TATA & CORUS

A CASE OF ACQUISITION
 TATA STEEL
 Founded in 1907,by Jamsetji Nusserwanji Tata
and on 1997 Ratan Tata is the chairman.

 Tata company listed on BSE and NSE and

employs about 82700 (2007) people.

 Started with a production capacity of 1,00,000

tones -now has been transformed
into a global giant .

 It has a main steel plant located at

Jamshedpur.

 The Company also have three Greenfield steel

projects in the states of Jharkhand, Orissa and
Chhattisgarh.
 CORUS STEEL

 Corus is Europe's second largest steel producer.

 Corus group was formed on 6th October 1999 by
merging British Steel and Koninklijke Hoogovens
 Corus main steelmaking operations primarily in the
UK and the Netherland.
 Corus product range is concentrated on highly
specialized requirement of aerospace, engineering ,
automotive and construction.
 Its products are priced at a premium as compared
to Tata Steel’s product.
 It is listed on London stock exchange.
 Jim leng, Chairman of corus.
“ We aspire to be the global steel
industry benchmark for
Value Creation and Corporate
Citizenship “
Strengths : Opportunities:

 Low Debt to equity ratio.  Exposure to global steel

(Stable balance sheet) market.
 Lowest cost producer in  Consolidation trend in Steel
world. industry.
Experience in doing global  CSN’s failure on 2002
acquisitions negotiations

Weakness Threats

 Corus was triple the size of  CSN bidder.

TATA steel in terms of  Severstal bidder.
production.  No committed financers to
□ Corus was 4 times bigger support the deal .
than TATA in area.  Local market reaction.
Strengths : Opportunities:

Worlds ninth largest and  Consolidation trend in

Europe second largest steel Steel
producer. industry.
Wide range of products.
 To get right price at a
Presence of operating
facilities
time
spread in whole EU. when market is less
volatile

Weakness : Threats :

High operational costs. Huge pension liability

 Section 201 tariff imposed might have led to collapse
by Bush in 2002 led to of the deal.
loss  Disagreement of Labor
in Corus clientele. and
government due to
 CORUS Decides to Sell.. (Reasons)
 Total debt of Corus was 1.6 billion GBP.
 Corus could not meet higher cost raw
material.
 Though Corus has revenues of $ 18.06
billion, its profit was just $ 626 million (Tata’s
revenue was $4.84 billion and profit $ 824
million)
 Corus outmoded facilities were not cope up
with high cost of production.
 Employees cost is 15% (TATA STEEL – 9%).
 Due to tough competition from ARCELOR –
MITTAL.
 To extend its Global reach.
 Needs high quality ,developed , low cost and
high growth market.
 Search of virgin market place for their premium
steel products.
TATA decides to Bid- (Reasons)
 Manufacture the products and
markets in the Europe.
 Tata manufactured low valued long
and flat steel products with quality.
 Diversified Product Mix.
 The Corus group has developed a
breakthrough technology to reduce
cost of steel production.
 Tata also get to lay its hand on technology and saves on R &
D.
 From 55th in world to 5th in production of steel
globally.
 Efficient handling of Labor.
 Emphasis on continuous improvement.
 Cost of Acquisition was lower. Already established business in
India, then likes effective integration of business over a long
time
 It is long term investment strategy, Tata needs
more caution.
 Has to work in matured market.
 To maintaining low cost.
 High Steel prices threat.
 Rivals.
 Financial aspects.
 Non-Financial aspects
1. Cultural differences.
2. Structures and Compensation models.
3. Foreign ‘political’ environment.
THE DEAL
 TATA Acquired CORUS on 2nd April 2007 which is 4
times larger than its size.

 TATA Steel ,the winner of the auction for CORUS

declares a bid of 608 Pence per share, the starting
price per share was 455 pence.

 The total deal price was $ 12 Billion.

 TATA emerged as the winner in the final bid from

Brazilian steel maker ‘COMPANHIA SIDERURGICA
NACIONAL’ (CSN) whose bid was 603 pence per
share
 TATA FUNDING PATTERN

 For this deal TATA had finance only 4 Billion

$ from internal company resources.
 TATA had secured funding commitments
from its advisors.
 These advisors were Deutshe bank,ABN
Amro and Standard Chartered.
 All these needed because it was an all cash
deal.
Strengths : Opportunities:

 Big impact globally.  Pricing power.

 Facing Competition.  Strong research & technology
 Producing good quality at low price. development.
 Market Capitalization condition.

Weakness Threats

 EBITDA Ratio.  Capacity addition by other countries

 Requires high level of integration  Business performance of Corus
 Uncertainties in market condition  Size of the company
Company Capacity(in million tonnes)

Arcelor - Mittal 110

Nippon Steel 32

Posco 30.5

JEF Steel 30

Tata Steel - Corus 27.5

Bao steel China 23

US Steel 19
 Loss in quarter 1 of 2009 -2010
 TATA Steel posted a consolidated net loss
(including Corus) of Rs 2,209 crore ($461
million).
 Incurred a profit of Rs 3,901 crore ($814
million ) in the April-June quarter of FY’09.
 Sales volume of Indian operations was higher
by 22 percent but sales from its European
operations (Corus) fell heavily.
 Group consolidated turnover was Rs.23,292
crores as compared to Rs. 43,496 crores.
 Global Economic downturn.
 Increase in iron ore and coal prices.
 Contraction in demand from the building and
automotive sectors.
 Bidding Disturbance from CSN to TATA Steel
455 pence per share is pushed to 608 pence per
share of Corus.
 Main Competitors are CSN and SEVERSTAL
Arcelor-Mittal, reported an 85% drop in core.
 Tata had strong retail network in India and
SE. It will give the corus road into the
emerging Asian market.
 Strong culture fit and similar work practice
emphasizes on continuous improvement.
 Tata’s new debt amounting to $8 billion due
to the acquisition, financed with Corus’ cash
flows, is expected to generate up to $640
million in annual interest charges (8%
annual interest cost). This amount
combined with Corus’ existing interest debt
charges of $400 million on an annual basis
implies that the combined entity’s interest
 Tata after this acquisition will become the
3rd global marketer in 2015.
 International Iron and Steel Institute
( IISI ) forecasts the global steel demand
would be 1.32 billion tones by this 2010
and 1.62 billion tones by 2015 .
 Increasing demand of steel market it is
not possible for a single company to
capture the market alone.
 According to a report by Organization for
Economic Co-operation and
Development, world steel supply was
likely to expand dramatically over the
next two to four years.
 Planned capacity would lead to more mt
of production.