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EXECUTIVE S UMMARY

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A land mark deal in the history of Indian industry in general and the steel

industry in particular. This very factor has led the researcher in choosing

the topic for dissertation.

The other reason which is personal and inherent to the

researcher is the belongingness ant therefore the ability to relate. Tata

Steels largest facility is based out at Jamshedpur, Jharkhand. The

researcher is a close neighbor and has always been proud that Indias

biggest private sector steel plant is in Jamshedpur.

As a student of financial management it seemed to be the

most interesting case-study and therefore it made every sense to explore

the same.

In the present business world, India along with china is

being viewed as the major developing countries that would engine the

growth of future businesses. It therefore becomes necessary that India

comes up with companies who are global when it comes to level ad scale

of operation.

Tata steel has been a pioneer in this area and would go a

long way in the history of Indian industry.

As stated, the takeover is being studied as a case of financial

management where the focus is on the price that TATASTEEL paid to

CORUS.

A merger/takeover, as known well in management circles is

a complex process where several issues are into play in conjunction.

The researcher specifically focuses on the pricing and other

related areas are discussed on a su rface level and not in depth.

The findings have been based on personal analysis, study of

relevant literature and discussion with the research guide and research

supervisor.

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INTRODUCTION TO PROJECT

ChI

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Acquisition

An acquisition, also known as a takeover or a buyout or a

"merger", is the buying of one company (the target) by a nother. An

acquisition may be friendly or hostile. In the former case, the companies

cooperate in negotiations; in the latter case, the takeover target is

unwilling to be bought or the target 's board has no prior knowledge of the

offer. Acquisition usually refers to a purchase of a smaller firm by a

larger one. Sometimes, however, a smaller firm will acquire management

control of a larger or longer established company and keep its name for

the combined entity. This is known as a reverse takeover . Another type of

acquisition is reverse merger a deal that enables a private company to getpublicly listed in a short time period. A reverse merger occurs when a

private company that has strong prospects and is eager to raise financing

buys a publicly listed shell company, usually one with no business and

limited assets. Achieving acquisition success has proven to be very

difficult, while various studies have shown that 50% of acquisitions were

unsuccessful. The acquisition process is very complex, with many

dimensions influencing its outcome.

The buyer buys the shares, and therefore control, of the target

company being purchased. Ownership control of the company in turn

conveys effective control over the assets of the company, but since the

company is acquired intact as a going concern, this form of transaction

carries with it all of the liabilities accrued by that business over its past

and all of the risks that company faces in its commercial environment.

The buyer buys the assets of the target company. The cash the

target receives from the sell-off is paid back to its shareholders by

dividend or through liquidation. This type of transaction leaves the target

company as an empty shell, if the buyer buys out the entire assets. A

buyer often structures the transaction as an asset purchase to "cherry-

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pick" the assets that it wants and leave out the assets and liabilities that it

does not. This can be particularly important where foreseeable liabilities

may include future, unquantified damage awards such as those that could

arise from litigation over defective products, employee benefits or

terminations, or environmental damage. A disadvantage of this structure

is the tax that many jurisdictions, particularly outside the United States,

impose on transfers of the individual assets, whereas stock transactions

can frequently be structured as like-kind exchanges or other arrangements

that are tax-free or tax-neutral, both to the buyer and to the seller 's

shareholders.

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Distinction between Mergers and Acquisitions

Although they are often uttered in the same breath and used as

though they were synonymous, the terms merger and acquisition mean

slightly different things.

When one company takes over another and clearly establishes itself

as the new owner, the purchase is called an acquisition. From a legal point

of view, the target company ceases to exist, the buyer "swallows" the

business and the buyer's stock continues to be traded.

In the pure sense of the term, a merger happens when two firms

agree to go forward as a single new company rather than remain

separately owned and operated. This kind of action is more precisely

referred to as a "merger of equals". The firms are often of about the same

size. Both companies' stocks are surrendered and new company stock is

issued in its place. For example, in the 1999 merger of Glaxo Wellcome

and SmithKline Beecham, both firms ceased to exist when they merged,

and a new company, GlaxoSmithKline, was created.

In practice, however, actual mergers of equals don't happen very

often. Usually, one company will buy another and, as part of the deal 's

terms, simply allow the acquired firm to proclaim that the action is a

merger of equals, even if it is technically an acquisition. Being bought out

often carries negative connotations, therefore, by describing the deal

euphemistically as a merger, deal makers and top managers try to make

the takeover more palatable. An example of this would be the takeover of

Chrysler by Daimler-Benz in 1999 which was widely referred to in the

time, and is still now, as a merger of the two corporations.

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A purchase deal will also be called a merger when both CEOs agree

that joining together is in the best interest of both of their companies. But

when the deal is unfriendly - that is, when the target company does not

want to be purchased - it is always rega rded as an acquisition.

Whether a purchase is considered a merger or an acquisition really

depends on whether the purchase is friendly or hostile and how it is

announced. In other words, the real difference lies in how the purchase is

communicated to and received by the target company's board of directors,

employees and shareholders. It is quite normal though for M&A deal

communications to take place in a so called 'confidentiality bubble'

whereby information flows are restricted due to confidentialityagreements (Harwood, 2005).

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Business Valuation

The five most common ways to evalu ate a business are

ASSET VALUATION, HISTORICAL EARNINGS VALUATION, FUTURE MAINTAINABLE EARNINGS VALUATION, RELATIVE VALUATION (comparable company & comparable

transactions),

DISCOUNTED CASH FLOW (DCF) VALUATION

Professionals who valuate businesses generally do not use just one of

these methods but a combination of some of them, as well as possibly

others that are not mentioned above, in order to obtain a more accurate

value. These values are determined for the most part by looking at a

company's balance sheet and/or income statement and withdrawing the

appropriate information. The information in the balance sheet or income

statement is obtained by one of three accounting measures: a Notice to

Reader, a Review Engag ement oran Audit.

Accurate business valuation is one of the most important aspects ofM&A as valuations like these will have a major impact on the price that a

business will be sold for. Most often this information is expressed in a

Letter of Opinion of Value (LOV) when the business is being valuated for

interest 's sake. There are other, more detailed ways of expressing the

value of a business. These reports generally get more detailed and

expensive as the size of a company increases; however, this is not always

the case as there are many complicated industries which require more

attention to detail, regardless of size.

