MERGERS & ACQUISITIONS

Presented By: Neha Chowdhury

About TATA
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 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).

About Corus
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.

About The Deal

Tata acquired Corus, which is four times larger than its size and the largest steel producer in the U.K. on 2nd April 2007 The deal price was US $ 12.11 Billion The process of acquisition concluded only after nine rounds of bidding against the other bidder for Corus - the Brazil based Companhia Siderurgica Nacional (CSN). TATA Steel, the winner of the auction for CORUS declares a bid of 608 Pence per share

The combined entity has become the worlds fifth largest steelmaker after the deal.

Synergies from the Deal

Tata was one of the lowest cost steel producers and Corus was fighting to keep its productions cost under control Tata had a strong retail and distribution network in India and south east Asia. Hence there would be a powerful combination of high quality developed and low cost high growth markets Technology transfer and cross fertilization of R&D capabilities There was a strong culture fits 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

Funding for the deal

Routed through Tata Steels UK Special Purpose Vehicle(SPV) named Tata Steel UK Debt equity ratio was 1.9:1 Equity $ 4.11 billion Debt Through junk bonds Senior term loans from banks : Credit Suisse leaded, joined by ABN AMRO and Deutsche Bank in the consortium ABN Amro bank Deutche Bank CSFB

WHY CASH DEAL????

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 favour 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.

Benefits of the Deal

Augmented its crude steel capacity to 27 mtpa The combined entity forms the 5th largest Steel company The merged entity has brought Tata Steel to the world platform Provided Tata Steel access to new markets and presence across the steel value chain Much broader distribution network

 I believe this will be the first step in showing that Indian industry can step outside the shores of India in an international market place and acquit itself as a global player

- Ratan Tata