Tata Corus Case Analysis @ Garg

TATA & CORUS: A CASE OF ACQUISITION Submitted To Dr. R. Sahu By: Jitesh Maharwal (2004IPG29) Nikhil Garg (2004IPG44) Harendra Singh (2004IPG83) Sunny Tyagi (2004IPG71)

Ratan Tata, Chairman of Tata Steel “This proposed acquisition represents a defining moment for Tata Steel and is entirely consistent with our strategy of growth through international expansion. Corus and Tata Steel are companies with long, proud histories. We have compatible cultures of commitment to stakeholders and complementary strengths in technology, efficiency, product mix and geographical spread. Together we will be even better equipped to remain at the leading edge of the fast changing steel industry.”

Jim Leng, Chairman of Corus “This offer from Tata Steel reflects the substantial value created for Corus shareholders since the placing and open offer and launch of our “Restoring Success” programme in 2003. In the middle of last year, my board agreed a strategic way forward for Corus to seek access to low cost production and high growth markets. Consistent with this, the Company held talks with a number of parties from Brazil, Russia and India. This transaction represents the culmination of these talks. This combination with Tata, for Corus shareholders and employees alike, represents the right partner at the right time at the right price and on the right terms. This creates a well balanced company, strategically well placed to compete in an increasingly competitive global environment.”

Objective Tata “ To gain access to global steel market and expand production capacity to keep pace with growing demand for steel.” Corus “To get a low cost partner to make company profitable in the long run.”

SWOT Analysis of TaTa Steel

SWOT Analysis of Corus

Tradable - Tata Steel Ø Advantage of Low cost of operations Ø Pension plan debt in Corus 

Tata offered to pay it off

Ø Stability of balance sheet compared to other bidders 

Despite raising massive funding for procurement

Ø Management efficiencies and reputation of Tata group

Tradable - Corus International Operations Wide range of products Almost 45 products  Demand diversified among all of them 

Higher profitability per tonne with the acquisition Not localized production 

All over EU

Gave Tata scope for expansion Could utilize existing infrastructure for expansion plans Mining Assets

Strategic Barrier Uncertainty over the size of the bargaining range of the deal CSN was concurrently competing for Corus bid It may be enough for Tata to match the 475 pence per share price 

Has support of Corus board

Might result in outbreak of bidding wars Highly unlikely since not as financially stable Though there was always chance for one

Psychological barrier Indian companies had never previously undertaken such a big merger There was uncertainty around ability of Tata to complete the deal Corus management was diffident 

Security of the future of the company was at stake

The Special Purpose Vehicle (SPV) Tata Steel UK will have their bridge loans maturing 

These will be repaid by other routes like GDR’s

In certain events resources raised through GDR’s have to be approved Special Committee on Overseas Investments under RBI considers this  Then transferred to Ministry of Finance for examination with recommendations of Special Committee  Project Report/Feasibility Report also has to be submitted 

In the course of this process the risk of approval not being granted existed

BATNA

Negotiation Evaluation Offer did not fully reflect the value of the company's position in a consolidating market The quality of the steel company's earnings was likely to improve due to less volatile market conditions The synergy benefits of the merger are not factored into the bid Tata's bid multiple was at least 10 percent below average recent deals in the sector

Chronology September 20, 2006 - Corus Steel has decided to acquire a strategic partnership with a Company that is a low cost producer October 5, 2006 - The Indian steel giant, Tata Steel wants to fulfill its ambition to expand its business further. October 17, 2006 - Tata Steel has kept its offer to 455p per share. October 20, 2006 - Corus accepts terms of ₤ 4.3 billion takeover bid from Tata Steel

October 23, 2006 - The Brazilian Steel Group CSN recruits a leading investment bank to offer advice on possible counter-offer to Tata Steel’s bid. November 27, 2006 - The board of Corus decides that it is in the best interest of its will shareholders to give more time to CSN to satisfy the pre-conditions and decide whether it issue forward a formal offer . December 18, 2006 - Within hours of Tata Steel increasing its original bid for Corus to 500 pence per share, Brazil's CSN made its formal counter bid for Corus at 515 pence per share in cash, 3% more than Tata Steel‘s Offer April 2, 2007 - Tata Steel manages to win the acquisition to CSN and has the full voting support form Corus’ shareholders.

Post Acquisition Tata Steel 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 group. 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).

“I believe this will be the first step in showing that Indian industry can in fact step outside the shores of India in an international marketplace and acquit itself as a global player.” -- Ratan Tata , Chairman of TaTa Steel

Tata Steel - Corus : Projected capacity (in million tones per annum) Corus Group (in UK and The Netherlands) - 19 Tata Steel – Jamshedpur - 10 Tata Steel – Jharkhand - 12 Tata Steel – Orissa - 6 Tata Steel – Chattisgarh - 5 NatSteel – Singapore - 2 Millennium Steel – Thailand - 1.7 Aggregate projected capacity - 55.7

Thank You