DECLARATION

The text reported in the project is the outcome of my own efforts

and no part of this report has been copied in any unauthorized
manner and no part in it has been incorporated without due
acknowledgment.

Date:- ___________

Roll No:- 07BAL006

Course Coordinator: Dr. Kiran Rai Name &

Signature of the student

A
ditya Chopra

____________________________

1 | corporate law
 CERTIFICATE

This is to certify that the project entitled: “mergers & acquisitions

– Tata Corus acquisition” has been carried out by Aditya Chopra
under my supervision and guidance. The project is his own
original work completed after careful research and analysis of
the data, research material available in previous works and
various judicial pronouncements. The project is of the standard
expected of a candidate for project submission in the course of
Mergers&Acquisition (2BAL707) of VII semester of B. A.L.L B.
(Hons.) Programme and commend that it be sent for evaluation

Date:-______________ Name & Signature of the Course

Co-ordinator

Dr.
Kiran Rai

____________________

2 | corporate law
 INDEX

CHAPTER 1

⇒ Introduction of Topic
⇒ Nature and Scope of
the Study
⇒ Objectives of the
study

CHAPTER 2

⇒ Concept of
merger/amalgamation
s
⇒ Concept of
acquisitions/takeovers
⇒ Difference between
merger & acquisition

CHAPTER 3

⇒ TATA-CORUS
acquisition – the
biggest Indian
Acquisition

CHAPTER 4

⇒ Conclusion &
Suggestions

BIBLIOGRAPHY

• Books

• Web References

• Case Laws

3 | corporate law
 Chapter – 1

4 | corporate law
 INTRODUCTION

My topic of project is “Mergers & Acquisition – Tata-corus”.

Researcher has proceeded with a brief introduction of merger
and acquisition and then dealt with the topic of acquisition in
deep and then the acquisition of Tata-Corus.

Basically merger means an arrangement whereby the assets of

two or more companies becomes vested in, or under the control
of, one company (which may or may not be one of the original
two companies), which has as its shareholders all, or
substantially all, the shareholders of one or both of the merging
companies exchanging there shares, it can be voluntarily or as
the result of the legal operation, for shares in the other or a third
company.1

Merger is also known as amalgamation of two or more

companies which means mixing up or uniting together or one
company blending with the other company to carry on their
business as a third company.

Takeover refers to acquisition of a company by another

company, by acquiring the assets of the company or by taking
over the control of the management. It could be of a private

1
Sampath K. R.(2008). Law and Procedure for Mergers/Joint Ventures Amalgmations Takeovers
& Corporate Restructure, Mumbai: Snow White Publication Pvt. Ltd.

5 | corporate law
company or a public quoted company or a private company
owning or controlling another public quoted company.

Takeover can be through three ways:

1. By agreement between the acquirer and the controllers of

the acquired company.

2. By purchase of shares on stock exchange.

3. Or by means of the takeover bid.

The largest Indian takeover of an foreign company was held on

January 31,2007 in which Tata Steel Limited (Tata Steel), one of
the leading steel producers in India, acquired the Anglo Dutch
steel producer Corus Group Plc (Corus) for US$ 12.11 billion (€
8.5 billion).

And after this biggest takeover by an Indian company, Tata Steel

emerged as the fifth largest steel producer in the world after the
acquisition. The acquisition gave Tata Steel access to Corus'
strong distribution network in Europe.

Tata Steel outbid the Brazilian steelmaker Companhia

Siderurgica Nacional's (CSN) final offer of 603 pence per share by
offering 608 pence per share to acquire Corus. It's a landmark
deal since an Indian company has taken over an international
company three times its size.

6 | corporate law
 Nature and Scope of Project

Nature: the nature of the project done is descriptive. Project

covers a descriptive study of mergers and acquisitions and then
dealing in depth with the acquisition of TATA-CORUS.

Scope: scope of the project is very wide. Researcher has taken

in consideration both the aspects i.e. merger and acquisition,
dealing them in depth and then gets to the acquisition of TATA-
CORUS.

