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Tata-Corus Acquisition

Vikas 04/2010Shaila 22/2010Sunit 28/2010

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We aspire to be the global

steel industry benchmark forValue Creation and Corporate

Citizenship

VISION TATA STEEL

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Former Name : Tata Iron and Steel Company

Parent : Tata Group

Type : Public BSE (500470)

Founded : 1907

Chairman : Ratan Tata

Industry : Steel

Overview of the Acquirer

Founder : Jamshedji Nusserwanji Tata

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Headquarter : Jamshedpur, Jharkhand, India

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Name : Corus

Parent : Tata Steel, member of Tata Group

Type : Subsidiary

Founded : 1999

CEO : Kirby Adams

Industry : Steel

Overview of the Target

Formation : Merger of British Steel Corporation & Koninklijke Hoogovens N.V.

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Headquarter : London, England, UK

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Official Announcement: April 2nd ,2007

Price of Deal: 608 pence per ordinary share in cash

Total Value of the Deal: US $ 12.11 Billion

Deal Competitor: Companhia Siderurgica National(CSN)

Competitors Bid: 603 pence per share Deal process commencement: September 20,2006

Deal process completion : July 2, 2007

THE DEAL

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The Positive Side (TATA Steel)

Tata was one of the low cost steel producer

Had strong retail and distribution in SE Asia

Had self sufficiency in raw material

Indian Auto Industry was the main consumer

The Negative Side (CORUS Group)

Corus was fighting to keep its production costunder control

It had to look out for the Source of the Iron Ore.

Synergies between the two

companies

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September 20, 2006: Corus Steel has decided to acquire a strategicpartnership with a Company that is a low cost producer

October 5, 2006: The Indian steel giant, Tata Steel wants to fulfill its

ambition to Expand its business further. October 6, 2006: The initial offer from Tata Steel is considered to be

too low both by Corus and analysts.

October 17, 2006: Tata Steel has kept its offer to 455p per share.

October 18, 2006: Tata still doesnt react to Corus and its bid priceremains the same.

October 20, 2006: Corus accepts terms of 4.3 billion takeover bidfrom Tata Steel

October 23, 2006: The Brazilian Steel Group CSN recruits a leading

investment bank to offer advice on possible counter-offer to TataSteels bid.

Milestone- Key Date

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October 27, 2006: Corus is criticized by the chairman of JCB, Sir AnthonyBamford, for its decision to accept an offer from Tata.

November 3, 2006: The Russian steel giant Severstal announces officiallythat it will not make a bid for Corus

November 18, 2006: The battle over Corus intensifies when Brazilian groupCSN approached the board of the company with a bid of 475p per share

December 18, 2006: Within hours of Tata Steel increasing its original bid forCorus to 500 pence per share, Brazil's CSN made its formal counter bid forCorus at 515 pence per share in cash, 3% more than Tata Steel's

Offer.

January 31, 2007: Britain's Takeover Panel announces in an e-mailedstatement that after an auction Tata Steel had agreed to offer Corus investors608 pence per share in cash

April 2, 2007: Tata Steel manages to win the acquisition to CSN and has thefull voting support from Corus shareholders

Key Date cont.

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Gain market share Economies of scale

Enter new markets Acquire technology Utilization of surplus funds: surplus fund mean cash flow

available after the payment of tax. It is the remainingmoney after all liabilities including tax, insurance andexpenses.

Managerial Effectiveness: it is base on 3 views.Traditional perspective, organizational and individual.

Strategic Objective: It is base on the mission n visionstatement that how they fulfill or move towards the highgoal.

Objective behind M&A

deal

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Become a global player with a balanced presencein developed European and fast growing Asian

markets.

Acquire strong positions in construction,automotive and packaging market sectors.

Significant raw material security and greenfield /brownfield developments.

Lowest cost position in Europe & South East Asia.

Own developmental plans.

