Date – 1st April, 2010

TATA & CORUS

 Presented By:-
Under
 Ranjit Jakhu
guidance of :
 Deepak Chaudhary
Dr. Subhash  Vishal Trehan
Chander
 Gursewak Goyal
 Satish Kumar
 VISION TATA STEEL

“We aspire to be the global steel

industry benchmark for
Value Creation and Corporate
Citizenship”
 TATA STEEL BACKGROUND

• Tata Steel a part of the Tata group, one of the largest diversified business conglomerates in India.

• Founded in 1907,by Jamshedji Nusserwanji Tata.

• Started with a production capacity of 1,00,000 tones, has transformed into a global giant

• In the mid- 1990s, Tata steel emerged as Asia’s first and India’s largest integrated steel producer in
the private sector.

• In February 2005, Tata steel acquired the Singapore based steel manufacturer NatSteel, that let
the company gain access to major Asian markets and Australia.

• Tata steel acquired the Thailand based Millennium Steel in December 2005.

• Tata Steel generated net sales of Rs.175 billion in the financial year 2006-07.

• The company’s profit before tax in the same year was Rs. 64.14 billion while its profit after tax
was Rs. 42.22 billion.
SWOT ANALYSIS OF
TATA STEEL
REASONS FOR TATA STEEL
TO BID
 To tap European Mature Market.

 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.

 Helped TATA to feature in Top 10 players in world.

 Technology Benefit.

 Economic of scale.

 Corus holds number of patents and R&D facilities.

 CORUS BACKGROUND

• Corus Group plc was formed on 6th October 1999,

through the merger of two companies, British Steel and
Koninklijke Hoogovens,
 Company had four divisions: Strip product , Long
product , Aluminium and Distribution and Building
system.
• Corus has manufacturing operations in many countries
with major plants located in the UK, The Netherlands,
Germany, France, Norway and Belgium
• Supplier to many of the most demanding markets
worldwide including construction, automotive,
packaging, engineering
SWOT ANALYSIS
REASONS FOR CORUS FOR ACCEPTING BIDS

 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.
 ABOUT THE DEAL
 TATA Acquired CORUS on 2nd April 2007 .
 The deal price was US $ 12.11 Billion.
 On 17 Oct, 2006 TATA’s bidded at 455 pence per
share and price per share was 390 pence at that time.
 TATA Steel, the winner of the auction for CORUS declares
a bid of 608 Pence per share.
 TATA Surpassed the final bid from Brazilian steel maker
‘COMPANHIA SIDERURGICA NACIONAL’ (CSN) of 603
pence per share.
 The combined entity has become the world’s fifth largest
steelmaker after the deal.
 FINANCING THE DEAL

 Total Tata – Corus deal - US $13.7 billion

 Equity component – US $ 7.56 billion.
 Debt Component - US $ 6.14 billion.
 Acquisition was completed through Tata Steel’s UK
Special Purpose vehicle(SPV) named Tata Steel UK.
 This SPV raised US $ 6.14 billion through a mix of high
yield mezzanine and long term debt funding.
 For immediate financing Tata Steel UK raised US $
2.66 bn through bridge loans.
 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 Steel’s
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.
•Tata steel's Continuous Improvement Program ‘Aspire’ with 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.

•As the core values of the two companies were same so Tata
used ‘Light Handed Integration Approach’.

•Top management of the company remained same.

•Tata was one of the lowest cost steel producers & Corus was
fighting to keep its productions costs under control .

•Tata had a strong retail and distribution network in India and SE

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 fit 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.
•High value paid. Approximately 7.7 times its Enterprise Value.

•Corus’ EBITDA was at 8% which was much lower as compared to

Tata Steel’s 30%.

•Debt of US $ 6.14 was raised against the cash flows of Corus. It

was a risky proposition.

•Tata’s debt equity ratio was adversely affected to 2.74:1 from 1.1
which it was maintaining earlier.

•Fast consumption of Tata Steel’s captive iron ore reserves as

production capacity increased from 5.3 million ( estimated for 50
years at this capacity) to 27 million tons of steel per annum.
•Integration has to be fast and efficient.

•Increasing reach to joint entity to 4 continents and 45

countries including high value market of Europe.

•Increasing the EBITDA to 25% for joint entity by

executing Tata steel’s brownfield and greenfield
projects well in time.

•Increasing the capacity of the company beyond 50

million tons by 2015 so as to become one of 3 top steel
producers in the world.
Strengths :
•Easy Access to quality raw material.
•New technology for producing high value products.
•Reach in 4 continents and 45 countries.
• Economies of Scale and production.

Weakness :
• Cost of production per unit bound to increase.
•High Debt equity ratio.
•High dependability on the growth of market.
•A lot of stress on the cash flows of combined
entity.
Opportunities :
• To become global player in steel industry.
•Takeover more companies successfully.
•Increase in production capacity beyond 56 mn tons
by 2015

Threats :
•Cultural Diversifications are not easy to integrate.
•Markets should continue to grow.
•Rising cost of raw material.
•Rising terrorism and political unrest among nations.
If TATA steel were to create, from scratch, 19 million tonnes of steel
making capacity comparable in quality to what Corus possesses, It
would end up investing 70% to 85% more than it is paying now.

Besides, setting up a new factory, a 3 to 5 years project if everything

goes well, has great execution risk.

With Corus in its fold, Tata steel can confidently target becoming
one of the top 3 steel makers globally by 2015 . the company would
have an aggregate capacity beyond 50 million tones per annum, if all
the planned Greenfield capacities go on stream by then.

We can conclude that if the acquisitions well planned , executed and
the necessary precautions taken for the deal a company can achieve
its strategic objectives and thus ensure its growth through acquisition.
“ 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