7 | corporate law
 Objective of Study

There are four main objectives to carry out the project work
which are as follows:

1. To understand the concept of merger and the acquisition.

2. How they both are different from each other.

3. And to understand and go through how the acquisition of

TATA-CORUS taken place. And

4. What are the steps which were followed by the TATA to

takeover CORUS.

8 | corporate law
 Chapter – 2

9 | corporate law
 Concept of Merger/amalgamations

what is amalgamation?

“Amalgamation occurs when two or more companies are joined

to form a third entity or one is absorbed into or blended with
another.”2 The new company which comes into existence enjoys
all the rights, powers, assets and capital, subject to all the duties
which formerly enjoyed by both the amalgamating companies.

In W.A. Beardsell & Co. Ltd, Re3. The Madras High Court
Observed that:

The word ‘amalgamation” has not been defined in the act.

The ordinary dictionary meaning of the expression is
‘combination’. Judging from the context and from the marginal
note of the section 394 which appears in chapter V relaying to
the arbitration, compromises, arrangements and reconstructions,
the primary object of amalgamation of one company with
another is to facilitate the reconstruction of the amalgamating
companies and this is a matter which is entirely left to the body
of shareholders, (and) essentially an affair related to the internal
2
Bank of India Ltd. v. Ahmedabad Mfg & Calico Printing Co., (1972) 42 Comp Cas 211.
Industrial Credit & Investment Corpn of India v. Financial & Management Services Ltd., AIR
1998 Bom 305.
3
(1968) 38 Comp Cas 197, 204 Mad.
Reliance Jute Industries Ltd, Re. (1983) 53 Comp Cas 591 Cal

10 | c o r p o r a t e l a w
administration of the transferor company. The decision of the
body of the shareholders not ought to be lightly interfered with.

In the absence of any specific definition in the Companies Act,

1956 one will have to look to the meaning the term in dictionary
meaning which means to consolidate, or to compound, or to
combine.

Under an “amalgamation” or “merger” two or more companies

are merged with either by the acquisition of there undertakings
and assets by one of them or bya newly incorporated company
or, more commonly, by one such company acquiring or
controlling shareholding in the other.4

In Weinberg and Blank on Takeovers and Mergers, fourth edition,

there is no definition of the term “amalgamation”. The authors
have probably used the term “merger” as similar to that of
“amalgamation.”

There are three types of amalgamations, which are if following

types:

1. Horizontal Mergers: it is a merger which involves the

merger of two or more companies which are producing
essentially the same products or services, which compete
directly with each other.

2. Vertical Mergers: it is that kind of merger in which

backward integration is possible. When the company who
is delivering the final product merges with the company
4
Gower’s, Modern Company Law, chapter 28

11 | c o r p o r a t e l a w
 who is producing the parts for them, then that merger is
called as the vertical merger.

3. Conglomerate Merger: it is a merger in which two or more

companies producing different products are acquired and
merged is known as the conglomerate merger.

legal Provisions (sections under law related to

amalgamations/mergers):

the term “amalgamation” is not been defined under the

Companies Act 1956. The term is been defined under the
Income-Tax Act, 1961. There are references made in relation to
the “amalgamations” in section 394, 396 & 396A of the
Companies Act.

• Section 394: discuss the amalgamation while dealing with

the powers of the National Company Law Tribunal.

• Section 396 &396A: deals with the powers of the Central

Government to amalgamate companies in public interest
and the maintenance of records by the amalgamated
companies.

“Neither ‘reconstruction’ nor ‘amalgamation’ has a precise legal

meaning. Amalgamation is blending of two or more existing
undertakings into one undertaking, the shareholders of each
blending company becoming substantially the shareholders in
the company which is to carry on the blended undertakings.
There may be amalgamation either by the transfer of two or

12 | c o r p o r a t e l a w
more undertakings to a new company, or by the transfer of one
or more undertakings to an existing company. Strictly,
amalgamation does not, it seems, cover the mere acquisition by
a company of the share capital of other companies which remain
in existence and continue their undertakings, but the context in
which the term is used may show that is intended to include such
as acquisition.”5

The English Companies Act, has a specific chapter – part 27

consisting of sections 902-941 dealing with the merger and
demerger of two or more public companies. In section 904(1) of
the said act defines the word “merger.” The definition distinguish
between merger of one or more companies with an existing
company – merger by absorption and where merger involves a
merging of two or more companies with a new company –
merger by formation of new company. This definition is
applicable to public companies whether listed or not. However
section 900 is very much similar to that of the section 394 of the
Companies Act of India and provides that where an application is
made to the court for sanctioning a compromise or arrangement
with the members or creditors for the purpose of either
amalgamation or two or more companies or the whole or any
part of the undertaking or the property is to be transferred to
another company, the court has specific power to enable such a
reconstruction of the company or either.