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Financing M&A

Mergers are generally differentiated from acquisitions partly by the

way in which they are financed and partly by the relative size of the

companies. Various methods of financing an M&A deal exist:

Use of cash balance

Payment by cash. Such transactions are usually termed acquisitions

rather than mergers because the shareholders of the target company are

removed from the picture and the target comes under the (indirect) control

of the bidder's shareholders alone.

A cash deal would make more sense during a downward trend in the

interest rates. Another advantage of using cash for an acquisition is that it

tends to lessen chances of EPS dilution for the acquiring company. But a

caveat in using cash is that it places constraints on the cash flow of the

company.

Use of loan from banks

Financing capital may be borrowed from a bank, or raised by an

issue of bonds. Alternatively, the acquirer 's stock may be offered as

consideration. Acquisitions financed through debt are known as leveraged

buyouts if they take the target private, and the debt will often be moved

down onto the balance sheet of the acquired company. The organization

can also opt for issuing of fresh capital in the market to raise the funds.

Use of a combination of cash, stock& loans

An acquisition can involve a combination of cash and debt or of

cash and stock of the purchasing entity.

Factoring

Factoring can provide the extra to make a merger or sale work.

Hybrid can work as ad e-denit.

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Specialist M&A advisory firms

Although at present the majority of M&A advice is provided by

full-service investment banks, recent years have seen a rise in the

prominence of specialist M&A advisers, who only provide M&A advice

(and not financing). These companies are sometimes referred to as

Transition companies, assisting businesses often referred to as "companies

in transition." To perform these services in the US, an advisor must be a

licensed broker dealer, and subject to SEC (FINRA) regulation. More

information on M&A advisory firms is provided at corporate advisory.

Motives behind M&A

The dominant rationale used to explain M&A activity is that

acquiring firms seek improved financial performance. The following

motives are considered to improve financial performance:

Economy of scale :

This refers to the fact that the combined company can often reduce

its fixed costs by removing duplicate departments or operations, lowering

the costs of the company relative to the same revenue stream, thus

increasing profit margins.

Economy of scope :

This refers to the efficiencies primarily associated with demand-

side changes, such as increasing or decreasing the scope of marketing and

distribution, of different types of products.

Increased revenue or market share :

This assumes that the buyer will be absorbing a major competitor

and thus increase its market power (by capturing increased market share)

to set prices.

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Cross-selling:

For example, a bank buying a stock broker could then sell its

banking products to the stock broker's customers, while the broker can

sign up the bank's customers for brokerage accounts. Or, a manufacturer

can acquire and sell complementary products.

Synergy:

For example, managerial economies such as the increased

opportunity of managerial specialization. Another example is purchasing

economies due to increased order size and associated bulk-buying

discounts.

Taxation:

A profitable company can buy a loss maker to use the target 's loss

as their advantage by reducing their tax liability. In the United States and

many other countries, rules are in place to limit the ability of profitable

companies to "shop" for loss making companies, limiting the tax motive

of an acquiring company.

Geographical or other diversification :

This is designed to smooth the earnings results of a company, which

over the long term smoothens the stock price of a company, giving

conservative investors more confidence in investing in the company.

However, this does not always deliver value to shareholders.

Resource transfer :

Resources are unevenly distributed across firms (Barney, 1991) and

the interaction of target and acquiring firm resources can create value

through either overcoming information asymmetry or by combining scarce

resources.

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Vertical integration:

Vertical integration occurs when an upstream and downstream firm

merges (or one acquires the other). There are several reasons for this to

occur. One reason is to internalize an externality problem. A common

example is of such an externality is double marginalization. Double

marginalization occurs when both the upstream and downstream firms

have monopoly power; each firm reduces output from the competitive

level to the monopoly level, creating two deadweight losses. By merging

the vertically integrated firm can collect one deadweight loss by setting

the upstream firm's output to the competitive level. This increases profits

and consumer surplus. A merger that creates a vertically integrated firm

can be profitable.

However, on average and across the most commonly studied

variables, acquiring firms' financial performance does not positively

change as a function of their acquisition activity. Therefore, additional

motives for merger and acquisition that may not add shareholder value

include:

Diversification:

While this may hedge a company against a downturn in an

individual industry it fails to deliver value, since it is possible for

individual shareholders to achieve the same hedge by diversifying their

portfolios at a much lower cost than those associated with a merger.

Manager's hubris :Manager's overconfidence about expected synergies from M&A

which results in overpayment for the target company.

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Empire-building :

Managers have larger companies to manage and hence more power.

Manager's compensation :In the past, certain executive management teams had their payout

based on the total amount of profit of the company, instead of the profit

per share, which would give the team a perverse incentive to buy

companies to increase the total profit while decreasing the profit per share

(which hurts the owners of the company, the shareholders); although some

empirical studies show that compensation is linked to profitability rather

than mere profits of the company.

Effects on management

A study published in the July/August 2008 issue of the Journal of

Business Strategy suggests that mergers and acquisitions destroy

leadership continu ity in target companies top management teams for at

least a decade following a deal. The study found that target companies

lose 21 percent of their executives each year for at least 10 years

following an acquisition more than double the turnover experienced in

non-merged firms.

M&A marketplace difficulties

In many states, no marketplace currently exists for the mergers and

acquisitions of privately owned small to mid-sized companies. Market

participants often wish to maintain a leve l of secrecy about their efforts to

buy or sell such companies. Their concern for secrecy usually arises from

the possible negative reactions a company's employees, bankers,

suppliers, customers and others might have if the effort or interest to seek

a transaction were to become known. This need for secrecy has thus far

thwarted the emergence of a public forum or marketplace to serve as a

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clearinghouse for this large volum e of business. In some states, a Multiple

Listing Service (MLS) of small businesses for sale is maintained by

organizations such as Business Brokers of Florida (BBF). Another MLS is

maintained by International Business Brokers Association (IBBA).

A transaction typically requires six to nine months and involves

many steps. Locating parties with whom to conduct a transaction forms

one step in the overall process and perhaps the most difficult one.

Qualified and interested buyers of multimillion dollar corporations are

hard to find. Even more difficulties attend bringing a number of potential

buyers forward simultaneously during negotiations. Potential acquirers in

an industry simply cannot effectively "monitor" the economy at large for

acquisition opportunities even though some may fit well within their

company's operations or plans.

