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Tata Steel AcquisitioTata Steel Acquisitio

of Corusof Corus

Group MembGroup MembAnindyaAnindya

PunitPunitSouravSouravDheerajDheerajKunalKunal

VenkyVenkySrinivasSrinivas

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INTRODUCTION

On jan31st 2007,Tata steel ltd.one of the leading st

producers in india,acquired the Anglo Dutch sproducer Corus group plc (Corus) for US$ 12.11 bil( 8.5 billion). The process of acquisition concludonly after nine rounds of bidding against the ot

bidder for Corus - the Brazil based CompanSiderurgica Nacional (CSN).

This acquisition was the biggest overseas acquisitionan Indian co.Tata steel emerged as the fifth largsteel producer in the world after the acquisition.acquisition gave tata steel access to corus stro

distribution network in Europe. Since the acquisition was done through on all cash d

then it would be a financial burden for tata steel.

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Contd..

October 23, 2006 - The Brazilian Steel Group CSNrecruits a leading investment bank to offer advice opossible counter-offer to Tata Steels bid.

November 27, 2006 - The board of Corus decides that is in the best interest of its will shareholders to givemore time to CSN to satisfy the preconditions and

decide whether it issue forward a formal offer . December 18, 2006 - Within hours of Tata Steel

increasing its original bid for Corus to 500 pence peshare, Brazil's CSN made its formal counter bid forCorus at 515 pence per share in cash, 3% more thaTata Steels Offer

April 2, 2007 - Tata Steel manages to win the acquisitito CSN and has the full voting support form Corusshareholders.

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Tata Steel Background

Tata Steel a part of the Tata group, one of the largestdiversified business conglomerates in India.

In the mid- 1990s, Tata steel emerged as Asias first anIndias largest integrated steel producer in the privasector.

In February 2005, Tata steel acquisition the Singapore

based steel manufacturer NatSteel, let the compangain access to major Asian markets and Australia.

Tata steel acquired the Thailand based Millennium Stein December 2005.

Tata Steel generated net sales of 5 billion in the financyear 2006-07.

The companys profit after tax in the same year was 1billion while its profit after tax was 1.1 billion.

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SYNERGIES FOR TATA

Tatahas been looking to manufacture finished pro

in mature markets like Europe.

q Diversified product mix -reduces risks -higher end products will add to bottom line

q Corus holds a no. of patents and R&D facilities andimmediate access to advanced technology.

q Greenfield plant -cost -time

q Will make it difficult for other companies to make a hbid for TS.

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SWOT Analys

Strengths :

Low D

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Corus Background Corus Group plc was formed on 6th October 19

through the merger of two companies, BritishSteel and Koninklijke Hoogovens,

Philippe Varin(CEO) and Jim Leng chairman ofCorus, both worked to revive the companysbusiness.

The company has a wide variety of products anservices

Corus has manufacturing operations in manycountries with major plants located in the UK

The Netherlands, Germany, France, Norway aBelgium

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SWOT Analysis

Strengths:

Wor l

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Profile pre mergerTata steel

q 102 yrs in steel bazaarq worlds 56th largest

q capacity of 30 million

q founder:J.N tata

q presence in 26 nations

CORUS

q worlds 6th largest

q 2nd in Europe , 1st in UK

q 371st rank in fortune list

q presence in 50 nationsq 40,000 people worldwide.

q

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easons for Tata Steelo Bidq To tap European Mature Market.

q Cost of acquisition is lower than setting up of

field plant & marketing and distribution channe

q TATA manufactures Low Value ,long and flat

products ,while Corus produce High Value St

products.

q Helped TATA to feature in Top 10 players in world

q Technology Benefit.

q Economic of scale.

q Corus holds number of patents and R&D facilities

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easons for Corus to be sol Total debt of Corus is 1.64bn GBP Corus need supply of raw materi

lower cost.

Though Corus has revenue of $1bn,it profit was just $626 mn(Tarevenue was $4.84 bn & profit

$824mn) Employee cost is 15%(Tata steel

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MERGER

Growth through internationalexpansion.

Capture the European customethe automobile and aerospacindustries.

Capture the Indian automobilemarket by supplying high gra

steel.Add more high technology prod

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FINANCING THE DEAL Tata corus deal - $12 billion

Equity contribution from tata steel - $ 3.88 billion.