5
The Halsbury’s Laws of England, Vol. VII(2) para 1461 page 1103

13 | c o r p o r a t e l a w
Objectives of Corporate Amalgamations:

Basically there are various reasons for corporate restructuring

through amalgamations and acquisitions but some of the main
factors or objectives are as follows:6

1. To achieve economies of scale;

2. To reduce the gestation period for new businesses which

would be complementary to the existing business of the
company;

3. To compete globally;

4. To put to the use the liquidity available with the company

for achieving growth through diversification;

5. To acquire and maximize the available managerial skill to

increase the profitability;

6. To take advantage of concession given by tax laws.

6
Sampath K. R.(2008). Law and Procedure for Mergers/Joint Ventures Amalgmations Takeovers
& Corporate Restructure, Mumbai: Snow White Publication Pvt. Ltd.

14 | c o r p o r a t e l a w
 Concept of Acquisition

Basically the literal meaning of the acquisition is to acquire i.e. to

get hold on, or to attain the power, or buy or purchase
something, or we can also say takeover. So, after taking this into
mind we can make out that acquisition is to buy share of a
company and takeover that company and subsequently get the
powers to control the affairs of the company. And after acquiring
the company merge or amalgamate the acquired company or
with the acquired company and in the process also demerge
some of the undertakings.

An acquisition can be agreed or compulsory acquisition or can be

a combination of hostile takeover and consequent compulsory
acquisition pursuant to law. Acquisition could be of a private
company or a public quoted company or a private company
owing or controlling another public quoted company.

What is Acquisition?

15 | c o r p o r a t e l a w
As earlier said that acquisition is also known as takeover. Hence
we can say that Acquisition is to takeover of a company by
another company.

M. A. Weinberg. One of the pioneers in dealing the law and

practice relating to takeovers has defined takeover as:

“a transaction or series of transactions whereby a person

(individual, group of individuals, or company) acquires control
over the assets of a company, either directly by becoming the
owner of those assets or indirectly by obtaining control of the
management of the company. Where shares are closely held (i.e.
by small number of persons), a take-over be generally be
effected by agreement with the holders of the majority of the
share capital of the company being acquired.

Where the shares are held by the public generally, the take-over
maybe effected:

1. By agreement between the acquirer and the controllers of

the acquired company.

2. By purchase of shares on the stock exchange. or

3. By means of a takeover bid.

In business, takeover is purchase of one company (the target) by

another (acquirer). In UK the term refers to the acquisition of the

16 | c o r p o r a t e l a w
public company whose shares are listed on a stock exchange, in
contrast to the acquisition of a private company.

We can divide or the term acquisition/takeover into three types

i.e.7

1. Friendly takeovers:

Before a bidder makes an offer for another company, it usually

first informs that company's board of directors. If the board feels
that accepting the offer serves shareholders better than rejecting
it, it recommends the offer be accepted by the shareholders.

In a private company, because the shareholders and the board

are usually the same people or closely connected with one
another, private acquisitions are usually friendly. If the
shareholders agree to sell the company, then the board is
usually of the same mind or sufficiently under the orders of the
shareholders to cooperate with the bidder. This point is not
relevant to the UK concept of takeovers, which always involve
the acquisition of a public company.

2. Hostile takeovers:

A hostile takeover allows a suitor to bypass a target company's

management unwilling to agree to a merger or takeover. A
takeover is considered "hostile" if the target company's board
rejects the offer, but the bidder continues to pursue it, or the
7
http://en.wikipedia.org/wiki/Takeover

17 | c o r p o r a t e l a w
bidder makes the offer without informing the target company's
board beforehand.

