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Presented By:-
Ranjit Jakhu
Deepak Chaudhary
Vishal Trehan
Gursewak Goyal
Satish Kumar
TATA & CORUS
Date 1st April, 2010
Under
guidance of :
Dr. Subhash
Chander
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There are not many opportunities for producers in emerging lowcost market to gain access to the market of Europe other than by
acquiring a company like Corus
- John Quigley
( Editor, Industry Publication Steel Week )
Tata acquired Corus which is 3 times larger than its size and largestSteel producer in UK.
The deal which creates worlds 5th
largest steel maker is Indiaslargest foreign takeover worth US $ 12.11 billion. Previous best
being US $ 1 bn by ONGC.
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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 aglobal giant
In the mid- 1990s, Tata steel emerged as Asias first and Indias 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 companys profit before tax in the same year was Rs. 64.14 billion while its
profit after tax was Rs. 42.22 billion.
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SWOT ANALYSIS OF
TATA STEEL
-Low Cost production.
-Easy access to raw material.- Low Debt Equity Ratio.
- Quality of Steel was not ofInternational standards.
-Non availability of latestR&D facility
- To become a World leaderin low cost and high quality
steel products.
- To Compete with other bigglobal players
SWOT
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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.
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CORUS BACKGROUND
Corus Group plc was formed on 6th October 1999,
through the merger of two companies, British Steel
and Koninklijke Hoogovens,
y 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
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SWOT ANALYSIS
Worlds ninth largest and Europessecond largest steel producer.
- Wide range of products of hightechnology.
- High operational Cost.
- Lack of Access to raw material
- To merge with a company toeliminate duplication and removeoverlaps in marketing, accounting
etc.
- To get access to raw material and
growth markets through merger.
- Increasing losses resulting towinding up of company
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SWOT
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To extend its Global reach through
TATA.
To get access to Indian Ore reserves, aswell as virgin market for steel.
To get access to low cost materials.
Saturated market of Europe.
Decline in market share and profit.
REASONS FOR CORUS FOR ACCEPTING BIDS
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ABOUT THE DEALABOUT THE DEAL
TATA Acquired CORUS on 2nd April 2007 .
The deal price was US $ 12.11 Billion.
On 17 Oct, 2006 TATAs bidded at 455 pence per shareand 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 makerCOMPANHIA SIDERURGICA NACIONAL (CSN) of 603 pence
per share.
The combined entity has become the worlds fifth largest
steelmaker after the deal.
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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 Steels UK
Special Purpose vehicle(SPV) named Tata Steel UK.
This SPV raised US $ 6.14 billion through a mix of highyield mezzanine and long term debt funding.
For immediate financing Tata Steel UK raised US $
2.66 bn through bridge loans.
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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.
WHY CASH DEAL????
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INTEGRATION EFFORTS
Tata steel's Continuous Improvement Program Aspire with thecore values :Trusteeship, Integrity, respect for individual,credibility and excellence.
Corus's Continuous Improvement Program The Corus Way withthe 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 Tataused Light Handed Integration Approach.
Top management of the company remained same.
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Tata was one of the lowest cost steel producers & Corus wasfighting 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 qualitydeveloped 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 TataSteel.
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High value paid. Approximately 7.7 times its Enterprise Value.
Corus EBITDA was at 8% which was much lower as compared toTata Steels 30%.
Debt of US $ 6.14 was raised against the cash flows of Corus. Itwas a risky proposition.
Tatas debt equity ratio was adversely affected to 2.74:1 from 1.1
which it was maintaining earlier.
Fast consumption of Tata Steels captive iron ore reserves asproduction capacity increased from 5.3 million ( estimated for 50years at this capacity) to 27 million tons of steel per annum.
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Integration has to be fast and efficient.
Increasing reach to joint entity to 4 continents and 45countries including high value market of Europe.
Increasing the EBITDA to 25% for joint entity byexecuting Tata steels brownfield and greenfield projectswell in time.
Increasing the capacity of the company beyond 50million tons by 2015 so as to become one of 3 top steelproducers in the world.
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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 combinedentity.
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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.
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If TATA steel were to create, from scratch, 19 million tonnes of steelmaking capacity comparable in quality to what Corus possesses, Itwould 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 everythinggoes well, has great execution risk.
With Corus in its fold, Tata steel can confidently target becomingone of the top 3 steel makers globally by 2015 . the company wouldhave an aggregate capacity beyond 50 million tones per annum, if allthe planned Greenfield capacities go on stream by then.
We can conclude that if the acquisitions well planned , executed andthe necessary precautions taken for the deal a company can achieveits strategic objectives and thus ensure its growth through acquisition.
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I believe this will be the first step in
showing that Indian industry can
step outside the shores o f India in
an international market place and
acquit itself as a global player
- Ratan Tata
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