale)Problems faces in this are:Usually not a good indicator of going concernIgnores business earning potentialIndian Laws for M&AsWhy laws are required?Protection of Interests of StakeholdersPrevention of exploitation of customers from the potential to create a monopolistic power by companies through M&AVarious laws in IndiaCompanies Act, 1956SEBI Regulations, 1997, 1998Provision of Income Tax Act, 1961FEMA, 1999Competition Act, 2002

Indian Laws for M&AsCompanies Act, 1956Inspect the books of accounts of the companyDirect Special Audits and order investigation in the affairs of the companyLaunch a prosecution in case of violation of the act

Main Concern - Section 391 to 394

Indian Laws for M&AsCompanies Act, 1956Section 391Deals with the compromise of the arrangement of the reorganization of the share capital of the companyCarried out between the company and its creditors/membersScheme of compromise should be approved by three fourth of the creditors

Indian Laws for M&AsCompanies Act, 1956Section 392The court has the power to supervise the carrying out of the compromise or an arrangementMay order modifications for proper working of the arrangementIf compromise/arrangement cannot be worked satisfactorily, court may order the windup of the companyIndian Laws for M&AsCompanies Act, 1956Section 393Prescribes the procedures required for the convening of the meetingThe notice should be sent with a statement setting forth the terms of the compromise/arrangement explaining its effectIf rights of debenture holders are affected the statement shall give the information and explanation, in respect to the trustees, of any deed for securing the issue of debenturesIndian Laws for M&AsCompanies Act, 1956Section 394Court has power to sanction a reconstruction or merger schemeTransfer of whole or part of liabilities of the transferee to transferor.Allotment of shares, debentures among transferee or transferorContinuing the suit by or against the target by or against the acquirerDissolution without winding up by transferorMatters that are necessary to carry out the scheme in a complete or effective manner

Due DiligenceRefers primarily to an acquirers Independent Review of an acquisition candidate to make sure that its purchase would pose no unnecessary risks to the acquirers shareholders. Must be reasonable, not perfectAs long as it takesbut no longer Process Depends on Complexity of The Company to be Acquired Global/Local, Single/Multi Product, Industry Sector, Public/Private, Method of Acquisition Stock/Asset Purchase Common Law and Statutory Law

Why So Important?Risk Disclosure is Cheap but Litigation is NOT!The acquisition agreement fails to identify the information that the defendant was supposed to know or learn, the due diligence process must be examined to determine where liability lies. Thus in an event of Claim, the resolution of claim may go back to Due Diligence Issue and Documentation.Guidance for post acquisition re-start-up period.

Financial Statement ReviewTo confirm the existence of assets, liabilities, and equity in the balance sheet and to determine the financial health of the company based on the income statement and cash flow statement. Financial red flags include the resignation of external or internal auditors, changes in accounting, sales of stock by insiders, and unusual ratios. These may indicate fraud and/or potential insolvency.

Management and Operations ReviewTo determine the quality and reliability of the financial statements based on an assessment of internal controls and to gain a sense of contingencies beyond the financial statements.Operational red flags include very high or very low turnover and sketchy reporting from important nonfinancial programs (for example, quality or compliance). These may indicate unstable operations.

Legal Compliance ReviewTo check for potential future legal problems stemming from the candidate companys past Liability red include potential exposure to litigation from regulators, consumers, and employees.

Document and Transaction ReviewTo ensure that the paperwork of the deal is in order and that the structure of the transaction is appropriate Transactional red flags include potential securities law violations stemming from the transaction, and conflicting accounting and tax goals for the deal.

Tata Tea + TetleyThe First Ever Leveraged Buy Out and Largest Cross Border Acquisition (at that time) by an Indian Company

Why We Cheer This Blend?Earth Shaking Deal!Acquisition of a Global Shark by an Indian Minnow, literally a $114 million Commodity Tea company Tata Tea acquired Tetley for $450 million Three Times its size.Marked the Culmination of Indian companys Tata Tea's strategy of pushing for aggressive growth and worldwide expansion.Successful Brew - M&A. Expected Combined Annual Turnover worth Rs. 2,800 2,900 crore.

the takeover was financed by the target companys future internal accruals.