A hostile takeover can be conducted in several ways. A tender

offer can be made where the acquiring company makes a public
offer at a fixed price above the current market price. Tender
offers in the USA are regulated with the Williams Act. An
acquiring company can also engage in a proxy fight, whereby it
tries to persuade enough shareholders, usually a simple majority,
to replace the management with a new one which will approve
the takeover. Another method involves quietly purchasing
enough stock on the open market, known as a creeping tender
offer, to effect a change in management. In all of these ways,
management resists the acquisition but it is carried out anyway.

The main consequence of a bid being considered hostile is

practical rather than legal. If the board of the target cooperates,
the bidder can conduct extensive due diligence into the affairs of
the target company. It can find out exactly what it is taking on
before it makes a commitment. But a hostile bidder knows about
the target by only the information that is publicly available, and
so takes a greater risk. Also, banks are less willing to back hostile
bids with the loans that are usually needed to finance the
takeover. However, some investors may proceed with hostile
takeovers because they are aware of mismanagement by the
board and are trying to force the issue into public and potentially
legal scrutiny.

18 | c o r p o r a t e l a w
 3. Reverse takeovers:

A reverse takeover is a type of takeover where a private

company acquires a public company. This is usually done at the
instigation of the larger, private company, the purpose being for
the private company to effectively float itself while avoiding
some of the expense and time involved in a conventional IPO.
However, under Alternative Investment Market (AIM) rules, a
reverse take-over is an acquisition or acquisitions in a twelve
month period which for an AIM company would:

• exceed 100% in any of the class tests; or

• result in a fundamental change in its business, board or
voting control; or
• in the case of an investing company, depart substantially
from the investing strategy stated in its admission
document or, where no admission document was produced
on admission, depart substantially from the investing
strategy stated in its pre-admission announcement or,
depart substantially from the investing strategy

19 | c o r p o r a t e l a w
How takeover goes: a flow chart:8

Take-over saga
begins

Appoints
Merchant Banker Take-over
who administers process
take-over process

File with SEBI

Public announcements
& Stock
Exchange

Cash with
Deposit escrow amount in the form of bank – bank
gurantee
security

English &
Publication of public announcement in newspapers
Hindi National
8
daily regional
P. Mohana Rao (editor), Mergers and Acquisitions of Companies (2000), New
Delhi: Deep & Deep Publications Pvt. Ltd. language

20 | c o r p o r a t e l a w
Letter of offer File with SEBi
send to Target
Company, Stock
Exchange and
Shareholders

Offer Offer Payment

to to of
open close considerati

Legal Provision Related to Takeover:

Indian law:

The subject of takeover is been dealt in both The Companies Act,

1956 (CA 1956) and The Securities & Exchange Board of India
(Substantial Acquisition of Shares and Takeover) Regulation,
1997 (SEBI Takeover Code).

The CA Act deals with the power of the company to acquire

shares of another company generally (section 372A), and
specifically in relation to acquiring shares from persons who did
not sell or have not agreed to sell shares held by them,
notwithstanding approval of the scheme or contract for
acquisition of shares, by shareholders owning 90% and over of
the shares (section 395). The company being acquired could be
either a public quoted company or a private limited company.

The takeover of the listed company is regulated by clauses 40A

and 40B of the listing agreement. This clause in listing
agreement seeks to regulate takeover activities independently

21 | c o r p o r a t e l a w
and impose certain requirements of disclosure and
transparency.9

Clause 40A deals with substantial acquisition of shares and

requires the offeror and the offeree to inform the stock exchange
when such acquisition results in an increase in the shareholding
of the acquirer to more than 10%.

Clause 40B deals with takeover offers. A takeover offer refers to

change in management. Where there is no change in
management, clause 40B of listing agreement will not apply.

The SEBI rules could deal with the law relating to substantial
acquisition of shares or control of a public quoted company
(listed company) or an unquoted public limited company
(unlisted company) including a foreign registered company,
which owns or control the listed company.

