Tata Steel (a) the Bid for Corus

8/2/2019 Tata Steel (a) the Bid for Corus

1/37Electronic copy available at: http://ssrn.com/abstract=1225942

Tata Steel (A): The Bid for Corus

Author : Vishwanath S RLanguage : English

Length : 36 pages

Discipline : Finance

Description: The case documents a high profile cross border acquisition by an Indiancompany. Students are required to assess the strategic motives of these firms and performa valuation analysis.

Learning Objective: To introduce issues in a cross border, high leverage acquisition

Subjects Covered: Financial Management, Mergers and Acquisitions


2/37Electronic copy available at: http://ssrn.com/abstract=1225942

On October 20 2006, the boards of Tata Steel and Corus announced their agreement onthe terms of the recommended acquisition of the entire issued and to be issued sharecapital of Corus at a price of 455 pence in cash for each Corus Share, valuing Corus at4.3 billion. Tata Steel said its 455-pence-a-share offer for Corus represents on anenterprise value, a price earning ratio of 7.9 times Corus 06 earnings and includes a

premium of approximately 26.2per cent to the average closing mid-market price of 360.5 pence. Details of the merger were likely to be decided by a strategic and integrationcommittee that would develop and execute the integration and growth plans for thecombined entity. Corus is much larger than Tata Steel, both in volumes and sales figures.Globally, it is ranked ninth in terms of volume. Tata Steel, in comparison, is ranked 58.

Ratan Tata, Chairman of Tata Steel, said1:

This proposed acquisition represents a defining moment for Tata Steel and is entirelyconsistent with our strategy of growth through international expansion. Corus and TataSteel are companies with long, proud histories. We have compatible cultures ofcommitment to stakeholders and complementary strengths in technology, efficiency,

product mix and geographical spread. Together we will be even better equipped toremain at the leading edge of the fast changing steel industry .

Jim Leng, Chairman of Corus, said:

This offer from Tata Steel reflects the substantial value created for Corus shareholderssince the placing and open offer and launch of our Restoring Success programme in2003. 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, theCompany held talks with a number of parties from Brazil, Russia and India. Thistransaction represents the culmination of these talks. This combination with Tata, forCorus 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.

Tata Steel offered to fund upfront the IAS 19 deficit on the Corus Engineering SteelsPension Scheme by paying 126 million into the scheme; and to increase the contributionrate on the British Steel Pension Scheme from 10 percent. to 12 percent until 31 March2009. The Acquisition would be made by Tata Steel UK, a wholly-owned indirectsubsidiary of Tata Steel.

The Corus Directors unanimously recommended that Corus Shareholders vote in favor ofthe Scheme after taking advice from Credit Suisse, J P Morgan Cazenove and HSBC. Ifthe deal sailed through, they would be fifth largest global steel producer with pro forma

crude steel production of 23.5 million tonnes in 2005. Tata Steel announced that it waskeen to retain Coruss management, including chief executive Philippe Varin. Thecombination is strategically compelling, creating a vertically integrated global steelgroup.

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The acquisition would position the combined group as the fifth largest steel company inthe world by production, with a meaningful presence in both Europe and Asia. The powerful combination of low cost upstream production in India with the high enddownstream processing facilities of Corus will improve the competitiveness of theEuropean operations of Corus significantly. The combination will also allow the cross-

fertilization of research and development capabilities in the automotive, packaging andconstruction sectors and there will be a transfer, from Europe to India, of technology, bestpractices and expertise of senior Corus management. In addition, Tata Steel will retainaccess to low cost raw materials and slab for the enlarged group, and exposure to highgrowth in emerging markets, whilst gaining price stability in developed markets.

As per the agreement, 75 per cent of Corus shareholders would have to tender their sharesfor the acquisition to be complete. When complete, this would be the largest takeover byan Indian company overseas. The deal would also catapult the combined entity to amongthe world's largest steel companies with a total capacity of about 24 million tonnes peryear. The new, combined entity of Tata Steel-Corus would have a capacity of 40 milliontonne by 2011-12 and a turnover of $32 billion by 2011-12 with an EBIDTA margin of

25per cent. Tata Steel had developed a six-pronged strategy in 2003 where the target wasto increase capacity from 4 million tonne then to 30 million tonne by 2015. The $8 billionTata Steel-Corus deal would be at No 5 among the top deals witnessed by the steelindustry over the past few years.

Steel Industry Background2

Steel was an alloy of iron and carbon containing less than 2per cent carbon and 1per centmanganese and small amounts of silicon, phosphorus, sulphur and oxygen. Steel was themost important engineering and construction material in the world. It was used in everyaspect of our lives, from automotive manufacture to construction products, from steel

toecaps for protective footwear to refrigerators and washing machines and from cargoships to the finest scalpel for hospital surgery.

Most steel was made via one of two basic routes:

Integrated (blast furnace and basic oxygen furnace). Electric arc furnace (EAF).

The integrated route used raw materials (that is, iron ore, limestone and coke) and scrapto create steel. The EAF method used scrap as its principal input.

The EAF method was much easier and faster since it only required scrap steel. Recycledsteel was introduced into a furnace and re-melted along with some other additions toproduce the end product.

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Steel could be produced by other methods such as open hearth. However, the amount ofsteel produced by these methods decreased every year.

Of the steel produced in 2005, 65.4per cent was produced via the integrated route,31.7per cent via EAF and 2.9per cent via the open hearth and other methods.

At a steel mill, the crude steel production process turned molten steel into ingots, blooms,billets or slabs. These were called semi-finished products. Semi-finished products weresolid blocks of steel, usually with a square or rectangular cross section.

A flat steel product was typically made by rolling steel through sets of rollers to producethe final thickness. There were two types of flat steel products:

Plate products. Varied in thickness from 10 mm to 200 mm. Plate products wereused for ship building, construction, large diameter welded pipes and boilerapplications.

Strip products. Could be hot or cold rolled and vary in thickness from 1 mm to 10mm. Thin flat products were used in automotive body panels, domestic whitegoods (for example, refrigerators and washing machines), steel (or tin) cans, and anumber of other products from office furniture to heart pacemakers.

A long product was a rod, a bar or a section. Typical rod products were the reinforcingrods used in concrete, engineering products, gears, tools etc. Sections were the largerolled steel joists (RSJ) that were used in building projects. Wire-drawn products andseamless pipes were also part of the long products group.

Supply of raw materials was a key issue for the world steel industry. IISI managedprojects which looked at the availability of raw materials such as iron ore, coking coal,freight and scrap.

Scrap iron was mainly used in electric arc furnace steelmaking. Apart from scrap arisingin the making and using of steel, obsolete scrap from demolished structures and end-oflife vehicles and machinery was recycled to make new steel. About 500 million tons ofscrap was melted each year.

Iron ore and coking coal were used mainly in the blast furnace process of iron making.For this process, coking coal was turned into coke, an almost pure form of carbon whichwas used as the main fuel and reductant in a blast furnace.

Typically, it took 1.5 tons of iron ore and about 450kg of coke to produce a ton of pigiron, the raw iron that came out of a blast furnace. Some of the coke could be replaced byinjecting pulverized coal into the blast furnace.

Iron was a common mineral on the earths surface. Most iron ore was extracted inopencast mines in Australia and Brazil, carried to dedicated ports by rail, and thenshipped to steel plants in Asia and Europe.


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Iron ore and coking coal were primarily shipped in capesize vessels, huge bulk carriersthat could hold a cargo of 140,000 ton or more. Sea freight was an area of major concernfor steelmakers, as the high demand for raw materials was causing backlogs at ports, withvessels delayed in queues.

Since the World War II, the steel industry had experienced three distinct phases- growth(1950-73), stagnation (1974-2001) and boom (2002-2006)3. The demand for steel grew atan annual rate of 5.8per cent during 1950-73 as the industrializing nations were buildingtheir civil infrastructure. The oil shocks of 1973 through 1979 slowed consumption in thesecond phase. The production of crude steel grew at 0.6per cent p.a. over the entire period. Steel prices declined by 2-3 per cent p.a. During 1999-2001 the industrysovercapacity hovered near 25per cent globally. Only a few companies were able tosustain.