35Tata Tea Limited | TetleyTata TeaTurn Over: $207 m.Operating Profit: $36 m.Employees: 59,740Tea Estates: 18,000 HectaresKey Markets: IndiaTetleyTurn Over: $417 m.Operating Profit: $42.6 m.Employees: 1,100Tea Estates: 0Key Markets: Britain, Canada, Australia, USAApril 1, 2000 March 31, 2001 Tata Tea Limited | TetleyTata TeaSecond Largest Tea Company - India. Significant Domestic Presence Only. Consolidated Turnover of The Group 88% - Branded Teas12% - Bulk Tea, Coffee, & Investment Activities.40 m. Kg Tea Prod.TetleySecond largest Tea Brand in the World (First: Lipton)Significant Global Presence in over 44 countries. Privately Held Company!Global Good Will & Potential CompetitorCutting Edge Technology8 m. Kg Tea via Auctions

What Each Needed?Tata Tea - Go Global!Global Sourcing & BlendingTea Bag TechnologyTetley SAP-based ERPCreation of Premium Tea Bag Brands Flavored/Herbal and Iced TeaCompete Against HLL (Unilevers Subsidiary) TetleyTea Estates (More Cost Efficient) Operations Branded Packed Tea OperationsCompete Against UnileverApril 1, 2000 March 31, 2001 381+1 = 3 SynergyVertical IntegrationTata Teas Global Face - TetleyTetley gets access to Tata Teas gardens and production base and the latter gets Tetleys premium brands, technical expertise and global distribution network. So Competitive Advantage for TTL.Over 600mn USD Combined Annual SalesT+TTLs SynergyIntegration of branding, marketing, distribution & manpower .HLL Unilever. Local Market rising at 3% compared to Global 1%Drop in Tatas Export to RussiaWorking together to Capture Cost Synergies & Revenue SynergiesRevenue Synergy is accomplished by utilizing the complimentary strengths of both organizations. E.g. In Marketing.

Tata Tea has been successful in the marketing of package teasTetley has a strong and innovative product portfolio for Tea Bags.

Tata Tea's distribution network in the country with 38 Carry & Forward Agents and 2500 Stockists caters to over 1.7 million retail outlets.

40T+TTLs SynergyJointly developing the markets where one or the other company has so far worked singly thereby, leveraging the Tetley international brand name.

Bringing Tetley brand at the premium end of the Indian market, flavored teas, Herbal teas, Organic teas and decaffeinated teas. Financial Rationale TATA Tea GB SPV was created for the Tetley acquisition, will be merged into Tata Tea as soon as it has repaid its debt obligations. The acquisition was financed with $70 million in equity, of which $60 million was brought in by Tata Tea, India and $10 million by Tata Tea, USA -- a 100 per cent subsidiary of Tata Tea.The SPV leveraged this 70mn equity, 3.36 times to raise a debt of 235mn.

LBOThe entire debt amount of 235mn comprises of Four Tranches bearing interest @ 11% (which was 424 basis points above LIBOR), divided into four tranches namely A, B, C and D.

Amount raised via tranches A and B were used for funding the acquisition whereas C and D tranches were used capital expenditure & WC requirements.

Structure of the Tata Teas LBO DealTata Tea IncTata Tea Tata Tea (Gr Britain)SPV Equity 70mnDebt 235mnTetley AcquisitionLegal Services & Bank ChargesTetleys Working Capital requirements 60mn 10mnPrudential Mezzanine Capital Schroder Ventures Intermediate Capital GroupRabobank 185mn 30mn 10mn 10mnA Fine Blend of Debt and Equity 271mn 9mn 25mnInstitutional InvestorsSenior Debt FacilitiesThe purchase of Tetley was funded by a combination of equity, subscribed by Tata tea, junior loan stock subscribed by institutional investors (including the vendor institutions Mezzanine Finance, arranged by Intermediate Capital Group Plc.) and senior debt facilities arranged and underwritten by Rabobank International.