An industry of professional "middlemen" (known variously as

intermediaries, business brokers, and investment bankers) exists to

facilitate M&A transactions. These professionals do not provide their

services cheaply and generally resort to previously-established personal

contacts, direct-calling campaigns, and placing advertisements in various

media. In servicing their clients they attempt to create a one-time market

for a one-time transaction. Stock purchase or merger transactions involve

securities and require that these "middlemen" be licensed broker dealers

under FINRA (SEC) in order to be c ompensated as a % of the deal.

Generally speaking, an unlicensed middleman may be compensated on an

asset purchase without being licensed. Many, but not all, transactions use

intermediaries on one or both sides. Despite best intentions,

intermediaries can operate inefficiently because of the slow and limiting

nature of having to rely heavily on telephone communications. Many

phone calls fail to contact with the intended party. Busy executives tend

to be impatient when dealing with sales calls concerning opportunities in

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which they have no interest. These marketing problems typify any private

negotiated markets. Due to these problems and other problems like these,

brokers who deal with small to mid-sized companies often deal with much

more strenuous conditions than other business brokers. Mid-sized business

brokers have an average life-span of only 1218 months and usually never

grow beyond 1 or 2 employees. Exceptions to this are few and far

between. Some of these exceptions include The Sundial Group, Geneva

Business Services, Corporate Finance Associates and Robbinex.

The market inefficiencies can prove detrimental for this important

sector of the economy. Beyond the intermediaries' high fees, the current

process for mergers and acquisitions has the effect of causing private

companies to initially sell their shares at a significant discount relative to

what the same company might sell for were it already publicly traded. An

important and large sector of the entire economy is held back by the

difficulty in conducting corporate M &A (and also in raising equity or debt

capital). Furthermore, it is likely that since privately held companies are

so difficult to sell they are not sold as often as they might or should be.

Previous attempts to streamline the M&A process through

computers have failed to succeed on a large scale because they have

provided mere "bulletin boards" - static information that advertises one

firm's opportunities. Users must still seek other sources for opportunities

just as if the bulletin board were not electronic. A multiple listings

service concept was previously not used due to the need for

confidentiality but there are currently several in operations. The most

significant of these are run by the California Association of Business

Brokers (CABB) and the International Business Brokers Association

(IBBA) These organizations have effectively created a type of virtual

market without compromising the confidentiality of parties involved and

without the unauthorized release of information.

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One part of the M&A process which can be improved significantly

using networked computers is the improved access to " data rooms" during

the due diligence process however only for larger transactions. For the

purposes of small-medium sized business, these data rooms serve no

purpose and are generally not used.

M&A failure

Reasons for frequent failure of M&A were analyzed by Thomas

Straub in "Reasons for frequent failure in mergers and acquisitions - a

comprehensive analysis", DUV Gabler Edition, 2007. Despite the goal of

performance improvement, results from mergers and acquisitions (M&A)

are often disappointing. Numerous empirical studies show high failure

rates of M&A deals. The effect of M&A evolution in a transition

economy, especially where the presence of rent-seeking and relationship-

based transactions is significant, may cause destructive entrepreneurship.

From socio-economic and cultural views, the degree of positive impacts it

may result in for domestic entrepreneurship will perhaps be the single

most important indicator. Studies are mostly focused on individual

determinants. The literature therefore lacks a more comprehensiveframework that includes different perspectives. Using four statistical

methods, Thomas Straub shows that M&A performance is a multi-

dimensional function. For a successful deal, the following key success

factors should be taken into account:

Strategic logic which is reflected by six determinants: market

similarities, market complementarities, operational similarities,

operational complementarities, market power, and purchasing power...

Organizational integration which is reflected by three determinants:

acquisition experience, relative size, cultural compatibility.

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Financial / price perspective which is reflected by three determinants:

acquisition premium, bidding process, and due diligence.

Post-M&A performance is measured by synergy realization, relative

performance (compared to competition), and absolute performance.

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The Great Merger Movement

The Great Merger Movement was a predominantly U.S. business

phenomenon that happened from 1895 to 1905. During this time, small

firms with little market share consolidated with similar firms to form

large, powerful institutions that dominated their markets. It is estimated

that more than 1,800 of these firms disappeared into consolidations, many

of which acquired substantial shares of the markets in which they

operated. The vehicle used was so-called trusts. To truly understand how

large this movement wasin 1900 the value of firms acquired in mergers

was 20% of GDP. In 1990 the value was only 3% and from 19982000 it

was around 1011% of GDP. Organizations that commanded the greatest

share of the market in 1905 saw that command disintegrate by 1929 as

smaller competitors joined forces with each other. However, there were

companies that merged during this time such as DuPont, US Steel, and

General Electric that have been able to keep their dominance in their

respected sectors today due to growing technological advances of their

products, patents, and brand recognition by their customers. The

companies that merged were mass producers of homogeneous goods that

could exploit the efficiencies of large volume production. However moreoften than not mergers were "quick mergers". These "quick mergers"

involved mergers of companies with unrelated technology and different

management. As a result, the efficiency gains associated with mergers

were not present. The new and bigger company would actually face higher

costs than competitors because of these technological and managerial

differences. Thus, the mergers were not done to see large efficiency gains;

they were in fact done because that was the trend at the time. Companies

which had specific fine products like fine writing paper, earned their

profits on high margin rather than volume and took no part in Great

Merger Movement.

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Short-run factors

One of the major short run factors that sparked in The Great Merger

Movement was the desire to keep prices high. That is, with many firms in

a market, supply of the product remains high. During the panic of 1893,

the demand declined. When demand for the good falls, as illustrated by

the classic supply and demand model, prices are driven down. To avoid

this decline in prices, firms found it profitable to collude and manipulate

supply to counter any changes in demand for the good. This type of

cooperation led to widespread horizontal integration amongst firms of the

era. Focusing on mass production allowed firms to reduce unit costs to a

much lower rate. These firms usually were capital-intensive and had high

fixed costs. Because new machines were mostly financed through bonds,

interest payments on bonds were high followed by the panic of 1893, yet

no firm was willing to accept quantity reduction during that period.

Long-run factors

In the long run, due to the desire to keep costs low, it was

advantageous for firms to merge and reduce their transportation costs thus

producing and transporting from one location rather than various sites of

different companies as in the past. This resulted in shipment directly to

market from this one location. In addition, technological changes prior to

the merger movement within companies increased the efficient size of

plants with capital intensive assembly lines allowing for economies of

scale. Thus improved technology and transportation were forerunners to

the Great Merger Movement. In part due to competitors as mentioned

above, and in part due to the government, however, many of these initially

successful mergers were eventually dismantled. The U.S. government

passed the Sherman Act in 1890, setting rules against price fixing and

monopolies. Starting in the 1890s with such cases as U.S. versus Addyston

Pipe and Steel Co. , the courts attacked large companies for strategizing

with others or within their own companies to maximize profits. Price

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fixing with competitors created a greater incentive for companies to unite

and merge under one name so that they were not competitors anymore and

technically not price fixing.