City Code of UK:

The takeover regulation in India is a statutory regulation. As

against this in the UK the takeover regulation is in the form of a
City Code, which is not a statutory regulation. Since the initial
code was formed in 1959 by a working part in City of London, it
has come a long away, but still regulates the takeover and
merger of the companies. The City Code being a code has the
flexibility to modify its rule to achieve the result – ensure fair and
equal treatment of all shareholders in relation to takeovers and

9
Gurminder Kaur, Corporate Mergers and Acquisition (2005), New Delhi: Deep
& Deep Publications Pvt. Ltd.

22 | c o r p o r a t e l a w
provision of an orderly framework within which takeovers are
conducted.

The financial service authority i.e. FSA which is established to

ensure market confidence, public awareness and protection of
consumers; act as a statutory body and gives support to the
code. And at the request of the takeover panel, the FSA may
take enforcement action against the persons contravening the
Takeover Code.

USA Regulations:

US takeover law is influenced by a mixture of federal and state

laws. The Securities and Exchange Act, 1934 and the rules made
there under provide for strict disclosures and further provide for
making mandatory tender offer in the event of acquisition of
shares beyond certain prescribed limit. The takeover laws in USA
are statutory regulations.

Advantages and Disadvantages of Takeover/Acquisition

While perceived advantages and disadvantages of a takeover

differ from case to case, there are a few worth mentioning.

Advantages:

1. Increase in sales/revenues (e.g. Procter & Gamble takeover

of Gillette)
2. Venture into new businesses and markets

23 | c o r p o r a t e l a w
 3. Profitability of target company
4. Increase market share
5. Decrease competition (from the perspective of the
acquiring company)
6. Reduction of overcapacity in the industry
7. Enlarge brand portfolio (e.g. L'Oréal's takeover of
Bodyshop)
8. Increase in economies of scale
9. Increased efficiency as a result of corporate
synergies/redundancies (jobs with overlapping
responsibilities can be eliminated, decreasing operating
costs)

Disadvantages:

1. Reduced competition and choice for consumers in oligopoly

markets. (Bad for consumers, although this is good for the
companies involved in the takeover)
2. Likelihood of job cuts.
3. Cultural integration/conflict with new management
4. Hidden liabilities of target entity.
5. The monetary cost to the company.

Takeovers also tend to substitute debt for equity. In a sense,

government tax policy of allowing for deduction of interest
expenses but not of dividends has essentially provided a
substantial subsidy to takeovers. It can punish more conservative
or prudent management that don't allow their companies to

24 | c o r p o r a t e l a w
leverage themselves into a high risk position. High leverage will
lead to high profits if circumstances go well, but can lead to
catastrophic failure if circumstances do not go favorably. This
can create substantial negative externalities for governments,
employees, suppliers and other stakeholders when the Black
Swan appears and the "fit hits the shan".10

Acquisition of Shares by a Company of another Company:

Power of a company to invest in shares of another company is

generally governed by its memorandum and is further subject to
certain restrictions placed by the CA. section 372 as it stood prior
to amendment by the companies (amendment) act, 1988,
prohibited intercorporate investments in shares in excess of 10%
of the subscribes capital of the company whose shares are being
purchased or subscribes and subject to an overall limit in respect
of investment in all bodies corporate of 30% of the subscribes
capital of the investing company. Investment could be made in
excess to these limits, if the investment is approved by the
shareholders by a resolution and further approved by the central
government.

However by the Companies (amendment) Act, 1999, the existing

provisions of section 372 were made inoperative effective from

10
http://en.wikipedia.org/wiki/Takeover

25 | c o r p o r a t e l a w
31st October, 1998 and instead a new provision section 372A
introduced.

Presently, the powers of investment in shares together with

loans granted or issued by a company have been very much
relaxed. No separate limit is been provided for shares, loans and
guarantees is provided. But the company could exceed this limit
if special resolution of the shareholders is obtained.

This section covers both direct as well as indirect investments.

Though the provisions of section 369 (intercorporate loan) has
been deleted the new section 372A covers both investment in
shares and as well as also grant of loans and issue of
guarantees. The term loan has been defined to include
debentures and any deposit of money, other than deposit of
money, other than deposit in a banking company.11

In considering takeovers, the board of directors of a company will

need to comly with these provisions in addition to the provisions
of SEBI Takeover Code and other law or regulations

11
Sampath K. R.(2008). Law and Procedure for Mergers/Joint Ventures Amalgmations
Takeovers & Corporate Restructure, Mumbai: Snow White Publication Pvt. Ltd

26 | c o r p o r a t e l a w
Difference between Merger and Acquisition:12

Although the terms merger and acquisition are often used as

though they are synonymous, they mean different things. The
differences between a merger and acquisition are important to
value, negotiate, and structure a client's transaction. Mergers
and acquisitions both involve one or multiple companies
purchasing all or part of another company. The main distinction
between a merger and an acquisition is how they are financed.