Since 2002 the annual steel production had grown at 7-8per cent driven almost entirely by the double digit growth in China. The huge demand from China had caused a

commensurate leap in steel prices.

The industry had experienced a drop in the over capacity from 23per cent in 2001 toabout 17per cent from 2003-2005. But the demand from China had also witnessed astructural change. From 2002-2004 Chinas capacity for producing crude steel increasedon average by 55per cent. By 2005 China became a net exporter of steel. In the first halfof 2006 China overtook Japan, Russia and the EU 25 to become the worlds largest steelexporting country.

Exhibit 1 presents the list of top steel-producing countries as of 2005 and Exhibit 2presents the historical steel prices.

Competition: US, Europe and Emerging Markets

In the past, industry consolidation contributed to reduced cyclicality. The top 10 steelmakers represented about 28per cent of global production. Besides Arcelor Mittal, four ofthe top 10 were in Asia, three in Europe and two in the U.S. In addition to Chinas planfor consolidation many of the leading steel producers had ambitious growth plans thatwould entail further consolidation. Lakshmi Mittal, the CEO of Arcelor Mittal stated inJune 2006 that winning companies in the steel industry would have somewhere between150m-200m tons of annual capacity by 2015 and that scale was crucial in the pursuit ofvalue.

Shanghai Baosteel, which, although founded in 1998, had already become the worldsfifth largest steel maker producing 22.7 m tons in 2005. The potential acquisition ofCorus by Tata Steel would create a new entity with a production volume close toBaosteels.

3This section is based on Deforche, Filiep, Beyond the Boom: The outlook for Global Steel, BostonConsulting Group, February 2007


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Exhibit 3 provides a list of Global Steel Manufacturers. Exhibit 4 provides a comparisonof financial indicators of major steel firms.

Tata Steel Background

Tata Steel was the largest, flagship company of the Tata Group of companies,headquartered in Mumbai, India4. The Tata Group was the oldest, largest, most respectedindustrial house in India. At last count, it had 96 operating companies categorized into 7 businesses, and included Indias largest companies in the fields of steel, automobiles,chemicals, hotels, software,

Established in 1907, Tata Steel was Asia's first and India's largest private sector steelcompany. Tata Steel was among the lowest cost producers of steel in the world and oneof the few select steel companies in the world that was EVA-positive (Economic ValueAdded). Concerns over the availability of iron ore and coal, and the resultant volatility in

prices, meant that most Indian steel producers had to integrate backwards in order to havegreater access and pricing power over these commodities. Tata Steel had its own iron ore,coal and chrome mines and reserves (on long term leases from the Government of India),and hence was largely self-sufficient in most critical raw materials. However, it did nothave the right to export the ores and coal outside India.

Its captive raw material resources and the state-of-the-art 5 MTPA (million tonne perannum) plant at Jamshedpur, in Jharkhand State, India gave it a competitive edge.Determined to be a major global steel player, Tata Steel had recently included in its foldNatSteel, Asia (2 MTPA) and Millennium Steel (1.7 MTPA) creating a manufacturingnetwork in eight markets in South East Asia and Pacific Rim countries. The Jamshedpur

plant was expected to expand its capacity from 5 MTPA to 7 MTPA by 2008. TheCompany planned to enhance its capacity, manifold through organic growth andinvestments. The Company's wire manufacturing unit in Sri Lanka was known as LankaSpecial Steel, while the joint venture in Thailand for limestone mining was known as SilaEastern. Tata Steel's products were targeted at the quality conscious auto sector and theburgeoning construction industry. With wire manufacturing facilities in India, Sri Lankaand Thailand, the Company planned to emerge as a major global player in the wirebusiness. Tata Steel's products included hot and cold rolled coils and sheets, galvanisedsheets, tubes, wire rods, construction rebars, rings and bearings. In an attempt to'decommoditise' steel, the company had introduced brands like Tata Steelium (the world'sfirst branded Cold Rolled Steel), Tata Shaktee (Galvanised Corrugated Sheets), Tata

Tiscon (re-bars), Tata Bearings, Tata Agrico (hand tools and implements), Tata Wiron(galvanised wire products), Tata Pipes (pipes for construction) and Tata Structura(contemporary construction material). The company had launched the Customer ValueManagement initiative with the objective of creating complete understanding of customer problems and finding solutions jointly. The company's Retail Value Managementaddresses the needs of distributors, retailers and end consumers. The company had also

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launched India's first steel retail store steel junction - for making steel shopping a happyand memorable experience.

Tata Steels profitability ranked among the best in the industry. It posted comparativelygood results for the year ended March 06. Consolidated sales grew at 26per cent to Rs

20,244 crore. Operating margins were a robust 31per cent in fiscal 2006. Consolidatedprofits for the year stood at Rs 3,721 crore, an increase of 4per cent. It bought NatSteel in2004 for Rs 1,313 crore and Millennium Steel for Rs 675 crore in 2005.

In 2006 Tata Steel was ranked once again the best steel making company in the world byWorld Steel Dynamics Inc. USA (WSD) based on a study of 22 world class steel makers-consecutively for the second time. The WSD report of February 2006 covered the studyof all the leading steel manufacturing companies across the globe including POSCO,Arcelor, Nippon Steel, Bao Steel, Thyssen Krupp on 20 different parameters. Emergingout of the study, Tata Steel was ranked first with a weighted average score of 8.51 asagainst a score of 8.11 in 2005. POSCO of South Korea followed in the second place

with 8.41. Tata Steel had been continuously marching towards becoming a global steelenterprise and aspired to become a steel producer with a capacity of 15 mt by 2010. Itwas also developing a deep-sea port in Orissa along with Larsen & Toubro to facilitatethe flow of inbound and outbound commodities.

Apart from the main steel division, Tata Steel's operations were grouped under strategic profit centers like tubes, growth shop (for its steel plant and material handlingequipment), bearings, ferroalloys and minerals, rings, and wires.

Exhibits 5 and 6 present the consolidated balance sheets and income statements for TataSteel.

Corus Group Background5

Corus was formed on 6th October 1999 through the merger of British Steel andKoninklijke Hoogovens. Koninklijke Hoogovens was founded in the Hague to enable theDutch industry to become less dependent on imports. In 1990, the Hoogovens group hadfive divisions; Steel, Aluminum, Technical Services, Subcontracting, and the newlyformed Steel Processing and trading. In 1999, the trend towards greater rationalization inthe European steel industry led to the merger discussions with British Steel. At that timeHoogovens had 17 business units with a turnover of 4.9 b Euro.

The British Steel Corporation was formed from the UKs 14 main steel producingcompanies. In 1987, the UK government formally announced its intention to privatize theBritish Steel Corporation. The British Steel Act 1988 transferred the assets of thecorporation to British Steel, a company registered under the Companies Act. The early1990s saw reduced demand and it was not until 1993 that growth in the UK economygradually gathered pace and was reflected in a partial recovery in steel demand and prices. The trend continued into 1994 and helped by continuing efficiency and

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productivity gains, British Steel returned to profit. On October 6, 1999, the merger ofHoogovens with British steel to form Corus came into effect.

Corus had manufacturing operations in many countries with major plants located in theUK, The Netherlands, Germany, France, Norway and Belgium. The company produced

around 18 million tonnes of crude steel in 2005, which represented approximately 10percent of total EU production and positioned the company as the 9th largest steel producerin the world and the 2nd largest producer in Europe. Corus produced carbon steel by thebasic oxygen steelmaking method in the UK at Port Talbot, Teesside and Scunthorpe andin The Netherlands at IJ muiden. In addition, carbon steel was produced by the electricarc furnace method in the UK at Rotherham. Corus had approximately 50per cent of theUK carbon steels market and around 11per cent of the European (including UK) carbonsteels market.

In 2005 Corus generated turnover of 9.1 billion and produced 19 million tonnes of steeland delivered over 0.6mt of aluminum. At the end of December 2005 Corus had 47,300

employees. From October 2003 Corus has been structured into four main divisions: StripProducts, Long Products, Aluminium and Distribution and Building Systems.

Corus had a strategy focused around carbon steel, with the intention of:

Ensuring that upstream steelmaking facilities were optimized and that the leadingposition of its I J muiden site was maintained.