COMBINED AMBITION

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DOUBLE THE SIZE AND PROFITABILITY

Current : EBITDA OF 13% ; 25 million tonnes

By 2012 : EBITDA of 25% ; 40 million tonnes

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In 2006, TISCO signed a deal with Corus to acquire it (455)pence per share.

Counter attack by Brazilian Company CSN

The offer was for 475 pence per share

Looking at this scenarios Corus Group asked both theCompany to attain an auction

More the bid wins the Share

The last offer by CSN was 604 pence per share and TataSteel Won their bid by offering 608 pence per share.

Pre Merger Period

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A holding company was setup by Tata in

Singapore to acquire Corus. Idea was to have all foreign acquisitions

under one holding company.

Singapore has a favorable Tax jurisdictionand gave Tata Steel an easy avenue forraising global resources and funds.

The Tata-Corus Deal

Investment Vehicle

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The Tata-Corus Deal

Tata Steel India

Tata Steel Holdings Asia

(Singapore)

Tata Steel UK (SPV)

Corus Group Ltd. (UK)

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Reasons for Acquisition

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To tap European mature market

Cost of acquisition is lower than setting upgreen field plant and marketing anddistribution channel.

Tata manufactures low value long and faststeel products while Corus produced highvalue stripped products

Reasons for Bid from Tata Steel

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Acquisition would help Tata to feature in

top 10 players in the world. Technology benefit

Economies of scale

Corus held a number of patents and R&Dfacilities

Reasons for Bid from Tata Steel

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Saturated market of Europe

To extend its global reach through Tata To get access to low cost Indian Ore

reserves

Decline in market share and profit Total debt of Corus was 1.6 Bn GBP

Facilities were old with high cost of

production

Reasons From Corus to accept the

Tata Bid

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TATA CORUS Deal - $ 12 billion

Funding was for 60:40 debt equity. Equity Contribution from Tata Steel - $ 3.88

billion.

Credit Suisse leaded, joined by ABN AMROand Deutsche Bank in the consortium.

Of the $ 8.12 billion of financing, CreditSuisse provided 45% and ABN AMRO andDeutsche provided 27.5% each.

FINANCING THE

DEAL

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How the Acquisition was Implemented

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Appointing Advisors

Negotiating Terms Due Diligence

Exchange of contracts

Completion

The Tata-Corus Deal

Process of Acquisition

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Ratan Tata Chairman of Tata Steel on Acquisition

This proposed acquisition represents a

defining moment for Tata Steel and isentirely consistent with our strategy ofgrowth through international expansion.Corus and Tata Steel are companies withlong, proud histories. We have compatiblecultures of commitment to stakeholdersand complementary strengths in

technology, efficiency, product mix andgeographical spread. Together we will beeven better equipped to remain at theleading edge of the fast changing steelindustry.

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Was The Merger a Success or a Failure?

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The following points can be attributed:

TATA Steel Group rose to 5th position from 56th

The production capacity increased from4million tonnes to 28million tonnes by 2011

Standard & Poors Rating cut it credit Rating to

BB from BBB and removed them from the

negative watch list

Merger Success or Failure?

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Big boost to the Indian economy, as TATA wasacquiring a company 3 times its size

The R&D Unit of Corus complements that ofTATAs

Links low cost Indian production and raw

materials and growth markets to high marginmarkets and high technology in the West

Help from financing institutions as $8 billion

was raised through debt

TATAs Implementation of the Deal

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Tata Steel Stock Price

Statistics

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Tata Steel Europe Stock Price

Statistics

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Acquisition - A SUCCESS

Verdict

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FINANCIAL ANALYSIS

5 Yr Financial performance of Tata Steel

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5 Yr. Financial performance of Tata SteelBefore Merger

Category Unit FY`02 FY`03 FY`04 FY`05 FY`06

Production `000 Mt 3,636 3,941 4,089 4,109 4,552

Revenue $ Mn 1583 2150 2755 3532 3884

EBIDTA $ Mn283 516 840 1378 1401

EBIDTA

Margin

% 20% 27% 34% 42% 40%

PBT $ Mn52 277 616 1178 1187

Net Profit $ Mn 43 222 404 773 794

Net Profit

Margin

% 3% 12% 16% 24% 23%

EVA $ Mn

-96 34 156 528 529

5 Yr Financial performance of

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Category Unit FY`02 FY`03 FY`04 FY`05 FY`06

