IES Management college &

Research Centre
TATA- CORUS

Team
Members
Samir Madia- 67
Vineet Saraf – 86
Romeel Shah- 92
Sachin Shingare-
101
 Profile - Tata Steel
• Vision – “We aspire to be the global steel industry benchmark for
Value Creation and Corporate Citizenship”.
• Global presence in over 50 developed European and fast growing
Asian markets, with manufacturing units in 26 countries.
• Ranked 56th producers in the world before Acquisition and ranked
5th after acquisition, with an annual crude steel production capacity
of 30 Million Tonnes Per Annum (MTPA).
• Self sufficient in raw material – Iron Ore 100 % ,Coal- largely self
sufficient.
• One of the lowest cost producers of steel in the world.
• Strong retail and distribution network in India and South East Asia.
 Profile - Corus
• 2nd largest European steel producer

• Annual turnover of £12bn (~£2.5bn in Wales), with 42,000 employees

worldwide

• Major manufacturing sites in UK, Netherlands, Germany, France and

Belgium & sales offices/service centres in over 40 countries

• Supplier to many of the most demanding markets worldwide including

construction, automotive, packaging, engineering

• Corus was acquired by Tata Steel in 2007 and is now part of Tata Steel
Group, which is the 6th largest global steel producer
 Reasons for Tata Steel to
Bid
• To tap European Mature Market.
• Cost of acquisition is lower than setting up of Green field plant &
marketing and distribution channel.
• TATA manufactures Low Value ,long and flat steel products ,while
Corus produce High Value Stripped products.
• Helped TATA to feature in Top 10 players in world.
• Technology Benefit.
• Economic of scale.
• Corus holds number of patents and R&D facilities.
 Reasons for Corus to be
sold
• A chance to Bail out of Debt and Financial stress.

• Access to cheap high quality Iron ore from India.

• Corus had high cost of production.

• Though Corus had revenues of $18.06 bn ,its profit was

just $626 mn (TATA’s revenue was $ 4.84 bn and profit
$824 mn)
 Race to win Corus…
• Oct 17th , - TATA steel offered 455pence per share.

• Oct 20th - Corus board accepted term of £ 4.3 bn takeover (455 pence per
share).

• Nov 3rd - Russian steel giant Severstal announces officially that it will not
make a bid for Corus .

• Nov 18th - Brazilian group CSN approached the board with bid of 475 pence
per share.

• Dec 18th - TATA increased the original bid to 500 pence per share at same
time CSN counter bid at 515 pence per share.

• Jan 31st- TATA steel wins auction(608 p/share against CSN’s last bid of
603 p/share).

• April 2nd - The deal became effective i.e. TATA won the race.
 5 Yr. Financial performance of
Tata Steel
Category Unit FY`02 FY`03 FY`04 FY`05 FY`06

Production `000 Mt 3,636 3,941 4,089 4,109 4,552

Revenue $ Mn 1583 2150 2755 3532 3884

EBIDTA $ Mn 283 516 840 1378 1401

EBIDTA % 20% 27% 34% 42% 40%

Margin

PBT $ Mn 52 277 616 1178 1187

Net Profit $ Mn 43 222 404 773 794

Net Profit % 3% 12% 16% 24% 23%

Margin

EVA $ Mn -96 34 156 528 529

5 Yr. Financial performance
of Corus
Category Unit FY`02 FY`03 FY`04 FY`05 FY`06

Production `000 Mt 17.1 19.4 19.5 18.7 18.8

Revenue $ Mn 11456 10018 12165 10845 12845

EBIDTA $ Mn 512 305 1251 1142 1846

EBIDTA % 4.47 % 3.04% 10.28% 10.53 % 14.37 %

Margin

PBT $ Mn -644 -321 766 649 610.35

Net Profit $ Mn -741 -388 593 512 446

Net Profit % - 6.47 - 3.87 4.87 4.72 3.47 %

Margin
Financial just
before Acquisition
TATA
Steel
Corus
2006-07 31st Dec,2006

Turnover 4546 18979

EBITDA 1704 1846

PBT 1440 610.35

PAT 971 446

Net Profit 23% 2.35 %

Margin

EPS 1.70 0.41

Dividend 254 134

How TATA financed the Deal-
Combined group structure

Tata Steel
100 %

Tata Steel Asia

Holding Pvt. Ltd
100 %

Tata Steel UK
Ltd.
100 %

Corus Group Plc

Financing Plan of Tata
Steel Equity
Valuing the Acquisition
EBITDA can be used to analyze and compare
profitability between companies and
industries because it eliminates the effects of
Financing and accounting decisions.

