TATA CORUS M&A

Submitted to:-Submitted by:-Prof. Narayan BaserGroup 2 E&IFinancial Management II(7 to 12)

IntroductionEstablished in 190756th Largest in World3.8 Million Ton CapacityPresent in 26 Nations82700 EmployeesEstablished in 1999 through Merger10th Largest in World18.2 Million Ton CapacityPresent in 50 Nations40000 People all over world

Rationale behind DealTo tap mature European market.To be in Top 10Technological benefits.For patents and R&D facilities.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.

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.

SYNERGIES EXPECTED FROM THE DEALTata 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. Hence there would be a powerful combination of high quality developed and low cost high growth marketsTechnology 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.DEAL TIMELINE

TATA Steel Stock

Post-merger integrationTata Steel formed a seven-member integration committee to spearhead its union with Corus group.

Head of the committee : Ratan Tata,

Three Tata Steel members: B Muthuraman (MD) T Mukherjee (Deputy MD (steel) Kaushik Chatterjee (CFO)

Three Corus members:Phillipe Varin (CEO )David Lloyd (executive director (finance) Rauke Henstra (division director (strip products)

Several Taskforce Teams to ensure integration specific activities.

Organizational structure for Group Strategy Function : Strategy Development, Strategic Modelling, and Industry Group. Situation nowTata Corus is the fifth largest steel maker in the world.Tata Steel Stocks have experienced 21 per cent absolute gain since February 2007.Fall in steel production in UK every year since 2007 . The more competitive operations in the Netherlands have fared better, with output staging a recovery in 2010 itself, with production this year up another 10 per cent. Indian operations produce less than half of the steel volumes that European operations produce but accounted for 60 to 96 per cent of the company's total profits between FY08 and FY11. In FY10, Indian businesss Rs 5,000-crore reported net profits went a long way in stemming the red-ink resulting from the European operations consolidated losses of over Rs 2,000 crore.Net sales between FY08 and FY11 fell from Rs 131,000 crore to Rs 118,000 crore.

Situation now Contd.Adjusted net profits slipped from Rs 7,359 crore to Rs 6,560 crore over the same period.Sale of its unprofitable three-million-tonne-a-year Teesside Casting operations for a bargain price of about $700 million. A range of other assets has also been sold off including Corus' aluminium and chemical businesses. The India operation's gross debt has moved from Rs 18,000 crore in FY08 to Rs 28,000 crore at the end of FY11. Cash from its rights offer earlier this year, issue of hybrid instruments and the sale of various assets, the company has seen consolidated net debt:equity moderate from 1.44 in FY08 to 1.2 during the most recent quarter ended June 2011.In an attempt to insulate the European arm from volatile input costs, Tata Steel had to make additional investments in the past five years invested in iron ore and coking coal mines in Canada, Africa and Australia. On May 13th 2013 Tata Steel announced a $1.6 billion impairment, mainly of its takeover of Corus.

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