MERGERS & ACQUISITIONS

CASELET: TATA CORUS DEAL

By: Kapil Chaudhary

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A MERGER happens when two firms, often about same size, agree to
go forward as a new single company rather than remain separately
owned & operated by pooling all their resources together, to create a
sustainable competitive advantage. For example,both Daimler-Benz &
Chrysler ceased to exist when two firms merged, and a new company
’Daimler-Chrysler’ was created.

When a Company takes over another one & clearly becomes the new
owner ,the purchase is called ‘ACQUISITION’. Unlike mergers,
acquisitions can sometimes be unfriendly. i.e., when a firm tries to
takeover another by adopting hostile measures.

Horizontal mergers:

A horizontal merger involves two firms operating and competing in the same kind of
business activity.

Textiles firm merges raw materials firm.
- Example: Exxon - Mobil

Vertical mergers:

Vertical mergers occur between firms in different stages of production operation.
- Example: Helene Curtis and Unilever

Conglomerate Mergers:
- Conglomerate mergers involve firms engaged in unrelated types of business activity
- Example: General Electric buying NBC television

Concentric Mergers
- Based on specific management functions where as the conglomerate mergers are
based on general management functions
- Example: Citigroup (principally a bank) buying Salomon Smith
Barney (an investment banker/stock brokerage operation
THE DEAL

TATA Acquired CORUS on 2nd April 2007 which is 4 times larger than its size.

The deal price was $ 12 Billion.

TATA Steel,the winner of the auction for CORUS declares a bid of 608 Pence
per share.

In 2005 when the deal was started the price per share was 455 pence.

TATA Surpassed the final bid from Brazilian steel maker ‘COMPANHIA
SIDERURGICA NACIONAL’ (CSN) of 603 pence per share.

The combined entity has become the world’s fifth largest steelmaker after the
deal.

For this deal TATA has finance only 4 Billion $ from internal company
resources.

TATA Have secured funding commitments from its advisors.

These advisors were Deutshe bank, ABN Amro and Standard Chartered.
 FOR TATA

 The initial motive behind the deal was not CORUS

revenue size but rather its market value.
 To compete on global scale because then TATA was just
at 56th rank in steel production.
 CORUS holds a number of Patents and R & D facility.
 Acquiring Corus will give Tata access to European
customers of steel.
 Acquisition cost will be lower then setting up new green
field plants and marketing channel.
 FOR CORUS

 To extend its Global reach through TATA.

 To get access to Indian Ore reserves, as well as virgin
market for steel.
 To get access to low cost materials.
 Total Debt of Corus was GBP 1.6bn
 Saturated market of Europe.
 Better facilities and lower cost of production