Credit Suisse leaded,joined by ABN AMRO and deutsbank in the consortium.

Of the $8.12 billion of financing, credit Suisse providand ABN AMRO and deutsche provided 27.5% eac

WHY CASH DEAL????

q Tata steels security credit rating was investmgrade whereas tata steel uk had a lower securi

rating.q share swapdeal less attractive to the corus

shareholders.

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acquisition strategy

The first 100 days. Time factor Leadership style differences Whos in charge? Organic vs bureaucratic cult Open vs. closed communicat Decision making speed & sty

Structures that dont match.

SYNERGIES BETWEEN TWO

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SYNERGIES BETWEEN TWOCOM

Tata was one of the lowest cost steel produce& Corus was fighting to keep its productioncosts under control .

Tata had a strong retail and distribution netwoin India and SE Asia. Hence there would be

powerful combination of high qualitydeveloped and low cost high growth market Technology transfer and cross-fertilization of

R&D capabilities . There was a strong culturfit between the two organizations both of

which highly emphasized on continuousimprovement and Ethics.

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Contd..

Tata steel's Continuous ImprovementProgram Aspire with the corevalues :Trusteeship, Integrity, respecfor individual, credibility and

excellence. Corus's Continuous Improvement

Program The Corus Way with the co

values : code of ethics, integrity,creating value in steel, customer

I h t

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In house systems synergy a.product leadership(best produ

b.operational excellence ( low co

producer) c.customer intimacy ( best total

solution)

R ti l f th d

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Rationale of the corus dea

Augmented its crude steel capacity to

mtpa.

The combined entity forms the 6th larg

steel co. The merged entity has brought tata ste

the world platform.

Provided tata steel access to new mark

and presence across the steel value Much broader distribution network.

CULTURAL INTEGRATION

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CULTURAL INTEGRATION

TATA STEEL1.Continuous improvement programme- ASPIRE2. Core values a.trusteeship

b.integrity c.respect for the individual. d. credibility. e.excellenc3.world class governance

Contd

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Contd

CORUS1.continuous improvement programmcorus way2.core values- code of ethics

a.integrity b. creating value in steel c. customer focus d.selective growth

e.respect for our people.3.world class governance.

FULFILLMENT OF FIVE

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FULFILLMENT OF FIVECONDITIONS OF MERGER

Accounting Standard (AS) 14 of the Institute ofChartered Accountants of India, titled `Accounfor Amalgamations,' specifies five conditions f`amalgamation in the nature of merger', all of

need to be satisfied.CONDITION NO. 1

"all the assets and liabilities of the transferor combecome, after amalgamation, the assets andliabilities of the transferee company." For exama merger of Corus into Tata Steel would mean transfer of all assets and liabilities of Corus to Steel.

Contd

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ContdCONDITION NO. 2

shareholders holding not less than 90 per cent of the face vathe equity shares of Corus become equity shareholders ofIn which case, all that cash lined up for the deal may not needed?

CONDITION NO. 3

consideration for the amalgamation receivable by Corus' equshareholders is discharged by Tata `wholly by the issue ofshares in the transferee company except that cash may bin respect of any fractional shares

CONDITION NO. 4 Fourth condition in AS-14 is that the business of Corus `is int

to be carried on, after the amalgamation' by TataCONDITION NO. 5

no adjustment is intended to be made to the book values of assets and liabilities' of Corus when they are incorporated

financial statements of Tata `except to ensure uniformity accounting policies.'

CHALLENGES

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CHALLENGESqMaintaining its low-cost advantagessecuring captive raw materials as

expands capacity is one;qtempering its bet on the current hig

steel prices with the prospect thatthey could soften over time.

qcartelization among the top producare transforming the global steelbusiness.

q

CONCLUSION

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CONCLUSIONWith corus in its fold, tata steel can confiden

target becoming one of the top 3 steelmakers globally by 2015 . the company whave an aggregate capacity of close to 56

million tones per annum, if all the plannedGreenfield capacities go on stream by the

We can conclude that if the acquisitions wel

planned , executed and the necessaryprecautions taken for the deal a companyachieve its strategic objectives and thus

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