Mergers & Acquisitions

A Case On

Submitted By:1. Amit Garhwal 06 2. Prajul Prabhakaran 16 3. Jaikumar Rajavelu 60

AGENDA
1. About Tata Steel 2. About Chorus 3. Rationale behind TATA- Chorus M&A 4. Funding Structure of the deal 5. Timeline of the deal 6. Post the Aquisition 7. Success or Failure 8. TATAs implementation of the deal

9. Statisics

TATA Steel
Founded by Dorabji Tata and Jamshedji Tata on 25th August1907

Formerly known as TISCO

It was worlds 55th largest steel company and 2nd largest in India Recognized as the world's best steel producer by World Steel Dynamics in 2005 Post Corus merger, combined entity became the 5th largest steel producer and second most profitable company in Indian private sector One of the worlds lowest-cost producers of steel High level of vertical integration and process improvisation Imported about 35% of its total coking coal requirement, effected by contract price movements Tata steel revenue (2006) 5 billion USD and Profit 840 million USD

SWOT ANALYSIS TATA STEEL

Low cost of production Easy access to raw material Low Debt-Equity ratio Brand TATA
Quality of steel was not as per International Standard Lack of R & D Lack of Technology

SWOT ANALYSIS
World Leader in steel by having Competitive advantage in cost Providing services to Tata Power, Tata Motors, Tata Precision industries etc

Competition from World Leaders

Major Acquisitions

Corus
Formed from merger of Koninklijke Hoogovens N.V. with British Steel plc. on 6th October, 1999

Major integrated steel plants at Port Talbot, South Wales: Scunthorpe, North Lincolnshine, Teeside, Cleveland ( all in U.K.) and Ijmuiden (Netherlands)

Corus Group plc engages in the manufacture, processing, and distribution of metal products worldwide. It operates in three divisions: Strip Products, Long Products, Distribution and Building Systems

Group turnover for the year 31st Dec. 2005 was pound 10.142 billion, profits were pound 580 million or 860 million USD

SWOT ANALYSIS OF CORUS

Worlds ninth largest & Europe's second largest company Wide range of products of high technology

Lack of access to Raw Material High Operational Cost

SWOT ANALYSIS
To get access to raw material through Merger To decrease the Overlapping Cost of Value chain Increase in losses threatening winding up of company

Rationale
TATA Steel
Tap mature European market Helped TATA to feature in Top 10 players in world Technological benefits Corus holds number of 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

Corus
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 To control the overshooting cost

Rationale
Tata was one of the lowest cost steel producers in the world and had self-sufficiency in raw material. Corus was fighting to keep its productions costs under control and was on the look out for sources of iron ore. Develop capabilities in automotive, packaging and construction sectors. Tata had a strong retail and distribution network in India and SE Asia. This would give the European manufacturer an in-road into the emerging Asian markets. Tata was a major supplier to the Indian auto industry and the demand for value added steel products was growing in this market There would be technology transfer and cross-fertilization of R&D capabilities between the two companies that specialized in different areas of the value chain There was a strong culture fit between the two organizations both of which highly emphasized on continuous improvement and ethics.

FUNDING STRUCTURE
It was a CASH DEAL because Immediate takeover was required. Share Swap deal would have been less attractive to the Corus shareholders. Share Swap would have meant FDI and that brings a lot of regulatory hassles which might not have been accepted by Corus shareholders. Share Swap would have diluted Tata Steels Equity base which was not in favor of Tata shareholders. And moreover cost of equity at around 15% is higher than that of debt of around 8%, so paying in cash brings down the cost of acquisition.

Equity + Loan = Deal

The Tata-Corus Deal

Investment Vehicle

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 jurisdiction and gave Tata Steel an easy avenue for raising global resources and funds

HOW THE DEAL FINANCED

Total TATA-CORUS deal of US $ 12.7 billion Equity Component-US$ 4 billion using Rights issue,Preferential issue along with other financial methods. Debt Component-US $ 6.14 billion through mezzanine & long term loan arrangement with Citi Group,Standard Chartered,ABN AMRO bank. For immmediate financing Tata Steel UK raised 2.66 billion bridge loans. Acquisition was completed through Tata Steels UK Special Purpose Vehicle named Tata Steel UK.

TIMELINES OF DEAL
September 20, 2006 : Corus Steel has decided to acquire a strategic partnership 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 price remains the same. October 20, 2006 : Corus accepts terms of 4.3 billion takeover bid from Tata Steel October 23, 2006 : The Brazilian Steel Group CSN recruits a leading investment bank to offer advice on possible counter-offer to Tata Steels bid.

