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Date – 18th

September, 2009

TATA & CORUS

Presented Presented
To:- By:-
Ms. Parul Ankur
Nagar Keshari
Ashish Lal
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Priyanka
Objectives of Research
Introduction.

Indian Steel Market.

CORUS Steel Industry.

The DEAL.

TATA after
Acquisition.
Loss in the 1st Quarter

2 of 2009
Indian Steel Market
Tata steel industry was the first Indian
steel industry established 1907.

It holds an important place in the Indian


business history.

Tata started other business in India in a


short span of 30 years.
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Cont…
Steel industry (heavy industry) is
considered as a very influential factor in
the modern economy.

India is considered as a major exporter of


steel on a world map.

Due to this, antidumping actions has been


taken by developed countries.

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Global Steel Market :
Overview
IISI forecasts the global steel demand
would be 1.32 billion tones by 2010.

Much of these demand generated from


India and China

China highest Steel producing country

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Global Steel ranking
Company Capacity(in million
tonnes)
Arcelor - Mittal 110

Nippon Steel 32

Posco 30.5

JEF Steel 30

Tata Steel - Corus 27.5

Bao steel China 23

US Steel 19

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Corus Steel Industry
Formed on 6th Oct 1999, through merger of 2
companies : British Steel and Koninklijke
Hoogovens.
Consist of four divisions : Strip products, Long
products, Aluminum and Distribution, Building
system
Operates as an International company
Core business in Manufacturing, Development
and Allocation of Aluminum and Steel products
and services
Wide variety of products and services
7Largest steel producer in UK with £10,142
Objectives of Acquisition
Higher profitability
TATA current EBITDA is 13% production
tonnes
Global No. 6 company
By 2012, EBITDA expected is 25%, production
of 40 million tonnes giving it the position of
Global number 2.
To gain access to global steel market and
expand production capacity to keep pace with
growing demand for steel
Jim Leng, Chairman of Corus“This offer from
8 Tata Steel reflects the substantial value
Objectives of Acquisition
TATA looking for mature market in Europe
for its finished products
Corus holds a number of patients and R &
D facility.
Cost of Acquisition lower than setting up a
green field plant and marketing and
distribution channel.
Corus wanted to reduce its employees cost
and TATA is well known for handling its
labours efficiently.

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Consolidation Synergy
As part of its integration process being
done at two levels, the steel makers
expects to cross the $450 million target by
the end of 2010.

Synergy targets to be achieved included


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

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Mr. B. Muthuraman (M.D. Tata Steel)

 We will make the steel business into an EVA


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

Officially announced on April 2nd 2007.

TATA’s motive is to capture the market value.

Total value of this acquisition was $12 Billion

(608 pence per share except 603 per share).


Corus gained profitable opportunity to exit

and a buyer for some time.


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

TATA has to pay $12 billion, where 2/3rd was

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

ended up paying more to CORUS.


Still TATA earned operating profits of $840

million on sales of 5.3 million tonnes of steel,

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while CORUS earned $860 million on sales of
SWOT Analysis for TATA
 Strength
Lowest cost producer in world.
Experience of TATA group in doing global activity.
Stable balance sheet (Low Debt to Equity Ratio).

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

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Swot Analysis
Opportunity
Consolidation trend in Steel Industry
CSN’s lost image after failure of 2002
negotiations
To get exposed to global steel market

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

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Loss in quarter 1 of 2009 -
2010
 TATA Steel posted a consolidated net loss
(including Corus) of Rs 2,209 crore ($461
million).
Incurred a profit of Rs 3,901 crore ($814
million ) in the April-June quarter of FY’09.
Sales volume of Indian operations was higher by
22 percent but sales from its European
operations (Corus) fell heavily.
Group consolidated turnover was Rs.23,292
crores as compared to Rs. 43,496 crores.

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

interpretation.
Identifies various characteristics of

organization.
Prediction is used outside the boundary of

research.
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Reasons for Failure
Global Economic downturn.

Increase in iron ore and coal prices.

Contraction in demand from the building and

automotive sectors.
Bidding Disturbance from CSN to TATA Steel

455 pence per share is pushed to 608 pence per

share of Corus.
 Main Competitors are CSN and SEVERSTAL
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Defining The Problem
Lower chance of success
Size of target company Corus
Other bidding companies like CSN etc.
Higher price per share
Less opportunity to build relationship with
the target’s management
Local Market reaction
Arranging funds as it was an all cash deal

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

Profitability
Could have diversified its investment

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Alternatives
Expansion – If TATA steel were to create,
from scratch, 19 million tonnes of steel
making capacity comparable in quality to
what Corus possesses, It would end up
investing 70% to 85% more than it is
paying now.

Besides, setting up a new factory, a 3 to 5


years project if everything goes well, has
great execution risk.

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

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Conclusion

“ I believe this will be the first step in


showing that Indian industry can step
outside the shores of India in an
international market place and acquit
itself as a global player”

- Ratan Tata
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