44Debt Repayment StructureABCDAmount110mn pounds25mn pounds10mn pounds20mn poundsLoan TypeLong-termLong-termLong-termRevolvingPurposeFunding AcquisitionFunding AcquisitionCAPEXWC expYear of maturity2007200720082007Pay-back methodSemi-annual installments2 installments in 07-082 installments in 07-08Cessation of creditFinancial RationaleLBO In the case of Tata Tea, its reserves at the time of the deal were just around Rs 4 billion, precluding the possibility of making such a gigantic acquisition on its own, neither could it afford the debt burden associated with large borrowings.The takeover was financed by the target companys future internal accruals future cash flows.The deal was so structured, that although Tata tea retained full control over the venture, the debt portion of the deal did not affect its balance sheet. Thus the liability of the acquiring company was limited to its equity holding in the SPV!Once the debt was redeemed, the acquiring company had the option to merge with the SPV.

Merger ImplicationsTata Tea Pre AcquisitionTetley Pre AcquisitionConsolidated Post AcquisitionPosition in Value Chain40% Turnover From Tea Bags100% Turnover from Tea BagsCompany Moved Up the Value Chain. 84% Turnover from Packet Tea/ Tea BagsIncreased OutsourcingProduced 95% of its Tea Requirement In-HouseOutsourced Entire Requirement from over 35 Countries70% of Tata Teas Requirement Outsources from more than 20 Countries, Reduction in Risk related to Crop ProdcutionPredictable MarginsMargins Highly Correlated with Tea CycleMargins Inversely Correlated To Tea CycleMargins HedgedGlobal Foot PrintPredominantly Domestic OperationsUK, Canada & USA Account for Bulk SaleGlobal PresenceVodafone + Hutchison Essar

Foreign company wanting to invest in India mayIncorporate a company as Joint Venture or Wholly owned subsidiarySet up a representative/project/branch office as a foreign companyIndian company may receive FDI by two routesAutomatic RouteGovernment RouteForeign Investment in IndiaTelecom sector contributes 3% in GDPFDI till 49% through automatic routeBasic, cellular, value added services and global mobile personal communications by satelliteFrom 49% to 74% through government routeISPs with gateways, radio-paging and end-to-end bandwidthRequire approval of Foreign Investment Promotion Board (FIPB) for sameSubject to Laws of IndiaForeign Investment in Telecom SectorHutchison EssarHutchison Whampoa Max Group partnered in 1992By 2004, provided services in 13 circles, acquisition of BPL mobiles increased to 16In 2006, acquired Essar Spacetel, applied for license in 7 remaining cyclesHutchison held 52%, Essar held 33%, remaining 15% held by other Indian nationals23.3 million customers, 16.4% market shareRevenue - US$1,282 million, EBITDA - US$415 million, Operating Profit of US$313 millionWell established in India by 2006

Enter VodafoneIn 2007 Vodafone acquired 67% stake for $10.7 billion, company renamed Vodafone EssarStarts operating in all 23 circlesIn 2011 Vodafone buys out 33% stake of Essar rendering it with 74% ownership, company renamed Vodafone IndiaSecond largest mobile operator in India, 146.84 million customers as of November 2011Reasons for Vodafone to MergeExposure to high growth Indian mobile market, growing at the rate of 6 million subscribers per month, expected to reach 500 million subscribers by 2010India benefits from strong economic growth in high single digitsA step forward in strategy to increase presence in high growth emerging South Asian markets seen as big telecom storyCellular penetration in rural India was below 2% but 67% of Indias population resides in rural areasWith 3G set to take off in India, Vodafone already providing 3G services elsewhere in the world would benefit

Why Hutch?Presence in a market of 143 million subscribersFourth largest mobile operator in India with 24.41 million subscribers16.41% of Indian mobile market, present in 16 of 23 circlesAccounted 41% of Hutchison Telecommunication Internationals revenuesReasons for Hutchisons ExitUrban markets were saturatedFuture expansion would have been in rural areas leading to low average revenue per user (ARPU)HTIL wanted to use the money earned through this deal to fund its European businessSouring relations with Essar group