TIMELINES OF DEAL
October 27, 2006 :Corus is criticized by the chairman of JCB, Sir Anthony Bamford, for its decision to accept an offer from Tata. November 3, 2006 : The Russian steel giant Severstal announces officially that it will not make a bid for Corus November 18, 2006 : The battle over Corus intensifies when Brazilian group CSN approached the board of the company with a bid of 475p per share November 27, 2006 : The board of Corus decides that it is in the best interest of its will shareholders to give more 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 per share, Brazil's CSN made its formal counter bid for Corus at 515 pence per share in cash, 3% more than Tata Steel's Offer.

TIMELINES OF DEAL
January 31, 2007 : Britain's Takeover Panel announces in an emailed statement that after an auction Tata Steel had agreed to offer Corus investors 608 pence per share in cash April 2, 2007 : Tata Steel manages to win the acquisition to CSN and has the full voting support form Corus shareholders

The Tata-Corus Deal

Corus Group Ltd. (UK)

Tata Steel UK (SPV)

Tata Steel Holdings Asia (Singapore)

Tata Steel India

What Happened After Deal

There were a lot of apparent synergies between Tata Steel which was a low cost steel producer in fast developing region of the world and Corus which was a high value product manufacturer in the region of the world demanding value products. Some of the prominent synergies that could arise from the deal were as follows : Tata was one of the lowest cost steel producers in the world and had self sufficiency in raw material. Corus was fighting to keep its productions costs under control and was on the look out for sources of iron ore. Tata had a strong retail and distribution network in India and SE Asia. This would give the European manufacturer an in-road into the emerging Asian markets.


Powerful combination of high quality developed and low cost high growth markets There would be technology transfer and cross-fertilization of R&D capabilities between the two companies that specialized in different areas of the value chain There was a strong culture fit between the two organizations both of which highly emphasized on continuous improvement and ethics. Tata steel's Continuous Improvement Program Aspirewith the core values :Trusteeship,integrity,respect for individual, credibility and excellence. Corus's Continuous 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.

Acquisition: A Success or a Failure?

The goods of Acquisition

Tata steel became 5th largest steel producer of world Profitability and efficiency of both the companies increased The production capacity increased from 4million tonnes to 28million tonnes by 2011 Tata Steel stock price went up from Rupees 399 to 799 Standard & Poors changed it credit Rating to BBB from BB and removed them from the negative watch list Net debt fell from $10.43 billion in June, 2010 to $9.13 billion in March, 2011
Tata Steel Group recorded profit after tax of Rs5,347 crores in Q1 FY12, almost three times the profit of Rs1,825 crores recorded in Q1 FY11

Rank

Co. Name

Mm tn/yr

1 2 3 4

Arcelor-Mittal (Lux) Nippon (Japan) JFE (Japan) Steel

110 32 30.5 29.9

Posco (South Korea)

5
6 7 8

Tata-Corus (India)
Baosteel (China) US Steel (USA) Nucor (USA) Riva (Italy)

23.8
22.7 19.3 18.4 17.5

10

ThyssenKrupp (Ger)

16.5

Success - Corus Diversified Presence

Aerospace Automotive Construction Consumer Products Defense & Security Energy & Power Lifting & Excavation Packaging Rail

The 2nd largest Company of Britain and one of the flagship companies of the Britains infrastructure industry

Success - Corus R&D Unit

Strong Research & Development Unit Several Patents to its credit Produces high end steel Large Customer base

The Bads of Acquisition

On 26 January 2009, Corus announced job cuts of 3,500 worldwide and 2,500 in the UK due the economic downturn and the reduction of steel demand
The 150 year old Redcar plant was to be mothballed costing 1700 jobs May 2009 In July 2012, Tata Steel were fined 500,000 over the 2006 death of worker Kevin Downey at their Port Talbot plant

On 23 November 2012 Tata Steel Europe announced that, as a result of restructuring proposals, there would be a net loss of 900 jobs in the UK
Tata Rejigs Corus Senior Team Tata Steel loses Corus chairman to Rio Tinto

TATAs Implementation of the Deal

Big boost to the Indian economy, as TATA was acquiring a company 3 times its size The R&D Unit of Corus complements that of TATAs Links low cost Indian production and raw materials and growth markets to high margin markets and high technology in the West Help from financing institutions as $8 billion was raised through debt

STATISTICS

STATISTICS

2005/06 Income from Operations Operating Profit Profit/Loss after Taxes

15139.39

2004/05
14498.95

5931.51 3506.38

6045.36 3474.16

Statistics

Tata Steel Stock Price

Statistics Tata Steel Europe Stock Price

VERDICT

Acquisition - A SUCCESS

 THANK YOU