A merger happens when two firms; often of about the same size,
agree to move forward and exist as a single new company rather
than remain separately owned and operated. This kind of action
is more specifically referred to as a "merger of equals." Mergers
are often financed by a stock swap, in which the stock owners in
both companies receive an equivalent quantity of stock in the
new company. The stocks of both companies are surrendered

12
http://en.wikipedia.org/wiki/Mergers_and_acquisitions

27 | c o r p o r a t e l a w
and new company stock is issued in its place. On the other hand,
when one company takes over another company and clearly
establishes itself as the new owner, the purchase is called an
acquisition. Legally, the target company ceases to exist, the
buyer swallows the business and the buyer's stock continues to
be traded. Acquisition refers to two unequal companies
becoming one and the financing can involve a cash and debt
combination, all cash, stocks, or other equity of the company.

A purchase deal will be called a merger when the CEOs of both

the companies agree that joining together is in the best interest
of both of their companies. When the deal is unfriendly - that is,
when the target company does not want to be purchased, it is
regarded as an acquisition.

Whether a purchase is considered a merger or an acquisition, in

reality depends on whether the purchase is friendly or hostile
and how it is announced. In other words, the actual difference
lies in how the purchase is communicated to and received by the
target company's board of directors, shareholders, and
employees.

28 | c o r p o r a t e l a w
 Chapter – 3

29 | c o r p o r a t e l a w
TATA-CORUS Acquistion – Biggest Indian Acquisition:

A brief about the two companies:

Tata Steel, formerly known as TISCO (Tata Iron and Steel

Company Limited), was the world's 56th largest and India's 2nd
largest steel company with an annual crude steel capacity of 3.8
million tonnes. It is based in Jamshedpur, Jharkhand, India. It is
part of the Tata Group of companies. Post Corus merger, Tata
Steel is India's second-largest and second-most profitable
company in private sector with consolidated revenues of Rs
1,32,110 crore and net profit of over Rs 12,350 crore during the
year ended March 31, 2008. The company was also recognized

30 | c o r p o r a t e l a w
as the world's best steel producer by World Steel Dynamics in
2005. The company is listed on BSE and NSE; and employs about
82,700 people (as of 2007).

Corus was formed from the merger of Koninklijke Hoogovens N.V.

with British Steel Plc on 6 October 1999. It has major integrated
steel plants at Port Talbot, South Wales; Scunthorpe, North
Lincolnshire; Teesside, Cleveland (all in the United Kingdom) and
IJmuiden in the Netherlands. It also has rolling mills situated at
Shotton, North Wales (which manufactures Colorcoat products),
Trostre in Llanelli, Llanwern in Newport, South Wales, Rotherham
and Stocksbridge, South Yorkshire, England, Motherwell, North
Lanarkshire, Scotland, Hayange, France, and Bergen, Norway. In
addition it has tube mills located at Corby, Stockton and
Hartlepool in England and Oosterhout, Arnhem, Zwijndrecht and
Maastricht in the Netherlands. Group turnover for the year to 31
December 2005 was £10.142 billion. Profits were £580 million
before tax and £451 million after tax.

31 | c o r p o r a t e l a w
A war between two giants (TATA Steel and Brazilian steel
maker Companhia Siderúrgica Nacional i.e. CSN) to but
another giant:

There was a heavy speculation surrounding Tata Steel's

proposed takeover of Corus ever since Ratan Tata had met Leng
in Dubai, in July 2006. On October 17, 2006, Tata Steel made an
offer of 455 pence a share in cash valuing the acquisition deal at
US$ 7.6 billion. Corus responded positively to the offer on
October 20, 2006.