Immediate Challenges Indian cellular telephony is extremely competitive and has one of the lowest ARPU in the worldVodafone brand is unknown in the Indian market, it will cost money and take time to establishIndias big competitors are home grown majors which could prove a challengeTelecom valuations are at a high, this means it could be years till Vodafone recovers its initial multi billion dollar investment

Vodafone GroupVodafone Group Operations divided in Europe and EMAPAEurope Germany, Italy, Spain, UK, GreeceEMAPA Eastern Europe, Middle East and Asia, PacificEastern Europe-Turkey, RomaniaMiddle East, Africa and Asia- Egypt, Kenya, South Africa, IndiaPacific- Australia, New ZealandVodafone Group2008 was a good year financially for VodafoneGroup revenue of 35.5 billion, an increase of 14.1% Europe: 2.0% revenue growth, with outgoing usage up 20.1% EMAPA: revenue growth of 45.1%, reflecting acquisitions in India and Turkey. Group adjusted operating profit up by 5.7% to 10.1 billionGroup EBITDA up 10.2% to 13.2 billionFree cash flow of 5.5 billion

RevenueGroup - 35,478 million, 14.1% growthImpact of acquisitions and disposals - 6.5% from acquisitions of subsidiaries in India in May 2007 and Turkey in May 2006 as well as in Italy and Spain in December 2007EMAPA - 9,345 million, 45.1% growthGrowth in the EMAPA region benefiting from a 27.5 % impact from acquisitions and disposalsMiddle East, Asia and Africa - 4,547 million, 85.2% growthIndia - 1,822 million India revenue contribution, 40% of Middle East, Asia and Africa, 19.5% of EMAPA, 5.13% of the group

EBITDAGroup 13,178 million, 10.2% growthEMAPA - 3,145 million, 39.7% growthMiddle East, Asia and Africa - 1,723 million, 67.5% growthIndia - 598 millionIndia EBITDA contribution, 34.7% of Middle East, Asia and Africa, 19% of EMAPA, 4.5% of groupEBITDA margin in EMAPA declined from 34.9% in 2007 to 33.7% due to the investment in growing the customer base and the impact of the acquisition in India and TurkeyBoth Vodafone Essar and Turkey have lower EBITDA margin than the regions average, as a result of the investment in rebranding the businesses to Vodafone, increasing the customer base and improving network quality in TurkeyOperating ProfitGroup - 10,075 million, 5.7% growthEMAPA - 3,729 million, 14.95% growthMiddle East, Asia and Africa - 769 million, 15.3% growthIndia - 35 millionLow because of new investment, additional investment in fixed assetsThe group made net profit of 6,756 million from the loss of 5,927 millionVodafone EssarGroup has 260 million mobile customers worldwide India has over 44 million customers, with 1.5 million net customer addition per monthVodafone Essar revenue increased by over 50% during the year on a pro forma basisEstablished an independent tower company with Bharti Airtel and Idea Cellular Ltd. to drive further strong, cost efficient growth, to accelerate the expansion of network infrastructure in India, to reduce overall costs and generate revenue from third party tenants

Vodafone EssarIndian mobile market continued to grow with penetration reaching 23% by the end of March 2008 Vodafone Essar continued to perform well, with adjusted operating profit slightly ahead of the expectations This has been partially due to the Groups rapid network expansion in this market together with improvements in operating expense efficiency, particularly in customer care

ConclusionVodafone, one of the few successful groups in India during the tough times of recession.Successfully integrated its India Operations.Had to face few initial challenges but today its the second largest mobile network operator in India.The Brand Trust Report,2011 published by Trust Research Advisory has ranked Vodafoneas the 16th most trusted brand in India.Tata Steel + CorusTata SteelEstablished in 1907, Tata steel is Asias first and Indias Largest Private sector steel company.Tata steel a part of the Tata Group, one of the largest diversified business conglomerates in India. Tata group companies generated revenues of Rs.97,000 Crore in the Financial year 2005-06. As of January 2007, the groups market capitalization was approximately US$63 billion or Rs.2,70,000 Crore