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Merger waves

The economic history has been divided into Merger Waves based on

the merger activities in the business World as:

Period Name Facet

1889- 1904First

WaveHorizontal mergers

1916- 1929Second

WaveVertical mergers

1965 - 1989Third

WaveDiversified conglomerate mergers

1992 - 1998Fourth

Wave

Co generic mergers; Hostile takeovers; Corporate

Raiding

2000 -Fifth

WaveCross-border mergers

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Cross-border M&A

In a study conducted in 2000 by Lehman Brothers, it was found

that, on average, large M&A deals cause the domestic currency of the

target corporation to appreciate by 1% relative to the acquirers.

The rise of globalization has exponentially increased the market for

cross border M&A. In 1997 alone there were over 2333 cross border

transactions worth a total of approximately $298 billion. This rapid

increase has taken many M&A firms by surprise because the majority of

them never had to consider acquiring Due to the complicated nature of

cross border M&A, the vast majority of cross border actions have

unsuccessful companies seek to expand their global footprint and become

more agile at creating high-performing businesses and cultures across

national boundaries.

Even mergers of companies with headquarters in the same country

are very much of this type (cross-border Mergers). After all, when Boeing

acquires McDonnell Douglas, the two American companies must integrate

operations in dozens of countries around the World. This is just as truefor other supposedly "single country" mergers, such as the $29 billion

dollar merger of Swiss drug makers Sandoz and Ciba-Geigy (now

Novartis).

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Major M&A in the 1990s

Top 10 M&A deals Worldwide b y value (in mil. USD) from 1990 to 1999:

Rank Year Pur chaser PurchasedTransaction value

(in mil. USD)

1 1999Vodafone Air touch

PLCMannesmann 183,000

2 1999 Pfizer Warner-Lambert 90,000

3 1998 Exxon Mobil 77,200

4 1998 Citicorp Travelers Group 73,000

5 1999 SBCCommunications

AmeritechCorporation

63,000

6 1999 Vodafone Group AirTouch

Communications60,000

7 1998 Bell Atlantic GTE 53,360

8 1998 BP Amoco 53,000

9 1999

Qwest

Communications US WEST 48,000

10 1997 WorldCom MCI

Communications 42,000

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Major M&A in the 2000s

Top 10 M&A deals Worldwide b y value (in mil. USD) from 2000 to 2009:

Rank Year Purchaser Purchased

Transaction

value (in mil.USD)

1 2000Fusion : America

Online Inc. (AOL)Time Warner 164,747

2 2000 Glaxo Wellcome Plc.SmithKline

Beecham Plc.75,961

3 2004

Royal Dutch

Petroleum Co.

Shell Transport &

Trading Co 74,559

4 2006 AT&T Inc.BellSouth

Corporation72,671

5 2001 Comcast CorporationAT&T Broadband &

Internet Svcs72,041

6 2004Sanofi-Synthelabo

SAAventis SA 60,243

7 2000

Spin-off: Nortel

Networks

Corporation

59,974

8 2002 Pfizer Inc.Pharmacia

Corporation59,515

9 2004JP Morgan Chase &

CoBank One Corp 58,761

10 2008 Inbev Inc.Anheuser-Busch

Companies, Inc52,000

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TATA & CORUS ACQUISITION

There are not many opportunities for producers in emerging low-costmarkets to gain access to the markets of Europe other than by acquiring a

company like Corus,

John Quigley (Editor, Industry Publication Steel week)

Thousands of Indians didnt offer prayers for Tata Steel to clinch

the deal for the Anglo-Dutch steel maker Corus, as they have for the

recovery of hospitalized Bollywood superstars. Nor did they erect 40-foot

billboards of a smiling Ratan Tata, chairman of Tata Steel, after he won

Corus. And the stock markets were clearly concerned about the Tata

Steels new debt load. But despite all this, euphoria gripped the nation.

Finance minister P. Chidambaram offered unspecified help, if needed, to

close the deal; fellow steel magnate Lakshmi Niwas Mittal cheered the

acquis ition, and excited TV newsreaders gushed. Indias first Fortune 500

MNC was born.

Tata acquired Corus, which is four times larger than its size and the

largest steel producer in the U.K. The deal, which creates the World's

fifth-largest steelmaker, is India's largest ever foreign takeover and

follows Mittal Steel 's $31 billion acquisition of rival Arcelor in the same

year. Over the past five years, Indian companies had made global

acquisitions for over $10 billion. The Tata bid almost equals this amount.

Most of them have averaged $100 to 200 million.

Until the 1990s, not many Indian companies had contemplated

spreading their wings abroad. An Indian corporate or group company

acquiring a business in Europe or the U.K. seemed possible only in the

realm of fantasy. Recent reports of United Nations Conference on Trade

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and Development (UNCTAD) and other organizations have recorded the

fact that nowadays Foreign Direct Investment (FDI) is more likely to flow

in through cross border mergers (and not through Greenfield Projects).

Though Corus is four times bigger than Tata but in the year 2006 the

operating profit for Tata was $840million, whereas in case of Corus it was

$860 million. There are some major inputs, which leads Tata towards this

huge profit. Tata acquired Corus on the 2nd of April 2007 for a price of

$12 billion making the Indian company the World s fifth largest steel

producer. This acquisition process has started long back in the year 2005.

However, Corus was involved in a considerable number of Merger&

Acquisition (M&A) deals and joint ventures (JVs) before Tata. This

process started in the year 2000 and with Tata it came to an end. In a

period of seven years Corus was involved in 14 deals apart from Tata. In

2005, when the deal was started the price per share was 455 pence. But

during the time of acquisition held in 2007, the price per share was 608

pence, which is33.6% higher than the first offer. For this deal Tata has

financed only $4 billion, although the total price of this deal was

$12billion. Here the important point is how Tata could manage to get such

a huge amount for this deal? Did Tata Steel overheat in its zeal to win

Corus? However as stated by Muthuraman (the Managing Director of Tata

Steel), the bid made to Corus was unanimously supported by the

management of the company and recommended to its shareholders.