• EBITDA = Revenue- Expenses( Excluding

tax, interest, depreciation and
amortization)
Enterprise Multiple =
EV/EBITDA
 Valuing the Acquisition
EV = Mkt Cap. + Pref. Stocks + Min.
interest + Long
Term debt - Cash Equivalent
= 3.5 billion + 0 + 26 million + 1600
million – 871
million
=£ 4.255 billion. 
EBITDA = £ 947 Million(From Con. Operations)

Enterprise Multiple= EV/EBITDA

= 4.255/.947
= 4.4931 X
 Why Enterprise Multiple
ratio ???
• EV/EBITDA is not affected by the capital structure of a
company;

• It allows fair comparison of companies with different

capital structures.

• We have a transnational comparison in our case and

EV/EBITDA ignores the distorting effects of individual
countries taxation policies.
 Peer Comparison
Peer Comparison for FY 2006
Profit before Tax of Peers Pre
& Post Acquisition
Year CSN CORUS Nucor Severstal

2006 987 610.35 2693.818 2112.429

2007 2161
- 2253.315 2654.455

2008 2941
- 2790.470 2587.959

(USD mn )
EVA Calculation Pre & Figures In Cr.
Post Acquisition
Particulars 2006-07 2007 -08
Risk Free Rate 8.00% 5.27%
Market premium 6.50% 9.00%
Assumed Beta 1.12 1.5
Cost Of equity 15.28% 18.77%
Equity % 37.00% 35.00%
Cost Of Debt 8.00% 8.00%
Tax Rate 34.00% 25.00%
After tax cost of debt 5.28% 6.00%
Debt % 63.00% 65.00%
WACC 8.98% 10.4695%
Capital Employed 42074.75 92161.62
Net Profit 4165.61 12321.76
Total Weighted Cost 3778.313 9648.861
EVA 387.297 2672.9
TATA Steel before &
After… 2006-07 2007-08 2008-09

EBITDA/Turnover 31.14% 14.08 % 12.55 %

PBT (In crores 6313 16371 6743

Rs)
PAT(In crores Rs) 4165 12321 4849.24

PBT/Turnover 24.61 % 12.39 % 7.43 %

Interest 16.35 3.46 4.32

Coverage Ratio
EPS 64.66 177.18 66

Debt /Equity 0.71 1.99 1.65

P/E 6.95 3.91 3.12

 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 at an EBITDA of 4.5 times,

• The point is Arcelor has much superior assets, wider market reach and
financially stronger than Corus

The price paid by Tata Steel looks almost

obscenely high.
 A Financial take on the
Acquisition
2.Interest charges
– New Debt of $ 8 bn @ 8% annual
interest cost i.e. $ 640 mn
– Corus’s existing interest debt
amounts to $ 725 mn.
 After Acquisition
•
Analysis
Aggregate crude steel production capacity of around 28.1 million
tonnes.
• Global Player with a balanced presence in developed European
and fast growing Asian Markets.
• Greenfield and Brownfield developments.

• May 07 EBITDA of 13 %, 25 mn tonnes of production ,Ranked 5th

• 2012 EBITDA of 25 %,40 mn tonnes of production, Ranked 2nd

• The group is growing aggressively and targets 50 mn tonne

capacity by 2015.
 Galvanized
Hot Rebars
Sheets
Roiled wire,
Cold Rolled
Galvanized
HotCoils /
Leading Position
Roads
Rebars Coils /
Sheets wire, wire Sheets
Roiled Sheets
Cold Rolled
Coils / Roads
Coils /
Leading PositionSheets wire
Sheets
Advanced high-
Hot strength Steel
Corus Roiled Rail Superior
Leading Coils / Automotive Steel
Position Sheets Advanced
Rods high-
for Tyre cord
Corus strength Steel
Structural Sections
Hot Rail Superior Steels
Roiled Packaging
Leading Automotive
Tin Plate Steel
Coils / Rods for Tyre cord
Position Sheets Structural Sections
Packaging Steels
Tin Plate
 Access to New Market
Combined Entity has significant market presence in both
emerging and developed economies

Source :- Tata Steel FY 2005-06 Annual Report & Corus 2005

Annual Report
 Ratan Tata’s View
Ratan Tata chairman Tata group
said,
“ We have taken a view that
we would not go beyond a
point… We did not reach
that point .Had we
reached that point we
would have walked away.
Over bidding or not is
subjective when it comes to
judgment calls”.
What's your view on the
acquisition ???

Right Partner ??

Right Time ??

Right Terms ??
 Our view on the deal

• Tata Steel's acquisition of Corus was

a bold and smart move.
Complementarities in scale, market
geography, financials, technology
and raw materials offered a strong
rationale for the deal.
 Our view on the deal

We believe that the acquisition of Corus

has been timely. Given the rising
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.
 Global Industry Average and
CAGR
1995 2007 CAGR( up
to 06)
Sales 21.1 155.1 15.1 %
EBITDA 6.4 26.5 16.1%
PAT 2.2 12.3 20.5
Market Cap 16.3 127.9 26.1
Capacity (mt) 54 136 4.7

(US $
Billion)
THANK YOU