Tata SteelOperationIts captive raw material resources and the state of the art 5 MTPA plant at Jamshedpur give it a competitive edge. Tata Steel has recently included in its fold NatSteel, Asia (2 MTPA) and Millennium Steel (now Tata steel Thailand) (1.7 MTPA) creating a manufacturing network in eight markets in South East Asia and Pacific rim countries. The companys wire manufacturing unit in Sri Lanka is knows as Lanka Special Steel while the joint Venture in Thailand for limestone mining is known as Sile Eastern.Tata Steel SWOT AnalysisTata Steel - Reasons to BidTo tap European mature marketCost of acquisition is lower than the setting up the greenfield project and distribution channel.Tata manufactures low value long and flat steel products while corus produced high value stripped products.Helped tata to feature in top ten players in the worldTechnology benefitEconomic of scaleCorus holds number of patents and R & D

CorusCorus was formed via the merger of Hoogovens, a Dutch steel company, and the former British steel. Between the two sets of assets, everyone in the industry regards the Dutch assets as the crown jewel. The British assets are the older, less productive and less profitable. They have union issues and are burdened with more than $13 billion of pension liabilities. On the other hand, Corus represents about 20 million tons of annual steel production. Corus is Europes second largest steel producer with annual revenues of Rs. 82,674 crores (9.7 Billion GBP) and crude steel production of 18.3 million tonnes in 2006. Corus has a presence in nearly 50 countries, including its global network of offices and service centers.Corus OperationsCorus main steelmaking operations are located in the UK and the Netherlands with other plants located in German, Frnace, Norway and Belgium. Corus produces carbon steel by the basic oxygen steelmaking method at three integrated steelworks in the UK at Port Talbot, Scunthorpe and Teesside, and at one in the Netherlands at Ijmuiden. Corus estimates that, as at 30 December 2006, it was the ninth largest steel producer in the world and produced 18.3 mt of crude steel in 2006Corus has four main operating divisions: Strip products, Long products, Distribution and Building systems and AluminumCorus has sales offices, stockholders, service centers and joint venture or associate arrangements in a number of markets for distribution and further processing of steel products. Corus has sales offices in around 30 countries, supported by a worldwide trading network.Corus SWOT AnalysisCorus Reasons BidTo 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.Total Debt of corus is 1.6 Bn GbpCorus need supply of Raw material at lower costTough Corus has Revenus of $ 18.06 Bn its profit was just of $626 MnCorus facilities were relatively old with high cost of production.Employee cost is 15% while that of Tata steel is 9%

RationaleFrom Company point of view:Ambition of growth and globalizationCatapult itself in the league of the ten steel producers in the world.From Location point of view:India steel industry is under threat of getting overcrowded Greenfield projectsDomestic demand for steel is unlikely to grow so dramatically as to absorb all the incremental capacities that might come up. Companies trying to increase exports to overcome the anticipated domestic situation of excess supply. This has resulted in antidumping actions being taken by developed countries like USA, EU and Canada. Tata Steel was to have production capacities in the export markets and the acquisition of Corus fits in nicely with that game plan.

RationaleFrom Economic point of view:Despite the enormous price tag for Corus, the purchase price per ton amounts to about half of what it would cost today to build those same assets from scratch. The acquisition price values Corus steel making capacity at about $710 per ton, which is far cheaper than starting from scratch. Today a greenfield project with downstream products and construction solutions would work out to $1,200 to $1,300 per ton

Why Corus?

Why Corus?

SynergiesTata Steel is the lowest cost producer of steel in the worldCorus is a player with a large presence in value added steel segment.Corus has a strong distribution network in Europe.Tata steel would be able to supply semi-finished steel to corus for converting into high value added products in its finishing plants, which are located in the European marketsCombined entity would be able to negotiate much better raw material prices on the hand, while on the other it would not be so vulnerable to the pressure on prices of the end products.Corus had a much better R & D capability than Tata Steel and Tata Steel has better R&D than other Indian Players. Structure of the Tata Coruss LBO Deal