In an interview to CNBC India, B Muthuraman also said that they

are acquiring Corus for synergy and not for tonnage. "There are synergies

in operations, manufacturing, marketing etc."

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THE DEAL

The deal (between Tata & Corus) was officially announced on April2nd, 2007 at a price of 608 pence per ordinary share in cash. This deal is

a 100% acquisition and the new entity will be run by one of Tatas steel

subsidiaries. As stated by Tata, the initial motive behind the completion

of the deal was not Corus revenue size, but rather its market value. Even

though Corus is larger in size compared to Tata, the company was valued

less than Tata (at approximately $6 billion) at the time when the deal

negotiations started.

But from Corus point of view, as the management has stated that

the basic reason for supporting this deal were the expected synergies

between the two entities. Corus has supported the Tata acquisition due to

different motives. However, with the Tata acquisition Corus has gained a

great and profitable opportunity to make an exit as the company has been

looking out for a potential buyer for quite some time. The total value of

this acquisition amounted to 6.2 billion (US$12 billion). Tata Steel the

winner of the auction for Corus declares a bid of 608 pence per share

surpassed the final bid from Brazilian Steel maker Companhia Siderurgica

Nacional (CSN) of 603pence per share. Prior to the beginning of the deal

negotiations, both Tata Steel and Corus were interested in entering into an

M&A deal due to several reasons. The official press release issued by

both the company states that the combined entity will have a pro forma

crude steel production of 27 million tons in 2007, with 84,000 employees

across four continents and a joint presence in 45 countries, which makes it

a serious rival to other steel giants.

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COMPANY PROFILE

ChII

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TATA STEEL

Backed by 100 glorious years of experience in steel making, Tata

Steel is among the top ten steel producers in the World with an existingannual crude steel production capacity of 30 Million Tonnes Per Annum

(MTPA). Established in 1907, it is the first integrated steel plant in Asia

and is now the World`s second most geographically diversified steel

producer and a Fortune 500 Company.

Tata Steel has a balanced global presence in over 50 developed

European and fast growing Asian markets, with manufacturing units in 26

countries.

It was the vision of the founder; Jamsedji Nusserwanji Tata, that on

27th February, 1908, the first stake was driven into the soil of Sakchi.

His vision helped Tata Steel overcome several periods of adversity and

strive to improve against all odds.

Tata Steel`s Jamshedpur (India) Works has a crude steel production

capacity of 6.8 MTPA which is slated to increase to 10 MTPA by 2010.

The Company also has proposed three Greenfield steel projects in the

states of Jharkhand, Orissa and Chhattisgarh in India with additional

capacity of 23 MTPA and a Greenfield project in Vietnam.

Through investments in Corus, Millennium Steel (renamed Tata

Steel Thailand) and NatSteel Holdings, Singapore, Tata Steel has created

a manufacturing and marketing network in Europe, South East Asia and

the pacific-rim countries. Corus, which manufactured over 20 MTPA of

steel in 2008, has operations in the UK, the Netherlands, Germany,

France, Norway and Belgium.

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Tata Steel Thailand is the largest producer of long steel products in

Thailand, with a manufacturing capacity of 1.7 MTPA. Tata Steel has

proposed a 0.5 MTPA mini blast furnace project in Thailand. NatSteel

Holdings produces about 2 MTPA of steel products across its regional

operations in seven countries.

Tata Steel, through its joint venture with Tata BlueScope Steel

Limited, has also entered the steel building and construction applications

market.

The iron ore mines and collieries in India give the Company a

distinct advantage in raw material sourcing. Tata Steel is also striving

towards raw materials security through joint ventures in Thailand,

Australia, Mozambique, Ivory Coast (West Africa) and Oman. Tata Steel

has signed an agreement with St eel Authority of India Limited to establish

a 50:50 joint venture company for coal mining in India. Also, Tata Steel

has bought 19.9% stake in New Millennium Capital Corporation, Canada

for iron ore mining.

Exploration of opportunities in titanium dioxide business in Tamil

Nadu, Ferro-chrome plant in South Africa and setting up of a deep-sea

port in coastal Orissa are integral to the Growth and Globalization

objective of Tata Steel

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CORUS

On October 06, 1999, Hoogovens (38.3%) merged with British Steel Plc

(61.7%) to form Corus Group Plc.

History of British Steel

March 22nd 1967

The Iron and Steel Act brought into public ownership about 90%

of British Steel making. The country's non integrated steel making and re-

rolling companies, including half of the specialized steel production

facilities were left in the private sector with a number of smallcompanies.

July 28th 1967

BSC (British Steel Corporation) was formed from the UK's 14 main

steel producing companies. The formation enabled the reshaping of a vital

industry after years of insufficient capital investment.

The 1970's

The Government approved a 10 year development strategy with

expenditure of 3,000 million from 1973onwards, the objective of which

was to convert BSC from a large number of small scale works using

largely obsolete equipment, to a far more compact organization with

highly competitive plant. Steelmaking was to be concentrated in five main

areas: South Wales, Sheffield, Scunthorpe, Teesside and Scotland. It was

not until 1975 that a closure program me was agreed after a 14 month

review by Lord Beswick, the then Minister of State for Industry. By this

time BSC was plunging into loss and important parts of the investment

program me was held back. Despite this significant closures had taken

place by the end of the decade.

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The 1980's

The start of the 1980s was heralded by a 13 week national steel

strike. The strike was the result of the Corporation's pressure for change

and a pay dispute. By the end of 1980, BSC had completed the closure of

a number of outdated and loss making plants and reduced its workforce to

130,000 - compared with a total of 268,500 employees at the time of

nationalization. Even so, the prospects for steel sales in the markets

available to BSC were such that a corporate plan put forward in December

1980 proposed further significant improvements in cost and efficiency.

The aim was to regain a competitive position as a supplier to a World

market heavily over-supplied with steel products. By early 1984, BSC was

achieving better labour productivity levels than most continental

steelmakers and by 1988/89, a figure of 4.7 man hours per tonne was

achieved - a threefold improvement since the end of the1970s.The

turnaround in British Steel 's fortunes since the early years of 1980s was

very substantial. The heavy losses of a few years before were replaced by

a pre-tax profit in1989/90 of 733 million.

1987On the 3rd December 1987 the UK Government formally announced

its intention to privatize the British Steel Corporation.

1988

The British Steel Act 1988 transferred the assets of the Corporation

to British Steel, a company registered under the Companies Act & on 5

December 1988, dealings in shares opened at The Stock Exchange.

