Tata Corus Acqusition

Date – 18th September, 2009

TATA & CORUS

Presented To:Ms. Parul Nagar 1

Presented By:Ankur Keshari Ashish Lal Priyanka

Objectives of Research Introduction. Indian Steel Market. CORUS Steel Industry. The DEAL. TATA

after

Acquisition. Loss in the 1st Quarter 2

of 2009

Indian Steel Market Tata steel industry was the first Indian

steel industry established 1907.

It holds an important place in the Indian

business history.

Tata started other business in India in a

short span of 30 years. 3

Cont… Steel industry (heavy industry) is

considered as a very influential factor in the modern economy.

India is considered as a major exporter of

steel on a world map.

Due to this, antidumping actions has been

taken by developed countries.

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Global Steel Market : Overview IISI forecasts the global steel demand

would be 1.32 billion tones by 2010. Much of these demand generated from

India and China China highest Steel producing country

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Global Steel ranking Company

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Arcelor - Mittal

Capacity(in million tonnes) 110

Nippon Steel

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Posco

30.5

JEF Steel

30

Tata Steel - Corus

27.5

Bao steel China

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US Steel

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Corus Steel Industry Formed on 6th Oct 1999, through merger of 2

companies : British Steel and Koninklijke Hoogovens. Consist of four divisions : Strip products, Long products, Aluminum and Distribution, Building system Operates as an International company Core business in Manufacturing, Development and Allocation of Aluminum and Steel products and services Wide variety of products and services 7Largest steel producer in UK with £10,142

Objectives of Acquisition Higher profitability TATA current EBITDA is 13% production

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tonnes Global No. 6 company By 2012, EBITDA expected is 25%, production of 40 million tonnes giving it the position of Global number 2. To gain access to global steel market and expand production capacity to keep pace with growing demand for steel Jim Leng, Chairman of Corus“This offer from Tata Steel reflects the substantial value

Objectives of Acquisition TATA looking for mature market in Europe

for its finished products Corus holds a number of patients and R & D facility. Cost of Acquisition lower than setting up a green field plant and marketing and distribution channel. Corus wanted to reduce its employees cost and TATA is well known for handling its labours efficiently. 9

Consolidation Synergy As part of its integration process being

done at two levels, the steel makers expects to cross the $450 million target by the end of 2010. Synergy targets to be achieved included

areas of manufacturing procurement research and development, I.T., Finance and capital projects

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Mr. B. Muthuraman (M.D. Tata Steel)  We will make the steel business into an EVA

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positive one by 2007 – 08 through new initiatives, to be called ASPIRE, in all relevant areas of our business.  We will continue to be the lowest cost producer of steel in the world by continuous improvement, benchmarking and up gradation.  We will strengthen our partnerships with our customers and suppliers, and create mutually value creating opportunities.  Unleash people’s potential and create more

The DEAL.. Officially announced on April 2nd 2007. TATA’s motive is to capture the market value. Total value of this acquisition was $12 Billion

(608 pence per share except 603 per share). Corus gained profitable opportunity to exit

and a buyer for some time. 12

Ups and down  Sep 20, 06 : CORUS uses the strategy to work with low cost

producer.  Oct 06, 06 : Initial offer by TATA is considered to be too low.  Oct 17, 06: TATA kept its offer to 455 pence per share.  Oct 20, 06 : CORUS accepts the offer of £4.3 billion.  Oct 23, 06 : Brazilian Steel Group CSN counter-offer to TATA’s offer.  Oct 27, 06 : CORUS criticized by JCB for acceptance of TATA’s offer.  Nov 18, 06 : The CSN approaches Corus With an offer of 475 pence per share  Nov 27, 06 : Board of Corus decides to give more time for shareholders to decide whether it issue forward a formal offer.  Dec 18,06 : Tata increases its original bid for Corus 500 13 pence per share, then CSN made its counter bid at 515

TATA After Acquisition Seven member team for this DEAL. TATA has to pay $12 billion, where 2/3rd was

being financed. After the bidding conflict with CSN, TATA

ended up paying more to CORUS. Still TATA earned operating profits of $840

million on sales of 5.3 million tonnes of steel, 14

while CORUS earned $860 million on sales of

SWOT Analysis for TATA  Strength Lowest cost producer in world. Experience of TATA group in doing global activity. Stable balance sheet (Low Debt to Equity Ratio).

Weakness Corus was triple the size of TATA steel in terms

of production.

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Swot Analysis Opportunity Consolidation trend in Steel Industry CSN’s lost image after failure of 2002

negotiations To get exposed to global steel market Threat Brazil company CSN Russian company Severstal No committed financers to support the possible

deal 16

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. 17

Formulating a Research Design Descriptive Study Fact finding investigation with adequate

interpretation. Identifies various characteristics of

organization. Prediction is used outside the boundary of 18

research.

Reasons for Failure 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. 19

 Main Competitors are CSN and SEVERSTAL

Defining The Problem Lower chance of success Size of target company Corus Other bidding companies like CSN etc. Higher price per share Less opportunity to build relationship with

the target’s management Local Market reaction Arranging funds as it was an all cash deal

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Alternates Global Expansion Taking the TATA trust globally Joint Ventures with other steel manufacturers Could have searched for reserves in India,

Singapore etc. Profitability Could have diversified its investment

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Alternatives Expansion – 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. 22

Contingency Plan The Contingency plan could have been a

joint venture with mittal steels as it is allready into process of setting up a big steel unit in Orrisa, TATA could have provided them with iron ore reserves and would have expected share in its profits

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Conclusion “ 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 24

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