Pursuing selective growth of downstream businesses Seeking opportunities to participate in the ongoing consolidation of the world's

steel industry.

Following his appointment as Chief Executive of Corus with effect from 1 May 2003,Philippe Varin carried out an intensive and detailed review of the Group's activities. As aresult a number of key initiatives were launched, known as the 'Restoring Success'initiatives. These focused on introducing new leadership and instilling a new corporateculture across the Group, aligning the financial resources available to the Group with itsfuture strategic needs, and returning all parts of the Group to acceptable levels ofprofitability. The latter would be done by building on our 'Restoring Success' initiatives -existing cost reduction programmes, implementing restructuring proposals for the UKasset base and initiating Group-wide efficiency measures.

Restoring Success

The Restoring Success programme, launched in June 2003, was designed to deliver a680m improvement in earnings before interest, tax and amortization by the end of20066. During 2005 the company continued to make good progress and achievedapproximately 80per cent of the overall target.

6 Tata Steel Finance webcast, October 20, 2006


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As well as savings through cost reduction and improved operational efficiency, action plans were also focused on improving our safety record and achieving best in classcustomer service.

Safety During 2005, Corus saw a further 24per cent reduction in the frequency of

lost time injuries, a good lead indicator of performance. Service As part of its Restoring Success programme, Corus set out to improve the

percentage of deliveries made on time, from 74per cent in 2003, to 90per cent bythe end of 2006. Significant and sustainable progress was made in this area, with85per cent of deliveries having met this target during 2005.

Savings By the end of December 2005 Corus had achieved nearly 80per cent(555m) of the 680m per annum savings that it had committed to deliver by theend of 2006.

The Group's aim was to close the competitive gap that currently exists between Corusand its European peer group. Corus estimated that this gap in 2003 was some 6per cent at

the EBITDA margin level (i.e. EBITDA to turnover) when measured against the averageof its European competitors. Full implementation of the 'Restoring Success' initiativesabove was designed to close the current competitive gap by the end of 2006.

Exhibits 7, 8 and 9 present the consolidated financial statements of Corus group.

The Corus Acquisition Opportunity

Corus half yearly operating profits in 2006 dropped by 37per cent to 305m incomparison to 2005 because of increasing raw material costs. Prices for raw materialssuch as iron ore, coke, coking coal and scrap had risen dramatically since 2002 (see

Exhibit 10 and 11 for input costs). In the case of iron ore, three companies- BHP Billitonof Australia, Companhia Vale do Rio Doce of Brazil and Rio Tinto of Britain controlmore than 70per cent of the export market.

The company expected the raw material cost to be 400m more in 2006 if the pricesincreased at the same rate. Philippe Varin announced in a press conference,

We identified the need to have a strategic partner and a presence in a lower-costcountry with a growing economy and raw material availability and where we could useand fully exploit our technology. As to where, we had an initial focus on Brazil, onRussia and, of course, on India. Our subsequent travels and discussions in the past yearwere diligent and comprehensive. India, with its strong and growing economy,indigenous raw materials, rising consumer demand and infrastructure needs, plus thecountrys long relationship with the UK, was always a favored location. Philippe and Itraveled to India to meet Ratan Tata and his team in November of 2005. Over the next several months, we had several meetings, and our respective teams examined variousbusiness options, from JV (joint venture) to new plants and technology transfer. Itbecame increasingly clear that the best long-term solution could only be realized througha complete merger of our two businesses, the result of which is todays announcement,


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which carries the unanimous recommendation of my Board. This will be a unique globalpartnership.7

Tata Steel had high quality captive sources for its raw materials and has nearly 5m tonnes(mt) of capacity and less than 0.5 mt of value-added steel capacity. Corus steel-making

capacity, by contrast, stood at 18 mt. It had no captive sources for raw materials, but hadsignificant capacities in value-added steel. While for Tata Steel flat products formed69per cent of its production with long products forming the rest 31per cent, Corus hadflat products accounting for 42per cent of its total production and a significant 31per centcoming from its distribution and building systems division that was a value-addedsegment.

The Corus management team led by Jim Leng and Varin approached the Tata Steel Boardand top management for a possible acquisition. On October 17, 2006 Tata Steelannounced that it was in discussions with the Board and Management of Corus Group Plcand it had made an indicative non binding offer to acquire 100per cent equity in Corus

Group Plc through a recommendatory offer route at 455 p. per share in cash amounting toan enterprise value of approximately USD 10 Billion.

A key objective for Tata Steel in this acquisition was gaining finishing expertise inEuropean markets, where it could export semi-finished steel from its plants in India. Itcould also shift part of the steel-making capacities to India, where it was already planninga massive expansion. Muthuraman, the managing director of Tata Steel explained:

The cash cost of Tata Steel is around $160 per tonne. I believe that the cost at PortTalbot (where Corus has a plant) is perhaps roughly twice of that. Between the twoteams, we see potential for significant synergies in the area of manufacturing, in shared services, in logistics, in the marketplace, sharing best practices. We do see significantsynergies and a possibility of cost reduction.

Exhibit 12 presents a comparison of steel making costs around the world.

Structuring and Pricing a deal

Financing Structure Financing India's largest leveraged buyout comprised of a $3.88 billion equity contribution from Tata Steel, a fully underwritten non-recourse debtpackage of $5.63 billion, and a revolving credit facility of $669 million.

As per the acquisition plan a special purpose vehicle, a wholly owned subsidiary, calledTata Steel UK would be set up by Tata Steel. The acquisition was proposed to be effectedunder section 425 of the English Companies Act 1985 and upon approval from the Corusshareholders. Tata Steel UK would offer a price of 455 pence per Corus share valuingCorus at 4.3b ($8.04b). This price represented a multiple of 7.9 times the EBITDA ofCorus from continuing operations for the twelve months to July 1, 2006. The acquisitionwas to be structured as a 100 percent leveraged buy out funded through cash resources



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and loans raised by Tata Steel and the SPV. Under the plan Tata Steel UK would arrangea loan of 1.6 b ($3056m), a revolving credit facility and a bridge loan and the rest wouldcome from Tata Steel (to the SPV).

Tata Steel appointed Credit Suisse, ABN Amro and Deutsche Bank to arrange financing.

Of the 3.3 billion of financing being raised at the SPV level, Credit Suisse wouldprovide 45per cent and ABN AMRO and Deutsche 27.5per cent each. The $1.8 billion bridge debt being raised at the Tata Steel level in India would be shared betweenStandard Chartered and ABN AMRO.

The financing structure and the break up of sources are shown in Exhibits 13 and 14.

Operational Structure One of the biggest concerns Tata executives had was whether theinevitable cultural conflicts between the organizations would pose significant operatingproblems. Integrating a large company that operated on a different continent with diversecultures and operating environments was going to be no small task. Exacerbating this

problem was the fact that Corus itself was formed by the merger of English and a Dutchcompany that had different cultures and profitability.

In line with the Tata Groups approach to acquisitions, Tata Steel announced its intentionto continue with the senior management of Corus. Appointments to the Tata Steel andCorus were to provide common platform for strategy and integration. According to theplan Ratan Tata would be the chairman of both Tata Steel and Corus and Jim Leng wouldserve as deputy chairman of Tata Steel and Corus. Three board members (including theCEOs) of each company would serve on the other companys board. A strategic andintegration committee comprising of Ratan Tata, the CEOs and senior managementprofessionals of both companies was formed to develop and execute the integration planand further growth plans. Appropriate cross functional teams were to be formed toexecute the integration plan.

Strategy Muthuraman, the Managing Director of Tata Steel had a number of things toconsider in negotiating a deal for Corus. First of all, Tata Steel could not make an all cashoffer and assume the assets and liabilities of Corus on its balance sheet because of thesheer size. Second, both companies had to convince their shareholders about the strategicand financial benefits to the companies. Shareholders would be concerned about the sizeof the premium and the potential dilution in earnings per share. Muthuraman explained ina conference8:

While we have been talking about strategy in this world of consolidation and growing insize, both in geography and in size, Tata Steel has been planning its long-term strategy.Tata Steels strategy, in terms of what it wanted to do over a period of time of 10 years,between 2002-03 and 2015, was to grow from four million tonnes per annum, which wewere at that time, to about 30 million tonnes plus, beyond the shores of India,multinational, and continuing to be in a low-cost position and continuing to be EVApositive. That strategy had six elements. One of them was that we would build a strong



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base in India, which is why were expanding Jamshedpur from five to 10 million, andwere building three greenfield projects.