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The 1990's

The early 1990's saw reduced demand and it was not until1993 that

growth in the UK economy gradually gathered pace and was reflected in a

partial recovery in steel demand and price levels. The trend continued into

1994and helped by continuing efficiency and productivity gains, British

Steel returned to profit.

1999

On October 6, 1999 the merger with Koninklijke Hoogovens to form

Corus came into effect.

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History of Koninklijke Hoogovens

September 20th 1918

Koninklijke Nederlandsche Hoogovens was founded in The Hagueto enable Dutch industry to become less dependent on imports. The

geographical location of the Netherlands was ideal for the establishment

of an iron and steel company, with its excellent access to the sea for the

supply of raw materials and the export of finished products. The business

was established at Ijmuiden, a town on the North Sea coast with good

access inland via the North Sea Canal.

1920 - 1941

The initial capital was raised by companies, private investors, the

Dutch State and the city of Amsterdam. Construction began in 1920, and

in1924 the first blast furnace was commissioned and iron production

began. By the mid 1930's, Hoogovens had become the largest exporter of

pig iron in the World. In 1936, they began producing cast-iron pipes.

Steel production began in 1939, using open-hearth furnaces. In 1941,

Hoogovens acquired Van Leer's Walsbedrijven, a rolling mill that was

renamed Walserij Oost (East Rolling Mill).

The 1960's

In the mid-sixties Hoogovens decided to diversify, particularly into

aluminum and mining. In 1966, the Aldel primary aluminum smelter was

commissioned, after the acquisition a year earlier of Vaassen Aluminum.

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The 1970's

In 1970, Hoogovens took a holding in Sidal, aluminium rolling and

extrusion company. On the7 July 1972 Hoogovens and Hoesch of Germany

merged to form Estel.

The 1980's

After several years of 'manifest ' crisis in the European steel

industry, the co-operative arrangement between Hoogovens and Hoesch

was dissolved in 1982. The European activities of Kaiser Aluminium were

acquired in 1987, making Hoogovens one of the four largest producers of

rolled and extruded aluminium in Europe.

The 1990's

In 1990, the Hoogovens group had five divisions; Steel, Aluminium,

Technical Services, Subcontracting, and the newly formed Steel

Processing and Trading. In 1999, the trend towards greater rationalization

in the European steel industry led to the merger discussions with British

Steel. At that time, Koninklijke Hoogovenshad 17 business units, around

22,000 employees, a turnover of 4.9 billion Euro, production of 6.7million

tonnes of crude steel and sales of 429,000tonnes of aluminium products.

On October 6, 1999, the merger with British Steel to form Corus came

into effect.

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Tata and Indian Steel Industry

Tata Steel has established by Indian Parsi Businessman Jamsedji

Tata in 1907, exactly in the year when British American Tobacco (BAT)

has started its first factory in India. But it started operating in the year1912. Tata Steel holds a very vital place in Indian business history,

because it has introduced some of the unique concepts like 8-hour

working days, leave with pay and pension system for the first time in

India and the first player to start rapid industrialization process. In the

later part the concepts invented and implemented by Tata became lawful

and compulsory practice for the Indian employees. From Tata Steel, Tata

has started investing in various other businesses like; Oil mills, Airlines

Publishing, Motors, Consultancy services etc in a short span of 30 years.

In the year 1945Tata entered into tea business by the name of Tata Tea,

which was called as Tata Finlay earlier. Tata also entered into exports as

Tata Exports, which is the most successful and the largest export house in

India. During the entire business in India Tata has seen many ups and

downs, in different fields of business. If we will look at the companys

financial status/condition, it will give some idea about the condition and

performance of the company across the years.

The Indian Steel industry is regarded as the most important

component for the development of nation, because steel industry (heavy

industry) is considered as a very important and influential parameter for

the development of any modern economy. The finished steel production in

India has grown from 1.1 million tons in 1951 to 31.63million tones in

2001-02, which can be regarded as a remarkable example of Indias

development in economic activities. Tata played a vital role in the

improvement of steel production also. For that reason in the development

of Indias economy, Tata played a significant role. As a result the

consumption level of steel from 1990 to 2002 was continuously in an

increasing order, but in 2003 it was not like earlier. In respect to the per

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capita income and consumption of steel it is very less in India with

compare to other countries. Indias major market for steel and steel items

include USA, Canada, Indonesia, Italy, West Asia, Nepal, Taiwan,

Thailand, Japan, Sri Lanka and Belgium. The major steel items of export

include HR coils, plates, CR and galvanized products, pipes, stainless

steel, wire rods and wires. With the fall in prices along with depressed

domestic demand, India has been increasing exports to overcome the

excess supply situation. This has resulted in antidumping actions being

taken by developed countries like USA, EU and Canada. The trade action

by some countries against Indian steel industry has, to some extent,

affected Indias exports to these countries. The Government of India and

the Indian steel producers are trying to combat such actions despite such

efforts being very expensive and involving time-consuming procedures.

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Corus and Steel Production in the U.K

Corus Group plc was formed on 6th October 1999, through the

merger of two companies, British Steel and Koninklijke Hoogovens,

following the privatization of many steelworks companies by the U.K.government. The company consists of four divisions which include: Strip

Products, Long Products, Aluminum and Distribution and Building

Systems. With headquarters in London, Corus operates as an international

company, satisfying the demand of many steel customers Worldwide. Its

core business comprises of manufacturing, development and allocation of

steel and aluminum products and services. The company has a wide

variety of products and services which comprise of the manufacturing of

electrical steel, narrow strip, plates, packaging steel, plated steel strip,

semi finished steel, tube products, wire rod a nd rail products and services.

However, the company is also engaged in providing a variety of services

including design, technology and consultancy services.

Corus products and services are acquired by cust omers from

diverse fields such as commercial and military aerospace ventures, the

automotive, construction, engineering, defense and security, as well as the

rail and shipbuilding industry. In terms of performance, the company is

regarded as the largest steel producer in the UK with 10,142 million of

annual revenue (for 2005) and a work force of 50 000 employees. In order

to sustain and run its global steelmaking, processing and distribution

operations the company makes annual investments of over 6 million for

the purchase of various goods and services, such as iron ore and coal,

alloys, refractory, rolls and paint. Looking at the financial status of the

company from 1996-2005, a degree of fluctuation between the years can

be seen. But irrespective of all these factors Corus continue the business

as it was continuing.