In November 2006, Brazilian steel maker Companhia Siderúrgica

Nacional (CSN) challenged Tata Steel's proposal for acquisition.
They countered Tata Steel's offer of 455 pence per share by
offering 475 pence per share of Corus.

In the light of CSN offer Corus announced that it would defer its
extraordinary meeting of shareholders to December 20, 2006
from December 4, 2006 in order to allow counter offers from
TATA steel and CSN.ABN Amro and Deutsche Bank are backing
Tata Steel, while CSN's advisors are Goldman Sachs, UBS and
Barclays Capital.

32 | c o r p o r a t e l a w
Tata Steel Ltd. of India bid top bid to acquire Corus Group PLC of
the United Kingdom at 6.2 billion Pounds ($12.1 billion). In the
auction, Companhia Siderurgica Nacional last bid was 603 Pence
($11.82billion) per share, while Tata Steel Ltd. final bid was 608
Pence per share, 5 Pence higher.

Finally, on January 31, 2007 TATA Steel acquired the Corus at 6.2
billion pounds ($12.1 billion) in counter to that of $11.82 by CSN
and become the fifth largest producer of steel in the world and
second largest in the Europe.

Final outlook of the TATA-CORUS Acquisition:

This acquisition was the biggest overseas acquisition by any

Indian company. TATA Steel emerged as the Fifth largest
producer of steel in the world and Second largest in Europe. This
acquisition in turn provide TATA Steel Corus strong distribution in
Europe.

Corus' expertise in making the grades of steel used in

automobiles and in aerospace could be used to boost Tata
Steel's supplies to the Indian automobile market. Corus in turn
was expected to benefit from Tata Steel's expertise in low cost
manufacturing of steel. However, some financial experts claimed
that the price paid by Tata Steel (608 pence per share of Corus)
for the acquisition was too high.

33 | c o r p o r a t e l a w
Corus had been facing tough times and had reported a
substantial decline in profit after tax in the year 2006. Analysts
asked whether the deal would really bring any substantial
benefits to Tata Steel. Moreover, since the acquisition was done
through an all cash deal, analysts said that the acquisition would
be a financial burden for Tata Steel.

"The financials for this deal [require] high performance levels,

perfect post-deal execution and sustained high steel prices. It is
a risky game and will be okay for Tata as long as the economy is
growing and no major bumps occur. If [these bumps] do occur,
they can become a challenge, and I am reminded of the high
leverage days of the mid-1980s."13

"Indian steel companies are on a consolidation mode. The Tata-

Corus deal has set many records. So far, the only $1 billion-plus
deal was done by ONGC, and it's the first milestone for India Inc,
with the Tata deal crossing $10 billion mark. It's a landmark deal
since an Indian company has taken over an international
company three times its size.”14

Post Acquisition Tata

Tata Steel has formed a seven-member integration committee to

spearhead its union with Corus group. While Ratan Tata,
chairman of the Tata group, heads the committee, three of the
members are from Tata Steel and the other three are from Corus
13
Vivek Gupta, Managing Director, AT Kearney (India), in February 2007
14
S. Mukherji, Managing Director, ICICI Securities, in February 2007

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group. Members of the integration committee from Tata Steel
include managing director B Muthuraman, deputy managing
director (steel) T Mukherjee, and chief financial officer Kaushik
Chatterjee. The Corus group is represented in the committee by
CEO Phillipe Varin, executive director (finance) David Lloyd, and
division director (strip products) Rauke Henstra.
The acquisition by Tata amounted to a total of 608 pence per
ordinary share or ₤6.2 billion (US $12 billion) which was paid in
cash. First of all, the general assumption is that the acquisition
was not cheap for Tata. The price that they paid represents a
very high 49% premium over the closing mid market share price
of Corus on 4 October, 2006 and a premium of over 68% over
the average closing market share price over the twelve month
period. Moreover, since the deal was paid for in cash
automatically makes it more expensive, implying a cash outflow
from Tata Steel in the amount of £1.84 billion.

Tata has reportedly financed only $4 billion of the Corus

purchase from internal company resources, meaning that more
than two-thirds of the deal has had to be financed through loans
from major banks. The day after the acquisition was officially
announced, Tata Steel’s share fell by 10.7 percent on the
Bombay stock market. Despite its four times smaller size and
smaller capacity, Tata Steel’s operating profit for 2006, earning
$840 million on sales of 5.3 million tones, were very close in
amount to those generated by Corus ($860 million in profits on
sales of 18.6 million tons).