Production `000 Mt 17.1 19.4 19.5 18.7 18.8

Revenue $ Mn 11456 10018 12165 10845 12845

EBIDTA $ Mn 512 305 1251 1142 1846

EBIDTA

Margin

% 4.47 % 3.04% 10.28% 10.53 % 14.37 %

PBT $ Mn -644 -321 766 649 610.35

Net Profit $ Mn -741 -388 593 512 446

Net Profit

Margin

% - 6.47 - 3.87 4.87 4.72 3.47 %

5 Yr. Financial performance ofCorus Before Merger

Fi i l j t b f

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2006-07 31st Dec,2006

Turnover 4546 18979

EBITDA 1704 1846

PBT 1440 610.35

PAT 971 446

Net Profit Margin 23% 2.35 %

EPS 1.70 0.41

Dividend 254 134

TATA Steel Corus

Financial just beforeAcquisition

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P C i

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Peer Comparison

Ratios Corus CSN Severstal Nucor

EV/EBITDA 4.5 X 6.29 X 18.98 X 9.14 X

EV/TON 538 2263 3221 864

Price/Book

Value

1.34X 0.90 X 4.76 X 1.72 X

P/E Ratio 14.96X 4.69 X 43.5 X 15.13

X

EPS 0.41$ 2.12 $ 1.27 $ 3.06 $

Peer Comparison for FY 2006

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Profit before Tax of Peers Pre & PostAcquisition

Year CSN CORUS Nucor Severstal

2006 987 610.35 2693.818 2112.429

2007 2161 - 2253.315 2654.455

2008 2941 - 2790.470 2587.959

(USD mn )

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Particulars 2006-07 2007 -08

Risk Free Rate 8.00% 5.27%

Market premium 6.50% 9.00%

Assumed Beta 1.12 1.5

Cost Of equity 15.28% 18.77%

Equity % 37.00% 35.00%Cost Of Debt 8.00% 8.00%

Tax Rate 34.00% 25.00%

After tax cost of debt 5.28% 6.00%

Debt % 63.00% 65.00%

WACC 8.98% 10.4695%

Capital Employed 42074.75 92161.62

Net Profit 4165.61 12321.76

Total Weighted Cost 3778.313 9648.861

EVA 387.297 2672.9

Figures In Cr.EVA Calculation Pre & PostAcquisition

TATA St l b f & Aft

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TATA Steel before & After2006-07 2007-08 2008-09

EBITDA/Turnover 31.14% 14.08 % 12.55 %

PBT (In crores Rs) 6313 16371 6743

PAT(In crores Rs) 4165 12321 4849.24

PBT/Turnover 24.61 % 12.39 % 7.43 %

Interest Coverage

Ratio

16.35 3.46 4.32

EPS 64.66 177.18 66

Debt /Equity 0.71 1.99 1.65

P/E 6.95 3.91 3.12

A Fi i l t k th A i iti

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A Financial take on the Acquisition.

1. Valuation TATA Steel Paid 7 Times EBITDA of Corus Enterprise Value

Also,9 times EBITDA for 12 Months ended 30th September 2006

Comparing with Arcelor - Mittal deal-

Mittal Steel Acquired at an EBITDA of 4.5 times,

The point is Arcelor has much superior assets, wider marketreach and financially stronger than Corus

The price paid by Tata Steel looks almost obscenely high.

A Financial take on the

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A Financial take on theAcquisition

2. Interest charges New Debt of $ 8 bn @ 8% annual interest

cost i.e. $ 640 mn

Coruss existing interest debt amounts to$ 725 mn.