RefRatioMar '07Mar '06Mar '05Mar '04Mar '03Average(A)Operating Profit Margin (%)39.6138.8841.132.4723.7135.154Operating Profit (In Cr.)6913.755884.225956.023474.932066.84Net Sales (In Cr.)17452.6615132.0914489.710699.318716.54(B)Net Profit Margin (%)23.5322.7823.721611.5219.51Interest (In Cr.)251.25168.44228.8230.56342.41(C)Return On Capital Employed (%)27.7143.7256.0638.7720.6837.388(D)Current Ratio1.690.710.690.660.730.896(E)Debt Equity Ratio0.690.260.390.751.330.684Debt (In Cr.)9645.332516.152739.73373.284225.61Equity + R & S (In Cr.)13949.099755.37059.924515.863184.81(F)Interest Cover26.1931.8624.0113.274.4819.962(G)Inventory Turnover Ratio7.697.087.828.737.627.788(H)Debtors Turnover Ratio29.8126.9923.513.298.5820.434(I)Earnings Per Share72.7463.3562.7747.4827.5354.774Net Profit (In Cr.)4222.153506.383474.161746.221012.31Shares in Issue (lakhs)5804.735534.735534.733677.723677.72Financial Analysis of Tata Steel StandaloneOperating Profit Margin:Considering a period of FY 2003-2007, Operating profit margin has been improving Y-O-Y from 23.71 in March03 to 39.61 % during march 2007 showing an impressive profitability at an operational level.

Net profit margin:Net profit margin has been improving from 11.52% to 23.53. The same can be verified by having a look at the finance cost (Interest) of Tata steel which has been continuously reducing from 342.41 Cr. in March03 to 251.25 Cr. in March07.

Return On Capital Employed:Tata steel has achieved an average ROCE of 37.38% over a period of FY 03 to 07 which seems reasonable considering the presence of Tata steel within the steel industry.

Current Ratio: There has been a consistence decrease in the current ratio of Tata Steel from FY 2003 to 06. It has increased in the FY 06-07 and standing 1.69 which seems good as per the industrial standard i.e. 1.33

Debt equity ratio:There has been consistent decrease in the total debt of Tata steel upto FY 06. As well there has been a continuous increase in total equity of Tata steel upto FY 06 and due to that the DER is on a down word scale from 1.33 to .26 during FY03 to 06.

Financial Analysis of Tata Steel Standalone

Earnigs per share: There has been a sharp increase in the net profit (earnings) of Tata steel from 1012.31 Cr to 4222.15 Cr. during FY 03 to FY 07. Against the same the denominator has been increasing from 3677 to 5804 lakhs no of shares and the resulting impact is increased in EPS y-o-y from 27 to 72.

Interest CoverThere has been a significance increase in operating profit (EBIT Level) of Tata steel 1,603 Cr. to 6,456 Cr. along with that there is a decrease in the interest burden from 342 to 251 Cr. during FY 03 to FY 07. Resulting impact is company has been generated significant profit to covers its interest burden.

Inventory Turnover ratioIt seems that the company has been maintaining its inventory efficiently by managing and average turnover ratio of 7.7 over a period of 5 years.

Debtors Turnover ratioTata steel has been operating with an efficient collection/recovery due to which piling up of debtors is on a lower side and resulting positive impact on turnover ratio that has been increased from 9 to 30