The second part of the strategy was that wed adopt a de-integrated strategy where webelieved that the world steel industry, over the last 150 years or so, had adopted a certain

model of making from iron to finished steel in one location, irrespective of where the rawmaterials were. We always believed that this model will change, because steel has tocompete with other materials and, for the sustainable competitiveness of steel, it isnecessary that this business model will undergo a change. We wanted to be at the forefront of that change in business model, so we said we would look for private steelmaking in countries which are rich in iron ore and coal or gas. So we thought ofplants in India, we thought of plants in Bangladesh, we thought of plants in Iran.

The third part of the strategy was raw material security. Its important that we have rawmaterial security to be competitive and sustainable in this world. We have raw material security on a 100per cent basis for our existing operations in Jamshedpur. We have a

large extent of self-sufficiency for coal. Each of our three greenfield projects in Indiawill carry with it raw material iron ore security. We have some strategic types and somestrategic positions in terms of coal and limestone beyond the shores of India. We said weshould continue to look for raw material security, both in India and overseas.

The next part of our strategy was getting more out of steel, which is by branding, bygoing downstream, by positioning the products, getting into construction solutions and soon. It is with that aim we formed the joint venture with BlueScope. It is with that strategy that we started having a joint venture with Ryerson of the US, for goingdownstream into processed materials.

The next part of the strategy was control over logistics. No large company no large steel company can be sustainably competitive over a period of time without somecontrol on the efficiency and costs of logistics, so we decided to build a port in Orissa toconnect Indian operations with our overseas operations. We decided to start a shippingcompany with NYK of Japan, and these are all in progress.

Our acquisition of Corus and our partner in Corus to form a joint entity is part of this strategy, and it is part of this strategy that we have been talking about for the last fewyears. Just like Mr Leng mentioned, Corus had a strategy, and the partnership with TataSteel was part of that strategy. We have looked at it exactly in the same manner, and webelieve that this entity, which will become, in terms of scale, number five in the world,has the potential to consolidate the steel industry even further.

Indeed there was very little shared territory in the markets the companies served. TataSteel had a strong position in India, Singapore, Thailand and other parts of Asia whereasCorus had a strong presence in Europe.

Exhibit 15 presents a summary of production and distribution facilities of the combinedentity.


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Synergy The merger of Tata Steel with Corus was expected to lead to a saving of $130million savings in 2007 till March 2008 and $400 million to the company every year afterthree years. The Corus group had developed a breakthrough technology to reduce cost ofsteel production and Tata Steel was planning to adopt the technology in the near future.

Demand Analysis

Domestic Market To establish a base case analysts and investment bankers made use ofbase case forecasts of production and demand for steel in India and the rest of the worldas well as the outlook for steel prices9. According to government estimates, domesticconsumption of steel in India was expected to go up to 60 mt by 2010 from the prevailing35 mt, and to 100 mt by 2020. The planned capacity expansions would lead to a capacityof 70 mt by 2020. Assuming a CAGR of 6 per cent in steel demand, the domestic demandwould be around 90 million tonnes by 2020. Also most steel companies in India hadstrong balance-sheets, which would help them carry on with their expansion plans.

India had a per capita consumption of steel of around 30 kg against 180 kg in China andan average of over 400 kg in the developed countries. Analysts pointed out that India'ssteel consumption had stagnated at around 30 kg, despite increasing steel production,mainly because of an increasing population. According to a report by the Organizationfor Economic Cooperation and Development, world steel supply was likely to expanddramatically over the next two to four years. According to the report, much of thisunprecedented investment was occurring as a result of decisions by governments tosupport the expansion of domestic steel-making capability. The report warned that thesestate-supported expansions would lead to growing steel trade disputes and a return ofover-capacity conditions within the next few years. It also noted that the planned capacityexpansions would represent a structural problem for the global steel industry to the extentthat production exceeded the projected increase in demand for steel between 2005 and2008. The OECD report projected Indian steel consumption to grow by only 3.5 per centin 2005 from the levels a year ago. It said the gap between demand and supply wouldmean that the vast majority of India's new production capacity would be for export.

According to some analysts, demand from the US, Japan and China were expected toslow down, which, coupled with the tightening availability of raw materials, would leadto softer prices in the short to medium term. Further, new capacities were expected tocome into play only around 2008. So analysts expected a drop in prices around that time.But in the short-term they expected HRC (hot rolled coil) prices to hover around $480-500 range in the short term. But there were worries about the long term.

Global Market Global apparent consumption of steel increased at an average pace ofmore than 7 percent per annum since 2002 to reach a record level of 1.113 billion tonnesin 2006. To meet this rise in demand, steel production growth had accelerated sharply,reaching 1.24 billion tonnes in 2006, up by as much as 393 million tonnes (or 46per cent)

9ABN AMRO Research, June 14, 2007


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compared to its level of 850 million tonnes in 2001. This growth in demand for steel wascreating a favorable situation for many steelmakers. Steel prices and the prices of someraw materials in some markets were two times higher or more compared to levelsprevailing in 2001.

Chinas apparent crude steel consumption had doubled between 2000 and 2005 to reach398 million tonnes in 2006. The economy now accounted for around 32 percent of theworlds apparent steel consumption. The rapid expansion of Chinas industrial productionand its strong urbanization trend would ensure that steel consumption rose, thoughgrowth would moderate slightly in coming years from the double-digit rates observed inrecent years.

In India, there was enormous potential for growth in steel consumption. Heavyinvestment in developing the countrys infrastructure, such as railways, ports, and roadswould fuel growth in the steel-intensive construction sector. In Russia, steel consumptionprospects were favorable, supported by the consumer boom, which was now spreading to

automobiles and housing, as well as the replacement of ageing infrastructure. Braziliandemand for steel would continue to be supported in the future by the countrysautomotive and construction sectors.

Steel consumption in the Middle East was expanding rapidly from a relatively low levelof 37 million tonnes. Massive infrastructure and other building activity were driving thisdevelopment.

In NAFTA, housing market problems and a slowdown in manufacturing activity in theU.S. could contribute to a reduction in steel consumption in 2007 from around 155million tonnes in 2006, while a recovery in demand could take place in 2008 as economicgrowth reaccelerated. Steel consumption in the EU-27 was expected to stay on a gradualgrowth path in 2007 and 2008, thanks to the relatively healthy outlook for domestic aswell as external demand for products manufactured in steel-using industries.

Global Steel Production

World production of steel had posted a dramatic acceleration in growth between 2001and 2006. China accounted for more than two-thirds of the increase in world steelproduction seen over the last five years, i.e., Chinese production surged from 151 milliontonnes in 2001 to as much as 423 million tonnes by 2006. As a result, Chinas share ofworld production nearly doubled over the past five years, rising from 17.7 percent in2001 to 34 percent by 2006.

In India, the worlds seventh largest producer of steel, production reached 44 milliontonnes in 2006. In the future, Indian steel production capacities and volumes wereexpected to increase strongly in order to meet demand for steel from a growing industrialsector and expanding infrastructure building. Russian steel production, which grew from59 million tonnes in 2001 to 71 million tonnes in 2006, was expected to increase steadily


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over the next few years, supported by growing electric-arc furnace capacity that wouldgradually replace the outdated open-hearth process.

The rest of Asia (excl. China), NAFTA and the EU-25 had seen their shares of worldsteel production decline over recent years. Supported by strong Chinese demand for high

quality steel products, Japanese crude steel production reached 116 million tonnes in2006, its highest level recorded since the early 1970s. U.S. crude steel production hadincreased from 90 million tonnes in 2001 to around 99 million tonnes last year driven byelectric-arc furnace production. Crude steel production in the EU-25 rose to 198.5 milliontonnes last year. Growth had been slightly faster in the new Member States, though froma much lower base.

Exhibits 16 through 20 present forecasts for Tata Steel and Corus, details of comparabletransactions, trading multiples of steel firms, and capital market data.

