Tata Corus Deal in Profit

7/29/2019 Tata Corus Deal in Profit

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Tata-Corus Deal


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Tata steel, Indias largest private sector steelcompany was established in the 1907.

The Tata steel which falls under the umbrellaof Tata sons has strong pockets and strongfinancials to support acquisitions.

Tata steel is the 55th in production of steel inworld. The company has committed itself toattain global scale operations.


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The Corus was created by the merger of BritishSteel and Dutch steel company, Hoogovens. Coruswas Europes second largest steel producer with a

production of 18.2 million tonnes and revenue ofGBP 9.2 billion (in 2005). The product mix consistedof Strip steel products, Long products, Distributionand building system and Aluminum. With themerger of British Steel and Hoogovens there weretwo assets the British plant asset which was olderand less productive and the Dutch plant assetwhich was regarded as the crown jewel by everyone in the industry.


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Reasons for decision:

Total debt of Corus is 1.6bn GBP

Corus needs supply of raw material at lower costThough Corus has revenues of $18.06bn, its profit

was just $626mn (Tatas revenue was $4.84 bn &

profit $ 824mn)

Corus facilities were relatively old with high cost

of production

Employee cost is 15%( Tata steel- 9%)


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Reasons for decision: Tata is looking to manufacture finished products in mature

markets of Europe

At present manufactures low value long and flat steel productswhile Corus produces high value stripped products

A diversified product mix will reduce risks while higher endproducts will add to bottom line.

Corus holds a number of patents and R & D facility.

Cost of acquisition is lower than setting up a green field plantand marketing and distribution channels

Tata is known for efficient handling of labour and it aims atreducing employee cost and improving productivity at Corus

It had already expanded its capacities in India.

It will move from 55th in world to 5th in production of steelglobally.


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There were a lot of apparent synergies between Tata Steel which was a low cost steel producer infast developing region of the world and Corus which was a high value product manufacturer in theregion of the world demanding value products. Some of the prominent synergies that could arisefrom the deal were as follows :

Tata was one of the lowest cost steel producers in the world and had self sufficiency in rawmaterial. Corus was fighting to keep its productions costs under control and was on the look outfor sources of iron ore.

Tata had a strong retail and distribution network in India and SE Asia. This would give theEuropean manufacturer a in-road into the emerging Asian markets. Tata was a major supplier tothe Indian auto industry and the demand for value added steel products was growing in thismarket. Hence there would be a powerful combination of high quality developed and low costhigh growth markets

There would be technology transfer and cross-fertilization of R&D capabilities between the twocompanies that specialized in different areas of the value chain

There was a strong culture fit between the two organizations both of which highly emphasized oncontinuous improvement and ethics. Tata steel's Continuous Improvement Program Aspirewiththe core values :Trusteeship,integrity,respect for individual, credibility and excellence. Corus'sContinuous 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.


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TATA Acquired CORUS on 2nd April 2007 which is 4

times larger than its size.

The deal price was $ 12 Billion.

TATA Steel, the winner of the auction for CORUS

declares a bid of 608 Pence per share.

In 2005 when the deal was started the price per

share was 455 pence.


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TATA Surpassed the final bid from Brazilian steel

maker CSN of 603 pence per share.

The combined entity has become the worlds fifth

largest steelmaker after the deal. For this deal TATA has finance only 4 Billion $ from

internal company resources.

TATA Have secured funding commitments from its

advisors. These advisors were Deutshe bank, ABN Amro and

Standard Chartered.


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Tata SteelLimited, India

Tata SteelHoldings Asia(Singapore) Ltd.

Tata Steel UK

Corus Plc, UK

Parent Company

Holding Co. for all foreignacquisitions

Wholly owned Subsidiary

to ease acquisition funding(SPV)

Target Company acquired


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Equity contribution by Tata Steel to Tata Steel UK viaSingapore of $4.1 b Internal generation- $1.267 b External commercial borrowings- $0.5 b

Proceeds from rights issue- $1.888 b Foreign equity offering- $0.445 b

Non-recourse debt financing by bank consortium (atTata Steel UK) of $6.143 b Five-year amortizing loan of $3.236 b Seven-year minimally amortizing term loan of $2.907 b

Bridge financing in Tata Steel Asia Holdings

(Singapore) of $2.662 b


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Tata Steel raised funds via rights issue and not privateplacement

Increase in value to existing shareholders

Earnings per share and market capitalization of TataSteel shareholders will get diluted immediately afterthe takeover due to high debt-equity ratio

Fall in share prices will allow Tata to pick up its ownshares from the market at lower prices, fending off atakeover


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0

20000

40000

60000

80000

100000

120000

140000

2006-07 2007-08

25650

132110

Net Revenue (Rs. Cr)

Net Revenue (Rs. Cr)

2007-08: after acquisition

0

2000

4000

6000

8000

10000

12000

14000

2006-07 2007-08

6439

13856

Operating Profit (Rs. Cr)

Operating Profit (Rs. Cr)


Operating Profit as apercentage of Revenue (pre-Corus)= 25.10%

Operating Profit as apercentage of Revenue (post-

Corus)=10.48%


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0

2000

4000

6000

8000

10000

12000

14000

2006-07 2007-08

4177

12350

Profit After Tax (Rs. Cr)

Profit After Tax (Rs. Cr)


0

20

40

60

80

100

120

140

160

180

2006-07 2007-08

64.66

162.96

Earnings Per Share

Earnings Per Share


PAT as a percentage of Revenue(pre-Corus)= 16.28%

PAT as a percentage of Revenue(post-Corus)=9.34%


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0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

2006-07 2007-08

42%

19.10%

Return On Invested Capital (Pre-Tax)

Return On Invested Capital

(Pre-Tax)


0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

2006-07 2007-08

30.80%

14.08%

EBITDA Margin

EBITDA Margin



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32%

37%

5%

12%

15%

Geographical Distribution Of Revenue

EU Excluding UK

UK

Rest of World

Asia Excluding India

India

27%

43%

3%

7%

20%

Capital Employed by Geographies

EU Excluding UK

UK

Rest of World

Asia Excluding India

India

Date post:	04-Apr-2018
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Tata Corus Deal in Profit

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