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Global Steel Industry

In global steel industry the consumption of steel has been decreased

drastically in 2007, in comparison to 2006. According to International

Iron and Steel Institute (IISI) till 2010the average demand for steel wouldbe 4.9 per cent per year. But during 210 and 2015the growth is expected

to be 4.2 per cent. In fact IISI forecasts the global steel demand would be

1.32 billion tones by 2010 and 1.62 billion tones by 2015. Much of this

demand growth is expected to be generated from countries like China and

India. Among the major steel producing countries the production of steel

has increased from 2005-2006 except Brazil. China is the highest steel

producing country in the World with a production of355.8 million tones in

2005 and 418.8 million tons in 2006. And for this increasing demand of

steel market it is not possible for a single company to capture the market

alone. In that production process Tata may play a vital role. For that

reason IISI is giving its opinion in favor of Tata.

For 2007, S&P projects GDP growth of 2.4%, versus GDP growth of

3.3% in 2006.Through April 2007, motor vehicle sales fell 3.0% while

motor vehicle production declined 5.5%. In 2006, motor vehicle sales fell

2.6%, while production was down 2.8%.As predicted, lower sales for all

of 2007 will lead to reduced demand from this key end market for steel.

Presumably, car manufacturers will be working to reduce unsold car

inventory and will be cutting production, which will reduce demand for

steel. According to the numerical data, through May, 2007 the S&P Steel

Index increased 35.1%, compared to a 6.6% increase for the S&P 1500

Index and a 14.9% rise in the S&P Materials Index.

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In 2006, the S&P Steel Index increased 58.2%, versus a 13.3%

increase for the 1500 and a 16.6% increase in the S&P Materials Index. In

the long term, there is a strong possibility for the industry to benefit from

greater pricing power resulting from further expected consolidation, a

lower cost structure, and a continuation of the cyclical decline of the U.S.

dollar.

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RESEARCH METHODOLOGY

ChIII

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RESEARCH METHODOLOGY

Research is a common language refers to a search of knowledge.

Research is scientific & systematic search for pertinent information on a

specific topic, infect research is an art of scientific investigation.Research Methodology is a scientific way to solve research problem. It

may be understood as a science of studying ho w research is dont

scientifically. In it we study various steps that are generally adopted by

researchers in studying their research problem. It is necessary for

researchers to know not only know research method techniques but also

technology.

The scope of Research Methodology is wider than that of research

methods. The research problem consists of series of closely related

activities. At times, the first step determines the native of the last step to

be undertaken. Why a research has been defined, what data has been

collected and what a particular methods have been adopted and a host of

similar other questions are usually answered when we talk of research

methodology concerning a research problem or study. The project is a

study where focus is on the following points:

RESEARCH DESIGN:

A research design is defined, as the specification of methods and

procedures for acquiring the Information needed. It is a plant or

organizing framework for doing the study and collecting the data.

Designing a research plan requires decisions all the data sources, research

approaches, Research instruments, sampling plan and contact methods.

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EXPLORATORY RESEARCH

The major purposes of exploratory studies are the identification of

problems, the more precise Formulation of problems and the formulations

of new alternative courses of action. The design of exploratory studies is

characterized by a great amount of flexibility and ad-hoc veracity.

DATA COLLECTION METHOD

Generally there are two sources of data collection viz. Primary

Sources and Secondary Sources. The need for data actually emanates from

the research objective. It is the research objective which guides the

researcher whether the kind of data required would be Primary or a

Secondary data will suffice.

The project is study based. The aim of the researcher was to

understand the milestone deal that happened in the history of Indian

Industry Acquisition of CORUS, one of the largest steel manufacturers

in the World, by TATA STEEL, which is much smaller in size.

Given the practical limitations of undergoing a research project

which involves such big companies, getting Primary data was a difficult

task. Despite the best efforts put in by the researcher to interview the

management and finance team of TATA STEEL, there has been no result

till date.

The researcher has done extensive reading of the available text

printed as well as on the internet. Whatever inferences have been drawn is

basically derived from the reports given by several research houses and

other experts.

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FINDINGS AND DATA ANA LYSIS

ChIV

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The process started on September 20, 2006 and was completed on

April 2, 2007. In the process, both the companies have faced many ups

and downs. The details of this process have been described below.

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 6, 2006: The initial offer from Tata Steel is considered to be too

low both by Corus and analysts.

October 17, 2006: Tata Steel has kept its offer to 455pence per share.

October 18, 2006: Tata still doesnt react to Corus and its b id price

remains the same.

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 Steels

bid.

October 27, 2006: Corus is criticized by the chairman of JCB, Sir

Anthony Bamford, for its decision to accept an offer from Tata.

November 3, 2006: The Russian steel giant Severstal announces officially

that it will not make a bid for Corus.

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November 18, 2006: The battle over Corus intensifies when Brazilian

group CSN approached the board of the company with a bid of 475 pence

per share.

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

preconditions 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.

January 31, 2007: Britain's Takeover Panel announces in an e-mailed

statement that after an auction Tata Steel had agreed to offer Corus

investors 608 pence per share in cash.

April 2, 2007: Tata Steel manages to win the acquisition to CSN and has

the full voting support form Corus shareholders

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CALCULATION OF BOOK VALUE OF CORUS

BALANCE SHEET AS ON 30 SEP. 06

Total Asset m m

Non-current asset 3668

Current Asset 4412

8080

Total Liabilities

Non-current Asset 1798

Current Liabilities 2348

4146

NET ASSET 3934

(-) Minority Interest 4

3930

Share capital of Corus945,555,438 ordinary share of 50p each 4733,130,418,153 deferred share of 40p each 1252

Total 1725

Book value of one share of Corus asper balance sheet on 30.9.2006

3930/1725= 2.27 or 227p

Market value of one share of Corus

on 17.10.2006

479p

Fair value of one share of Corus (Book value + market value)/2

(227 + 479)/2 = 353p

Price paid by Tata steel per share of Corus was 608p

Almost double the fair value of one share of Corus.

Why did TATA STEEL pay an amount, which was double the Fair

Value?

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On 18 t h November, 2006 Brazilian group CSN came into picture andoffered 475p per share for Corus. TATA STEELs initial bid was

455p per share of CORUS.

On 18 t h December, 2006 Tata increased its offer to 500p.

Within an hour CSN countered it with an offer of 515p.

TATA STEEL took some time and came back on 31 s t January 2007with a price of 608p per share and finally acquired Corus.