Problems While the merger would instantly transform the combined companies into the

fifth largest steel firm in the world, successfully completing the transaction was notwithout problems. At the antitrust level, the combination would be subject to an EECreview.

At the level of the structure of the deal, would the companys balance sheet take thestrain if the Corus deal cost it way over USD 10 billion? And would it be worth it? TataSteel has free reserves of Rs 8,900 crore and its debt equity ratio was a very healthy 0.3.By global standards, there would be a lot of scope for leverage, but the Tatas alwaysprided themselves on maintaining the lowest debt-equity ratios.

Finally, the takeover panel of UK could auction Corus if a competitive situation

continued beyond January 30. The panel might also decide on a sealed process wherebidders' offers are final or a standard auction held over a period.The CSN BidAs expected by observers, CSN announced on November 11, 2006 that it had made aninformal bid approach to Corus, setting the stage for a bidding war and throwing TataSteel's agreed takeover into jeopardy. CSN's offer of 475 pence per share for Corus,which would value the firm at $5.3 billion pounds, including debt, topped Tata's bid of455 pence. Both companies had a significant presence in the manufacture of tinplate inEurope. Interestingly, in 2002, Corus had made an offer for CSN, but it was shelved overdebt concerns.

Companhia Siderrgica Nacional was founded on April 9, 1941, becoming operational onOctober 1, 1946. As the first integrated flat steel producer in Brazil, CSN played ahistorical role in the country's industrialization process. Steel from its mills permitted theimplantation of the nation's first domestic industries, the nucleus of the modern dayBrazilian industrial park. Privatized in 1993, with over six decades in the market, thecompany continued to make history. A listed public company, with shares traded on the


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So Paulo and New York (NYSE) stock exchanges, CSN was one of the largest and mostcompetitive integrated steel companies in Latin America. With an annual productioncapacity of 5.8 million tons and around eight thousand employees, CSN was focused onsteel production, mining and infrastructure. The company had one of the mostcomprehensive lines of high added value flat steel on offer throughout the continent.

The acquisition of the assets of Heartland Steel and the subsequent incorporation of CSNLLC in the United States in 2001 was the first step towards the internationalization of thecompany. The companys assets consisted of an integrated steel mill, five industrial units,two of them abroad (the United States and Portugal), iron ore, limestone and dolomitemines, a major flat steel distributor, port terminals, as well as shares in railroads and twohydroelectric plants.

Even as Tata Steel was mulling over its next move in the race for Corus Group, CSN,along with bankers and brokers allied to it, scaled up its holding in the Corus group to alittle less than 23 per cent. The combined holding of CSN and its allies stood at 19.5 percent on November 25. The increased holding came from UBS AG, which emerged as the

largest shareholder in Corus with 10.23 per cent stake. UBS was acting as a joint brokerto CSN for this deal. CSN's other financial advisors Barclays Capital and GoldmanSachs, held 4.7 per cent and 4.01 per cent in Corus respectively. Further, the Braziliansteelmaker held a 3.8 per cent stake in Corus. The combined holding was inching towardsthe crucial 25 per cent that could block Tata Steel's offer at the extraordinary generalmeeting if such a situation were to arise.

According to the rules, a resolution pertaining to the bid would have to garner supportfrom 50 per cent of shareholders and 75 per cent of shares at the EGM, which wasadjourned to December 20. Corus had around 158,000 registered shareholders.

Institutional investors accounted for around 90 per cent of the total shareholders. Theremaining 10 per cent was held by individual investors.

As of November, the major shareholders in the Corus group apart from the onesconnected to Corus were Standard Life Investments at 7.81 per cent, Legal & GeneralInvestment Management at 3.82 per cent, Lehman Brothers at 3.45 per cent and CapitalGroup at 3.05 per cent.

The UK takeover regulator had set a deadline of January 30 for the two bidders to maketheir final offers. The commission had set a provisional deadline of February 5 for rulingon the proposed transaction of CSN. As on December 7, Deutsche Bank, the financial

advisor to Tata Steel, had 4,786,061 Corus shares. The chronology of bidding events ispresented in Exhibit 21 and a summary of the UK takeover code is presented in Exhibit22. Exhibit 23 presents a comparison of the two bidders.

Market Reaction Tata Steel share prices fell upon announcement of the acquisition andcontinued to slide during the next two months. After a battering of two-and-a-half months(in December), shares of Tata Steel staged a partial recovery with a gain of over 5 percent with some market players speculating that the company might withdraw its bid to


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acquire Anglo-Dutch steelmaker Corus. Tata Steel shares had lost about 20 per cent eversince the reports first poured early in October that it was planning to acquire Corus, as itwas felt that the costly takeover would have an adverse impact in the company's balancesheet. The brokers said the deal might have significant long-term synergies, but marketplayers were worried about the adverse impact in the short term. Tata Steel's share price

closed 5.4 per cent higher at Rs 459.25, after hitting an intra-day high of Rs 461.45 at theBombay Stock Exchange. However, the stock was still 14 per cent below the level it wastrading at in the beginning of October. Exhibits 24 and 25 present the stock price historyof Tata Steel, and Corus. Interestingly, the CSN stock price went up when it announcedits bid.


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Exhibit 1: Top Steel Producing Countries (in million tons)

Country Capacity

China 349.4Japan 12.5

U.S.A 94.9Russia 66.1South Korea 47.8Germany 44.5Ukraine 38.6India 38.1Brazil 31.6France 19.5Spain 17.8U.K. 13.2

Source: International Iron and Steel Institute

Exhibit 2: World Carbon Steel Transaction Prices

World Steel

Prices

HotRolled Hot Cold

Steel

Wire Medium Steel

US $/tonne Steel Coil Rolled Rolled Rod Sections

Steel

Plate Steel Coil

Jan-06 510 649 613 446 602

Feb-06 503 646 607 447 602

Mar-06 516 651 620 462 612

Apr-06 538 670 636 480 631

May-06 569 717 668 495 666

Jun-06 599 741 703 513 685Jul-06 597 736 702 517 703

Aug-06 599 737 704 519 705

Sep-06 591 755 691 521 716

Oct-06 569 740 664 507 701

Nov-06 560 743 658 501 718

Dec-06 558 757 665 499 734

Jan-07 549 747 647 495 735

Feb-07 562 748 654 507 751

Mar-07 577 758 670 533 768

Apr-07 617 788 698 577 798

May-07 623 800 696 606 815

Jun-07 611 800 686 602 812

Jul-07 599 808 681 590 819

Aug-07 603 814 686 594 825

Source: www.meps.co.uk
http://en.wikipedia.org/wiki/Chinahttp://en.wikipedia.org/wiki/China


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Exhibit 3: Global Steel Manufacturers

(Output in million metric tons crude steel; the country/region of producer's basingspecified in brackets)

Rank Capacity Company Market Share per cent

1. 63.0 Mittal Steel Company NV (Global) 5.562. 46.7 Arcelor (Europe) 4.153. 32.0 Nippon Steel (Japan) 2.824. 30.5 POSCO (South Korea) 2.745. 29.9 JFE (Japan) 2.656. 23.8 Shanghai Baosteel Group Corporation (China) 2.127. 19.3 United States Steel Corporation (United States) 1.778. 18.4 Nucor Corporation (United States) 1.59

9. 18.2 Corus Group (Europe) 1.5910. 17.5 Riva Group (Europe) 1.5911. 16.5 ThyssenKrupp (Germany) 1.5012. 16.1 Tangshan (China) N.A13. 13.9 Evraz Holding (Russia) N.A14. 13.7 Gerdau (Brazil) N.A15. 13.6 Severstal (Russia) N.A

Source: International Iron and Steel Institute


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Exhibit 4: Comparative Performance of World Steel Manufacturers

Company Net Sales Op Profit Net Income ROS per cent Mkt

Cap ($m)

/ton ($)

Arcelor Mittal 88576 105 7973 8.9 107,182POSCO 25842 170 3314 12.8 58,825Baoshan Iron 71129 145 4389 6.1 47,705U S Steel 15715 73 1374 8.7 12,413 Nucor 16592.98 95 1471.95 8.87 16,895Thyssen Krupp 47125 89 1117 2.3 29,994