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Period Ending 31-Mar-10 31-Mar-09 31-Mar-08 31-Mar-07

Assets

Current Assets

Cash And Cash

Equivalents67,878,000 61,484,000 42,319,000 108,880,000

Short Term

Investments19,312,000 33,977,000 11,337,000 38,000,000

Net Receivables 116,319,000 130,384,000 187,068,000 16,877,000

Inventory 186,866,000 216,684,000 230,643,000 38,881,000Other Current

Assets67,615,000 129,987,000 154,598,000 19,803,000

Total Current Assets 457,990,000 572,517,000 625,965,000 222,441,000

Long Term Investments 33,851,000 29,066,000 20,796,000 126,975,000

Property Plant and Equipment - - - -

Goodwill 145,418,000 153,649,000 180,500,000 2,197,000Intangible Assets - - - -

Accumulated Amortization - - - -

Other Assets - - - -

Deferred Long Term Asset Charges 1,149,000 761,000 103,000 69,000

Total Assets 1,097,381,000 1,215,891,000 1,250,124,000 495,985,000

Balance sheet of TATA STEEL for four FY after Merger

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Balance sheet of TATA STEEL for four FY after MergerLiabilities

Current Liabilities

Accounts Payable 119,260,000 105,661,000 106,529,000 17,945,000

Short/Current LongTerm Debt

531,004,000 599,005,000 536,247,000 249,255,000

Other Current

Liabilities123,996,000 138,104,000 170,238,000 41,725,000

Total Current Liabilities 301,874,000 305,192,000 333,074,000 79,196,000

Long Term Debt 521,149,000 586,132,000 527,199,000 245,252,000

Other Liabilities - - - -

Deferred Long Term Liability Charges

- 1,055,000 1,556,000 2,098,000

Minority Interest - - - -

Negative Goodwill - - - -

Total Liabilities 869,242,000 938,748,000 908,384,000 349,763,000

Stockholders' Equity

Misc Stocks Options Warrants - - - -

Redeemable Preferred Stock - - - -

Preferred Stock - - - -Common Stock 149,180,000 68,427,000 71,221,000 28,394,000

Retained Earnings 155,832,000 189,504,000 160,287,000 107,733,000

Treasury Stock -76,873,000 -35,515,000 55,507,000 10,096,000

Capital Surplus 7,808,000 10,022,000 4,161,000 44,000

Other Stockholder Equity - - - -

Total Stockholder Equity - - - -

Net Tangible Assets - - - -

INCOME STATEMENT

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Period Ending 31-Mar-10 31-Mar-09 31-Mar-08 31-Mar-07

Total Revenue 1,023,931,000 1,473,293,000 1,315,336,000 252,124,000

Cost of Revenue 631,625,000 984,214,000 800,262,000 116,231,000

Gross Profit 392,306,000 489,079,000 515,075,000 135,893,000

Operating Expenses

Research

Development- - - -

Selling

General and

Administrativ

e

- - - -

Non

Recurring- - - -

Others - - - -

Total

Operating

Expenses988,569,000 1,334,820,000 1,178,778,000 188,357,000

Operating Income or Loss 35,362,000 138,473,000 136,559,000 63,767,000

INCOME STATEMENT

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INCOME STATEMENT

Income from Continuing Operations

Total Other

Income/Expenses

Net- - - -

Earnings Before

Interest And Taxes35,362,000 138,473,000 136,559,000 63,767,000

Interest Expense -34,943,000 -37,907,000 -45,394,000 -6,341,000

Income Before Tax - - - -

Income Tax

Expense21,518,000 18,940,000 40,493,000 21,474,000

Minority Interest -152,000 409,000 -1,399,000 -675,000

Net Income From

Continuing Ops-20,092,000 49,509,000 123,500,000 41,773,000

Non-recurring Events

Discontinued

Operations

- - - -

Extraordinary

Items- - - -

Effect Of

Accounting

Changes- - - -

Other Items - - - -

Net Income -20,092,000 49,509,000 123,500,000 41,773,000

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THANK YOU!