Financial Analysis of Tata Steel Standalone

Post DealPre DealRatioMar '12Mar '11Mar '10Mar '09Mar '08Mar '07Mar '06Mar '05Mar '04AverageOperating Profit Margin (%)9.3413.688.0412.3113.8230.0831.1838.2631.9132Raw Materials (In Cr.)74,555.02 61,193.71 51,855.32 82,457.46 68,159.81 10,353.647,460.934,788.733,015.18Net Sales (In Cr.)132,899.70 118,659.32 102,305.83 147,364.83 131,500.28 25,117.7820,244.4315,998.6111,129.44Raw Material Consumption to Net Sales56%52%51%56%52%41%37%30%27%Net Profit Margin (%)47.54-1.953.349.3516.2818.2622.3115.8618.EBIT (In Cr.) 12,835.09 15,543.18 3,713.91 10,550.75 21,099.42 7054.285691.525602.512844.17Interest (In Cr.) 4,250.11 3,426.67 3,659.77 3,790.69 4,588.64 635.67206.41238.6129.3Tax (In Cr.) 3,636.46 3,247.26 2,153.46 1,895.68 4,051.03 2148.521794.991871.96936.2561%43%157%54%41%39%35%38%37%Current Ratio1.241.591.331.591.581.730.810.70.83Debt Equity Ratio1.231.652.3132.061.720.330.450.75Equity (In Cr.) 42,638.65 36,885.71 23,020.84 27,242.62 34,173.98 14,475.14 10,281.84 7,335.06 4,656.68 Debt (In Cr.)52,212.32 60,684.34 53,100.35 59,900.50 53,592.75 24,925.53 3,377.43 3,315.63 3,497.95 EPS50.9592.39-24.4464.94168.5171.8567.3164.6948.33Net Profit (In Cr.) 4,948.52 8,856.05 (2,120.84) 4,849.24 12,321.76 4,165.61 3,721.07 3,571.20 1,778.62 Share in issue (Lakhs) 9,712.14 9,585.43 8,865.43 7,299.21 7,299.13 5,798.01 5,528.01 5,520.69 3,680.46 Financial Analysis of Tata Steel-Consolidated

Financial Analysis of Tata Steel - ConsolidatedOperating profit & Net profit margin:Before acquisition of corus and economic downturn company was operating at an average OPM and NPM of 32 and 18 respectively. The average OPM and NPM has been reduced since last three or four years due to lower capacity utilization at corus level and economic downturn.

Current Ratio: The average current ratio of the company is standing at 1.4 over last four years post corus deal which is higher than the general standard current ration i.e. 2 : 1

Debt equity ratio: Tata steel Finance acquisition of corus with an approximate debt of 8.9 that indicates significant leverage buyout of corus and resulting impact is higher average. debt equity ration of 2 post corus acquisition deal that was earlier standing at .8

Earnings per share:

Significant increase in EPS of year 2007-08 compare to FY 06-07 there could be two probable reasons for the said:Significant increase in Net Profit from 4165 crores to 12,321 crores Lower impact of increase in number of issued shares.

DecisionsThe outstanding financial credential has played a vital role i.e. Contributed about US $ 4,100 from Parent company whereas balance fund has been generated from the market. The financial ratio/results of the Tata Steel- Standalone were good before the acquisition of the Corus.Equity dilution from acquisition of Corus would reduce its earning per shareThe estimated synergies willtake time to materialize. Its integration to main business group is still underwayThe cost of production per tonne of steel for Corus is very high on account ofinaccessibility raw material (iron ore and coal) and high labor costs. Tata Steel has intended to reduce the cost by sourcing raw material from the source of origin.The companyisexposed to increase in rawmaterialpricesdue to acquisitionWhole sector has witnessed higher cost of production due to higher iron ore and coking coal prices. The cost is relatively high in overseas operation than domestic operation

QuestionnaireAssessing Impact of M&A on Organizational Structure

Q.1.When you heard about Merger or Acquisition in your company, what was your reaction-Supportive (b) Against (c) No reaction

Q.2. Have the Policies changed after Merger or Acquisition?Yes b) No

If Yes, Have the new policies affected you at all?Yes b) No

If Yes, How did it affect you? (Provide Text Answer)

Q.3. After Merger or Acquisition, were there any changes in reporting structure?Yes b) No

Q.4. Has your Job Profile changed?a) Yes b) No

Q.5. Did you get any additional benefits after Merger or Acquisition?a) Yes b) No c) Cant sayQ.6. Is there any kind of Cultural Training provided to you for the new change in organization?Yes b) No

If Yes, How far it has benefited you? (Provide Text Answer)..

Q.7. Are there any changes in Management Style?Yes b) No

If Yes, How did it affect you? (Provide Explanation)

Q.8. Did your companys rules and regulations changed, after Merger or Acquisition?Yes b) No

Q.9. Are you satisfied with the Merger or Acquisition of your company?Yes b) No c) Cant say

Q.10. Did you think of resigning when you heard about Merger or Acquisition?Yes b) No