2007E

Company ROA per cent ROEper cent EV/MT ($) P/E P/B EV/EBITDA

Arcelor Mittal 6.8 11.1 1192 11x 2.1x 7.3xPOSCO 11.3 15.7 1807 13.9x 2.2x 7.9Baoshan Iron 5.98 5.9 2512 23.7x 3.9x 11.2xU S Steel 16.8 31.4 662 10.1 2.0x 7.2 Nucor 17 29.38 762 11.5x 3.0x 5.8xThyssen Krupp 7.4 21.4 NA 8.4x 2.1x 4.8x

Company Market Share per cent

Arcelor Mittal 9.71POSCO 2.74Baoshan 2.12US Steel 1.77 Nucor 1.58Thyssen 1.50

Source: Goldman Sachs, Companies and Case writer estimates

Notes: Currency Units- Arcelor Mittal, U S Steel, Nucor in $m, POSCO in KRW billion,Baosteel in Rmb m; Thyssen Krupp in m

Results are for 2006 for all companies except Baosteel, which is for the first half of 2006


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Exhibit 5: Tata Steel Consolidated Balance Sheet (INR crore10

)Liabilities

Mar 2006 Mar 2005 Mar 2004 Mar 2003

Net worth 9755.30 7059.92 4515.86 3186.02

Authorized capital 600.00 600.00 440.00 440.00

Issued equity capital 554.07 554.07 369.58 368.37

Paid-up equity capital 553.67 553.67 369.18 369.18

Preference capital 0.00 0.00 0.00 0.00

Bonus equity capital 257.93 265.83 81.35 81.35

Buy back amount 0.00 0.00 0.00 0.00

Buy back shares (nos.) 0.00 0.00 0.00 0.00

Reserves & surplus 9201.63 6506.25 4146.68 2816.84

Borrowings 2516.15 2739.68 3382.12 4225.40

Deferred tax liabilities 1716.40 1607.41 1690.56 1676.74

Current liabilities & provisions 5269.51 5288.60 4345.38 4173.38

Current liabilities 2835.99 2640.04 2163.79 1881.02

Provisions 2433.52 2648.56 2181.59 2292.36

Total liabilities 19257.36 16695.61 13933.92 13261.54Assets

Net fixed assets 9849.81 9094.84 7857.85 7543.80

Revalued assets 0.00 0.00 0.00 0.54

Investments 4069.96 2463.25 2201.42 1201.56

Deferred tax assets 759.40 777.99 850.60 836.52

Inventories 2174.75 1872.40 1249.08 1152.95

Raw materials and stores 1150.20 952.76 618.99 581.52

Raw materials 707.54 603.70 292.82 262.30

Stores and spares 442.66 349.06 326.17 319.22

Finished and semi-finished goods 1024.55 919.64 630.09 571.43

Finished goods 1000.62 887.22 620.81 556.78

Semi-finished goods 23.93 32.42 9.28 14.65

Incomplete construction contracts 0.00 0.00 0.00 0.00

Stock real estate 0.00 0.00 0.00 0.00

Stock of shares / securities 0.00 0.00 0.00 0.00

Other stock 0.00 0.00 0.00 0.00

Receivables 1846.54 2008.19 1368.26 2153.59

Sundry debtors 539.40 581.82 651.30 958.47

Debtors exceeding six months 49.55 33.65 39.57 124.55

Accrued income 0.20 0.20 0.20 2.89

Advances / loans to corporate bodies 323.72 692.06 136.51 163.93

Group / associate cos. 321.72 690.06 134.51 107.72

Other cos. 2.00 2.00 2.00 56.21Deposits with govt. / agencies 337.83 299.71 187.42 164.54

Advance payment of tax 75.02 44.02 39.83 425.66

Other receivables 570.37 390.38 353.00 438.10

Cash & bank balance 288.39 246.72 250.74 373.12

Intangible / DRE not written off 268.51 232.22 155.97 0.00

Total assets 19257.36 16695.61 13933.92 13261.54

10 I crore is 10 m. It is customary in India to quote currency in crores rather than millions.


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Exhibit 6: Tata Steel Consolidated Income Statement (INR crore)

Mar

2006

Mar

2005

Mar

2004

Mar

2003

Income

Sales 17136.08 15870.77 12656.73 10516.72Other income 261.95 159.52 134.60 64.09

Change in stocks 104.91 289.55 80.31 15.03

Non-recurring income 163.96 277.98 182.46 99.24

TOTAL INCOME 17666.90 16597.82 13054.10 10695.08

Expenditure

Raw materials, stores, etc. 3762.03 3641.75 3458.85 2984.90

Wages & salaries 1351.51 1291.00 1349.59 1217.72

Energy (power & fuel) 897.57 778.30 724.62 787.75

Indirect taxes (excise, etc.) 2060.48 1467.30 1261.38 1107.12

Advertising & marketing expenses 80.75 86.18 81.90 87.19

Distribution expenses 1004.32 936.68 748.44 695.77Others 2365.79 2311.34 1990.73 1623.74

Less: expenses capitalised 112.62 204.82 151.84 60.79

Non-recurring expenses 41.14 30.05 41.44 43.43

TOTAL EXPENSES 11676.21 10747.42 9808.79 8608.41

Profits / losses

PBDIT 6215.93 6260.04 3548.99 2208.25

Financial charges (incl. lease rent) 175.70 211.28 256.96 362.52

PBDT 6040.23 6048.76 3292.03 1845.73

Depreciation 733.96 618.78 625.11 570.94

PBT 5306.27 5429.98 2666.92 1274.79

Tax provision 1799.89 1955.82 920.70 262.48

PAT 3506.38 3474.16 1746.22 1012.31

Appropriation of profits

Dividends 820.43 821.37 416.25 333.01

Retained earnings 2685.95 2652.79 1329.97 679.30

Source: Prowess


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Exhibit 7: Corus Consolidated Balance Sheet (m)

2006 2005 2004

Non Current Assets 3668 3496 3577

Current Assets 4412 4446 3714

TOTAL ASSETS 8080 7942 7291Current Liabilities -2348 -2467 -2397

Non Current Liabilities -1798 -2097 -1836

TOTAL LIABILITIES -4146 -4564 -4233

NET ASSETS/TOTAL EQUITY 3934 3378 3058

Source: Annual report

Exhibit 8: Corus Consolidated Income Statement (m)

2006 2005 2004Group Turnover 9733 9155 8373

Total operating costs -9,276 -8512 -7756

Group operating profit 457 643 617

Finance costs -202 -127 -123

Finance income 34 31 12

Share of post-tax profits of joint ventures 24 1 21

and associated undertakings

Profit before taxation 313 548 527

Taxation -119 -116 -119

Profit after taxation from continuing operations 194 432 408Profit after tax from discontinued operations 35 19 33

Profit after taxation 229 451 441

Attributable to:

Equity holders of the parent 223 452 447

Minority interests 6 -1 -6

229 451 441

Basic earnings per ordinary share from continuing op(pence) 21.01 48.14 46.4

Diluted earnings per ordinary share from cont. op.(pence) 20.38 46.21 43.48



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Exhibit 9: Corus Cash Flow Statements (m)

2006 2005 2004

Cash Generated from Operations 373 939 578

Net Cash Flow from Operating act 125 657 363 Net Cash Flow from Investing Act 99 -354 -200 Net cash flow financing activities -244 -33 55(Decrease)/Increase in cash and eq. -20 270 218Cash and equivalents at the beginning 825 557 340

Cash and eq. at the end 798 825 557



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Exhibit 10: Input prices11

Year/Month

Thermalcoal

CokingCoal Iron Ore

NaturalGas

SteelScrap Electricity

US$/tonne

US$/tonne

UScents/tonne

US$/000

m3US

$/tonneUS

Cents/KwH

2003 M4 25.10

50.37

32.00 128.80 124-131 4.99

2003 M5 25.00 32.00 128.80 115-120 5.06

2003 M6 25.80 32.00 128.90 120-125 5.28

2003 M7 26.10 50.14 32.00 130.00 132-135 5.54

2004 M1 40.40

53.81

37.90 122.00 225-230 5.01

2004 M2 44.70 37.90 122.00 255-260 5.04

2004 M3 52.40 37.90 122.00 220-225 5.04

2004 M4 57.10

59.46

37.90 125.30 200-205 5.09

2004 M5 60.50 37.90 125.30 150-160 5.18

2004 M6 63.80 37.90 125.30 170-175 5.46

2004 M10 60.70 68.87 37.90 156.20 235-240 5.25

2005 M1 56.80

82.70

65.00 182.20 200-210 5.23

2005 M2 53.50 65.00 182.20 200-205 5.26

2005 M3 54.60 65.00 182.20 200-205 5.30

2005 M12 41.00 65.00 250.60 180-190 5.94

2006 M1 46.30 90.20 77.35 275.80 185-190 5.79

11Notes1) Coal is Australian thermal coal, 1200- btu/pound, less than 1per cent sulfur, 14per cent ash, f.o.b.Newcastle/Port Kembla, US$ per metric tonne.2) Iron ore is 67.55per cent iron content, fine, contract price to Europe, FOB Ponta da Madeira, US centsper dry metric tonne unit.3) Natural gas is Russian natural gas, border price in Germany, US$ per thousands of cubic meters of gas.