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Reasons for Tata Steel to Bid

TATA was looking to manufacture finished products in a maturemarket of Europe U.K. undoubtedly is the most mature market in

Europe.

TATA STEEL manufactured low value long and flat steel productswhile Corus produced high value striped products.

A diversified product mix would reduce risk while higher endproduct would add to the bottom line.

Corus held a number of patents and R&D facility. Cost of acquition was lower than setting up a green field plant and

marketing and distribution channel.

TATA was and is known for efficient handling of labour and itaimed at reducing employee cost and improving productivity at

Corus.

It had already expanded its capacities in India. It would improve from 55 t h in World to 5 t h in production of steel

globally.

Technology benefits: Being among one of the biggest manufacturersof steel the production facility of Corus was using better technology

as compared to Tata Steel. Moreover, Corus was into finished steel

production, a technology which was new for Tata Steels. Patents

were an added advantage which Corus provided to Tata Steels.

Economies of scale: Having acquired Corus, Tata Steels overallproduction capacity had increased manifold and provided Raw

Material at cheaper rates to the Corus Facility from its diverse

sources across the world.

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Reasons for Corus to be sold:

Total debt of Corus was 1.6 bn GBP. Corus needed supply of raw materials at lower cost. Though Corus had revenues of $18.06bn, its profits were just

$626mn. (TATAs revenue was $4.84 bn & profit $824 mn.)

Corus facilities were relatively old with high cost of production Employee cost was 15 %( TATA steel 9%) There was access to cheap high quality iron ore from India.

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A Financial take on the Acquisition .

1. Valuation

TATA Steel Paid 7 Times EBITDA of Corus Enterprise Value Also, 9 times EBITDA for 12 Months ended 30th September 2006

Comparing with Arcelor - Mittal deal -

Mittal Steel acquired Arcelor at an EB ITDA of 4.5 times,

The important point is Arcelor had much superior assets, wider market

reach and was financially stronger than Corus.

The price paid by Tata Steel looks almost obscenely high.

2. Interest charges

New Debt of $ 8 bn @ 8% annual interest cost i .e. $ 640 mn

Coruss existing interest debt amounts to $ 725 mn.

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Post Acquisition Analysis

1) Aggregate crude steel production capacity of around 41.2 milliontons.

Tata Steel on its own had a capacity of 23 million tones out of all its facilities.

With the acquisition of CORUS, which had a capacity of 18.2 million tones the overall

capacity catapulted to 41.2 million tones.

2) Global Player with a balanced presence in developed Europeanand fast growing Asian Markets.

Before acquisition of Corus, Tata steel was mostly present in Asian market but after

acquisition of Corus it gained 10% market in North America, 49% in Europe and 29% in

UK.

3) Greenfield and Brownfield developments. Tata Steel has lined up a series ofGreenfield projects in India and outside which

includes

1. 6 million tones plant in Orissa (India)2. 12 million tons in Jharkhand (India)3. 5 million tons in Chhattisgarh (India)4. 3-million tons plant in Iran5. 2.4-million tons plant in Bangladesh6. 5 million tons capacity expansion at Jamshedpur (India)

4) May 07 EBITDA of 13 %, 2 5 mn tons of productio n, Ranked 5th5) 2012 EBITDA of 25 %, 40 mn tons of production, Ranked 2nd6) The group is growing aggressively and targets 50 mn tons capacity

by 2015.

Source : Wikipedia

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Movement in the share price of TATA steel while process was going

on.

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Movement in share price of Tata after acquition of Corus

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Total funding plan

US $ bn Long term debt on Corus 6.14Long term debt on TATA Singapore 1.41Quasi-equity on TATA Singapore 1.25Total funding on Corus assets 8.8Total equity contribution by TATA steel 4.1Total enterprise value for Corus 12.9

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SWOT ANALYSIS OF TATA STEEL

Strength

Lowest cost producer in World Experience of TATA group in doing global acquisition Stable balance sheet (low debt to equity ratio)

Weakness

Corus was triple the size of TATA STEEL in terms of produ ction

Opportunity

Consolidation trend in steel industry CSN tarnished image after failure of 2002 negotiations To get exposed to the global steel market (will save time and

learning space for them)

Threat

Brazil Company CSN Russian company Severstal No committed financers to support the possible deal

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SWOT ANALYSIS OF CORUS GROUP

Strength

Worlds ninth largest and Europe second largest steel producer. Wide range of products. Presence of operating facilities spread in whole EU.

Weakness

Corus was bleeding because of high operational cost. Section 201 tariff imposed by bush in 2002 led to loss in Corus

clientele.

Opportunity

Consolidation trend in steel industry. To get right price at a time when market is less volatile.

Threat

Huge pension liability might have led to collapse of the deal. Disagreement of labour and government due to possibility of job

cut.

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FINANCIAL POSITION OF CORUS AND TATA STEEL

Particular CORUS

Currency:Rupee million

TATA STEEL Ltd

Currency: Rupee million

Year 2006 2005 2004 2006 2005 2004

Asset 582750 533925 467775 205450.70 177033.70 147988.70

Debt 98100 105525 96000 45932.70 42073.10 39982.90

Liabilities 231300 178425 155475 30492.1 33146.80 32665.90

Revenue 760500 699900 596475 202444.30 159986.10 111294.40

Net

income

33900 33450 -22875 37346.20 36032.60 17887.80

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Access to new market

SOURCE: - Tata Steel Financial Year 2005-06

Annual Report Corus 2005

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CONCLUSION

ChV

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I. Tata Steel 's acquisition of Corus was a bold and smart move.Complementary benefits in terms of scale, market geography,

financials, technology and raw materials offered a strong rationale

for the deal.

II. I believe that the acquisition of Corus has been timely. Given therising momentum of consolidation in the industry and rising

valuations of steel companies, had Tata Steel not acted when it did,

the opportunity could have been lost forever.

III. 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 of close to 56 million tons per annum, if

all the planned Greenfield capacities go on stream by then.

IV . We can conclude that if the acquisition is well planned, executedand the necessary precautions taken for the deal a company can

achieve its strategic objectives and thus ensure its growth through

acquisitions.

V. It is notable that the collective earnings of TATA STEEL andCORUS would be able to cater to this interest cost and still save

money from the first year of operations itself. The point to note

here is CORUS will get access to cheaper raw material which will

help in increasing profits and it was also expected that TATA will

bring in its superior labor management skills and save on labor cost

as well; thereby improving the profit margin.