35 | c o r p o r a t e l a w
 Chapter – 4

36 | c o r p o r a t e l a w
 Conclusion

Steel prices, raw material supplies and interest costs on the $8-
billion debt that is being raised to fund the deal. Soon he may
also have to deal with the sensitive issue of possible job There is
no doubt that Tata has pulled off a coup — Corus makes nearly
four times more steel than Tata Steel. Together, the combine
becomes the fifth largest producer in the world and the second in
Europe. But to make the most of the deal, Tata has to manage
several variables including cuts in Corus’s manufacturing plants.
There are also the usual sets of integration challenges that come
with such large buyouts. The deal may be done, but the hard
work is just beginning.

In the run up to the auction, Tata had maintained a low profile

despite CSN’s aggressive stance. “They underestimated our
firepower,” says Gandhi, who admits that even bankers to the
transaction — ABN Amro and Deutsche Bank — were in the dark
as to how far Ratan Tata was willing to go.

37 | c o r p o r a t e l a w
The only blip, though, was the way the stock markets reacted.
Tata Steel has lost a billion dollars in market capitalization since
it first announced its intention to buy Corus in October last year.
(The BSE Sensex rose 18 per cent during the same period.) The
market perception is that the Tata Group paid too much for this
acquisition. Several brokerage houses have pointed out that the
deal implies a high enterprise value/ earnings before interest,
taxes, depreciation and amortization (EV/EBITDA) multiple of 9
for Corus versus 4.6 for Tata Steel. (L.N. Mittal paid 5.8 times
EBITDA for Arcelor.) Ratan Tata disagrees: “We believe that,
looking back in time, the price today will prove to be one that
was worthwhile because the price of steel companies is likely to
be even higher in the coming year.”

But tying up the funding is the immediate priority. The Corus

acquisition is being routed through a special purpose vehicle
(SPV) called Tata Steel, UK. (A similar structure was used for the
Tetley buy in 2000.) So far, the Tatas have indicated that group
holding company Tata Sons will pump in $4.1 billion as equity
into the SPV. The balance $8 billion will be raised by junk bonds
and senior term loans (part of it has been tied up with banks like
ABN Amro, Deutsche Bank and CSFB). These loans will be
serviced out of Corus’s profits; Tata Steel need not repay this.
This has effectively ring-fenced Tata Steel shareholders.

Few will disagree. The Tata Steel managing director is likely to

look for more acquisitions as he aims to increase the company’s
total capacity to 100 mt by 2015. To reach that destination, a lot

38 | c o r p o r a t e l a w
will depend on whether the group can make Corus fly. And it may
be more challenging for Mr Tata than flying the F1615.

Bibliography

Books:

• Avtar Singh, Company Law (15th edition 2007), Eastern

Book Company.

• Gurminder Kaur, Corporate Mergers and Acquisitions

(2005), Deep & Deep Publication Pvt. Ltd.

• Gower, The Principal of Modern Company Law, (4th edition)

• P. Mohana Rao (editor), Mergers and Acquisitions of

Companies (2000), Deep & Deep Publication Pvt. Ltd.

Web Reference:

• www.wikipedia.org

• www.legalserviceindia.com

• www.manupatra.com

15
by Pallavi Roy and Mobis Philipose, Making Corus Work, Business Today

39 | c o r p o r a t e l a w
Cases:

• Bank of India Ltd. v. Ahmedabad Mfg & Calico Printing Co.,

(1972) 42 Comp Cas 211.
• Industrial Credit & Investment Corpn of India v. Financial &
Management Services Ltd., AIR 1998 Bom 305

• W.A. Beardsell & Co. Ltd, Re(1968) 38 Comp Cas 197, 204
Mad.
• Reliance Jute Industries Ltd, Re. (1983) 53 Comp Cas 591
Cal

Magazines:
• Pallavi Roy and Mobis Philipose, Making Corus Work,
Business Today

40 | c o r p o r a t e l a w