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Exhibit 11: International Labor Cost Comparisons

US $/hour 2000 2001 2002 2003 2004 2005

Australia 14.4 13.3 15.4 19.8 23.1 24.6

Brazil 3.5 3 2.6 2.7 3 3.2

Canada 16.5 16.2 16.7 19.4 21.4 23.7China 0.6 0.7 0.8 0.9 1 1.1

CzechRepublic 2.8 3.1 3.8 4.7 5.4 6.1

France 15.5 15.7 17.1 21.1 23.9 25.3

Germany 22.7 22.5 24.2 29.6 32.5 34.1

India 0.6 0.6 0.7 0.7 0.8 0.9

Italy 13.8 13.6 14.8 18.1 20.5 21.7

Japan 22 19.4 18.7 20.3 21.9 21.4

Kazakhstan 0.5 0.7 0.7 0.9 0.9 1

Korea 8.2 7.7 8.8 10 11.5 14.1Mexico 2.2 2.5 2.6 2.5 2.5 2.5

Spain 10.7 10.8 11.9 15 17.1 17.6

Sweden 20.2 18.4 20.2 25.2 28.4 29.7

Taiwan 6.2 6.1 5.6 5.7 6 6.4

Ukraine 0.3 0.4 0.5 0.7 0.7 0.8

UnitedKingdom 16.7 16.8 18.3 21.2 24.7 26

UnitedStates 19.7 20.6 21.4 22.3 23.2 23.8

Source: U.S. Department of Labor, Bureau of Labor Statistics. 2005 and all other estimates by MetalsConsulting International Limited (MCI),


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Exhibit 12: Comparison of steel making costs

Country Pre tax

Total cost

$ per ton

US 483Japan 475UK 421Canada 472Korea 335Taiwan 458CIS 331China 421

Production Cost

Slab Cost ($ per ton)

North America- base 100

North America 100Europe 100Japan/Korea 96RoW 91China 87India 81

Source: Tata Steel, World Steel Dynamics

Exhibit 13: Financing Structure

Tata Steel Equity- $2056m

100per cent

Tata Steel Asia Holdings Bridge/Mezzanine Debt - $1824mPte Ltd

100per cent

Tata Steel UK Ltd Acquisition Debt- $5635m

Senior Debt- $3056m100per cent High Yield Debt - $2579m

Revolving Credit Facility- $669mCorus Group Plc

Source: Tata Steel


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Exhibit 14: Funding Break Up

In

Rupees

Crores

In

Million

Pounds

In

Million

Dollars

Source Equity Debt Total Equity Debt Total Equity Debt T

Internal Generation 3,000 700

External CommercialBorrowings 2,170 500

Pref Share Issue to TataSons 2,770 640

Rights Issue of equityshares 3,655 862

Rights Issue of ConvertiblePreference Shares 4,350 1,000

Foreign issue of an equity-related instrument in suchform as may be consideredappropriate 1,805 398

Total Equity 17,750 17,750 1,687 1,687 4,100 4,

Long-term non-recoursedebt from consortium of banks 26,582 26,582 3,620 3,620

After re-financing 23,277 2,137 3,170 5,307 5,194 5,377 10

Quasi - Equity funding at

Tata Steel Asia Singapore 5,412 5,412 - 1,250 1,Long term Capital fundingat Tata Steel AsiaSingapore 6,104 6,104 - 1,410 1,

17,750 38,098 55,848 1,687 3,620 5,307 4,100 8,800 12

Source: Case writer

NotesFigures at 4, 5 and 6 above are approximate estimates sourced from Company Press Releases. Actualamounts may vary slightly.

For above, Tata Steel is raising debt equivalent to amount at 2 above, which is 12per cent of total amount.Tata Steel would be raising additional equity share capital of the face value in the range of about Rs.250 -280 crores depending on the final pricing of the various issues. This increase in the equity capital will comeinto effect only in stages during the three financial years 2007-08 to 2009-10 which will therefore ease theburden of servicing. The post-tax cost of this total financing package for equity contribution is expected tobe 4.3per cent p.a.Item at 8 above reduced to GBP3170 Million after refinancing vide Press Release dated 3 May 2007.Simultaneously, Equity has gone up by GBP 450 Million due to additional equity provided by Tata Steel/Tata Steel Asia.


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Exhibit 15: Distribution of Production and Distribution Facilities of the combined

entity

Country Facilities

UK and Ireland 4 ProductionCrude Steel Capacity: 14 mtpa16 manufacturing plants33 distribution centres

EU (excl. UK and Netherlands) 19 manufacturing plants13 distribution centres

Netherlands 1 production6.8 mtpa capacity6 manufacturing locations

3 distribution centresUSA 3 manufacturing2 distribution

India 1 production facility5 mtpa capacity22 distribution centres

Thailand 3 production1.2 mtpa capacity3 distribution centres

South East Asia 1 production facility0.6 m tpa4 distribution centres

Source: Tata Steel

Exhibit 16: The Corus Acquisition Economics

Tata Steel Corus Combined

Sales ($m) 5007 19367 24374EBITDA ($m) 1480 1962 3442 Net Profit ($m) 840 861 1701Crude Steel Production (m ton) 5.3 18.2 23.5Market capitalization ($m) 6510 8227 14737


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Exhibit 17: Recent Steel Acquisitions and Corus Financial Data

Date Acquirer Target Region EV/EBITDA

Jan 07 Nucor Harris Canada 9.0

Dec 06 Evraz Oregon Steel US 5.8Dec 06 Arcelor Mittal Sicartsa Mexico 5.7June 06 One Steel SMorgon Australia 9.9June 06 Mittal Arcelor Europe 5.5May 06 Arcelor Severstal Russia 5.6 Nov 05 Arcelor Dofasco N America 6.1Oct 05 Mittal Krivorizhstal Ukraine 4.7Sep 05 Oyak Erdemir Turkey 7.3Oct 04 Mittal ISG N America 5.5Oct 04 Arcelor CST L America 3.8

Average 6.4

2006 2005 2004 2003 2002

Shares in Issue 967.69mHistoric P/E 11.95Employees 45000 48000 49000 Net Profit m 451 440 -305 -458 -419Capex m 449 423 375Depreciation m 259 263 267

Sales per Geographic area

UK 27per centEurope 79per centAsia/Pacific 9per cent North America 9per centRest of the world 3per cent

Analyst estimate for 2006

EBITDA m 840EBIT m 559.36


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Exhibit 18: Trading multiples of major steel firms

2007E P/E Multiples (X)

Company Multiple

Nucor 11.7ThyssenKrupp 10.3US Steel 9.1Corus 8.9 Nippon Steel 8.9JFE 8.8POSCO 5.7Arcelor Mittal 5.0

Average 8.55

Source: Arcelor Mittal


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Exhibit 19: Forecasts for Tata Steel

Assumptions2006A 2007E 2008E 2009E

Saleable steel sales volume 4.42 4.86 5.17 5.62 per cent change YoY 12.2 10.3 6.4 8.7Average Realization (Rs/ton) 24069 25070 24491 22994Other revenues 38384 42671 44935 45302Imported Coking CoalCost (Rs/ton) 6892 6540 5007 4048Coke rate 536 545 545 535

Free Cash Flow Components (Rs m)

Net Sales 151394 171528 177903 180516

EBITDA 58787 69565 81903 85917Depreciation 7751 7791 7755 8735 Net Fixed Assets 87074 81539 79595 120383 Net Current Assets 4289 20499 29353 30269

Terminal Growth Rate 2per cent Net Debt 26400

Source: Morgan Stanley, Feb 1, 2007

ABN Amro Forecast

(Rs m)

2006 A 2007 A 2008 F 2009 F 2010 F

Revenue 204910 256514 1173388 1188933 1232227

Cost of sales -139061 -177632 -994468 -990609 -1004239

EBITDA 65849.5 68772.4 140069 157772 184194

Depreciation -8603.7 -10110 -38850 -40551 -43795

EBIT 57245.8 68772.4 140069 157772 184194

Capex -19328 -35000 -82320 -61575 -61400

Change inWC -7143.7 -5579.3 -21692 -649.7 -1795.7

Source: ABN AMRO Research, June 14, 2007


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Exhibit 20: Select Financial Market Data

India and Tata Steel UK and Corus Group

10 Year T Bond Rate 7per cent 4.4per cent

Market Risk Premium 9per cent 4.5per cent

12

Beta (Tata Steel) 1.12 1.54 (Corus)13Cost of Debt 7.5per cent per cent of Equity 45 per cent of Debt 55Tax rate 33.1per cent

FX rates using average appreciation/depreciation (Rs/)

2003-04 2004-05 2005-06 Spot Rate14

77.74 82.94 79.22 85.73

Exhibit 21: Tata Steel- Corus Chronology of Events

October 5: Tata says "considering" bid for Corus. October 20: Corus agrees 455 p a share offer from India's Tata Steel, valuing the

group at 4.3bn. But Standard Life, the largest investor in Corus, with a 7.9percent stake, says it thinks the terms are too low.

October 26: Sir Anthony Bamford, one of Britain's leading industrialists, says heagrees that Tata's first bid is too low and that it would damage Britain'smanufacturing industry.

November 3: Russia's Severstal rules itself out as a rival bidder November 17: CSN announces indicative bid of 475p a share.

November 27: Corus postpones Extraordinary General Meeting which was tovote on the first Tata deal to allow CSN more time to formalize its offer.

November 29: Corus reports a 60per cent surge in third-quarter profits on theback of booming European demand for steel.

December 10: In a late night announcement, Tata Steel ups its offer to 500p ashare, valuing Corus at 4.7bn.

December 11: CSN raises its terms to 515p, valuing Corus at 4.9bn. Corusdirectors switch their recommendation to the Brazilians.

December 19: The Takeover Panel imposes a January 30 deadline on Braziliangroup CSN and its Indian rival Tata to launch a revised deal for control of Corus.Corus shares are still ahead of the CSN terms, at 529p.

Jan 2, 2007 Tatas decide to raise its bid for Corus by 10per cent to 550p afterseveral meetings with its bankers in a determined attempt to defeat a rival offerfrom Brazil.

12 This is the result of a study by Elroy Dimson, Paul Marsh and Mike Staunton of the London BusinessSchool13 Based on the stock prices in the last half of 2006 to March 30, 200714 Spot Rate is on October 1, 2006


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Exhibit 22: City Code on takeovers and mergers (U.K)

The City's code applies to all listed and unlisted public companies, and also some privateones which have had shares listed on the London Stock Exchange within the previous tenyears. It also protects shareholders involved in the bid. The City Code on Takeovers and

Mergers was last fully revised and reissued in July 2000.

The code sets out General Principles and is enforced by the Panel on Takeovers andMergers. The panel is a self-regulating body. However, decisions are subject to judicialreview. There may also be some legitimate doubt as to whether the Panel's structure iscompatible with art 6(1) of the European Convention on Human Rights.

The code's objectives are as follows:

Equality of treatment of shareholders; Equality and sufficiency of disclosure for shareholders;

Careful and responsible consideration of the terms of the offer by the offerorcompany; Prevention of the creation of false markets; Acceptance or rejection of the offer by shareholders of the target without

interference of selfish advice by their board of directors; and Proper organization of persons acting together to ensure they can all fulfill their

obligations under the offer.

The code lays down that:

The acquirer of 30 per cent of the shares of a company within the code must makean offer to all the holders of voting shares.

The price at which the offer is to be made is the highest at which the targetcompany's shares have been dealt in by the offeror within the 12 monthspreceding the acquisition of the 30 per cent stake.

The Substantial Acquisitions Rules are concerned with the speed of acquisition anddisclosure requirements where shares (and rights over shares) are required which confer15 per cent to 30 per cent of the voting power in a public company whose shares are dealtwith on either the London Stock Exchange or the Alternative Investment Market. Theserules are enforced by the Panel.

The salient features of the code are discussed below:

1. All shareholders of the same class of an offeree company must be treated similarly byan offeror;

2. During the course of an offer, or when an offer is in contemplation, neither an offeror,nor the offeree company, nor any of their respective advisers may furnish information tosome shareholders which is not made available to all shareholders. This principle does


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not apply to the furnishing of information in confidence by the offeror company to a bonafide potential offeror or vice versa;

3. An offeror should only announce an offer after the most careful and responsibleconsideration. Such an announcement should be made only when the offeror has every

reason to believe that it can and will continue to be able to implement the offer:responsibility in this connection also rests on the financial adviser to the offeror;

4. Shareholders must be given sufficient information and advice to enable them to reach a properly informed decision and must have sufficient time to do so. No relevantinformation should be withheld from them;

5. Any document or advertisement addressed to shareholders containing information oradvice from an offeror or the board of the offeree company or their respective advisersmust, as is the case with a prospectus, be prepared with the highest standards of care andaccuracy;

6. All parties to an offer must use every endeavour to prevent the creation of a falsemarket in the securities of an offeror or the offeree company. Parties involved in offersmust take care that statements are not made which may mislead shareholders or themarket;

7. At no time after a bona fide offer has been communicated to the board of the offereecompany, or after the board of the offeree company has reason to believe that a bona fideoffer might be imminent, may action be taken by the board of the offeree company inrelation to the affairs of the company, without the approval of the shareholders in generalmeeting, which could effectively result in any bona fide offer being frustrated or in theshareholders being denied an opportunity to decide on its merits;

8. Rights of control must be exercise in good faith and the oppression of a minority iswholly unacceptable;

9. Directors of an offeror and the offeree company must always, in advising theirshareholders, act only in their capacity as directors and not have regard to their personalor family shareholdings or to their personal relationships with the companies. It is theshareholders' interests taken as a whole, together with those of employees and creditors,which should be considered when the directors are giving advice to shareholders.Directors of the offeree company should give careful consideration before they enter intoany commitment with an offeror (or anyone else) which would restrict their freedom toadvise their shareholders in the future. Such commitments may give rise to conflicts ofinterest or result in a breach of the directors' fiduciary duties;10. Where control of a company is acquired by a person, or persons acting in concert, ageneral offer to all other shareholders is normally required; a similar obligation may ariseif control is consolidated. Where an acquisition is contemplated as a result of which aperson may incur such an obligation, he must, before making the acquisition, ensure thathe can and will continue to be able to implement such an offer.


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Exhibit 23: Comparison of the bidders

Tata Steel CSN

Steel Production (mtpa) 8.7 5.8Revenues $b 4.6 3.8

Operating Margins per cent 40 32Manufacturing Locations 11 3Cost of slab production (perTon in $) 180 190Gross Debt $m 753.5 4369.9 Net Debt $m 0 2869.6Equity $m 2293.9 1051.4Debt/Equity (gross) 0.3 4.2Debt/Equity (Net) 0.0 2.72005 Total Assets $m 7157Cash flow from operating

Activities $m 1757 Net Profit Margin per cent 18.24 17.90

Exhibit 24: Stock Price History of Tata Steel (in Rupees)


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Exhibit 25: Stock Price History of Corus (in pence)15

Source: London Stock Exchange

Tata Steel (a) the Bid for Corus

Documents