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Tata Corus Deal

Tata Corus Deal

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Published by: manishsingh6270 on May 24, 2010
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On 20 October 2006 the board of directors of Anglo-Dutch steelmaker Corus accepted a $7.6 billion takeover bid from Tata Steel, the Indian steel company. The following months saw a lot of negotiations from both sides of the deal. Tata Steel's bid to acquire Corus Group was challenged by CSN, the Brazilian steel maker. Finally, on January 30, 2007, Tata Steel purchased a 100% stake in the Corus Group at 608 pence per share in an all cash deal, cumulatively valued at USD 12.04 Billion. The deal is the largest Indian takeover of a foreign company and made Tata Steel the world's fifth-largest steel group.

Tata Steel, formerly known as TISCO (Tata Iron and Steel Company Limited), was the world's 56th largest and India's 2nd largest steel company with an annual crude steel capacity of 3.8 million tonnes. It is based in Jamshedpur, Jharkhand, India. [1] [2] It is part of the Tata Group of companies. Post Corus merger, Tata Steel is India's second-largest and second-most profitable company in private sector with consolidated revenues of Rs 1,32,110 crore and net profit of over Rs 12,350 crore during the year ended March 31, 2008. [3][4]. The company was also recognized as the world's best steel producer by World Steel Dynamics in 2005. The company is listed on BSE and NSE; and employs about 82,700 people. Corus was formed from the merger of Koninklijke Hoogovens N.V. with British Steel Plc on 6 October 1999. It has major integrated steel plants at Port Talbot, South Wales; Scunthorpe, North Lincolnshire; Teesside, Cleveland (all in the United Kingdom) and IJmuiden in the Netherlands. It also has rolling mills situated at Shotton, North Wales (which manufactures Colorcoat products), Trostre in Llanelli, Llanwern in Newport, South Wales, Rotherham and Stocksbridge, South Yorkshire, England, Motherwell, North Lanarkshire, Scotland, Hayange, France, and Bergen, Norway. In addition it has tube mills located at Corby, Stockton and Hartlepool in England and Oosterhout, Arnhem, Zwijndrecht and Maastricht in the Netherlands. Group turnover for the year to 31 December 2005 was £10.142 billion. Profits were £580 million before tax and £451 million after tax.

Synergies between the two companies
There were a lot of apparent synergies between Tata Steel which was a low cost steel producer in fast developing region of the world and Corus which was a high value product manufacturer in the region of the world demanding value products. Some of the prominent synergies that could arise from the deal were as follows :

Tata was one of the lowest cost steel producers in the world and had self sufficiency in raw material. Corus was fighting to keep its productions costs under control and was on the look out for sources of iron ore. Tata had a strong retail and distribution network in India and SE Asia. This would give the European manufacturer a in-road into the emerging Asian markets. Tata was a major supplier to the Indian auto industry and the demand for value added steel products was growing in this market. Hence there would be a powerful combination of high quality developed and low cost high growth markets There would be technology transfer and cross-fertilization of R&D capabilities between the two companies that specialized in different areas of the value chain

Benefits gained by TATA by acquiring CORUS:
(a) Growth of the company. Nine round of auctions, four months of transition and around $12.1 billion fetched a neo Tata Steel. Tata Steel now is the fifth largest steel company from fifty sixth initially with an annual production of around 24 million tonnes from around 6 million tones previously. The rise in turnovers of the new entity will bring Tata steel in the fortune 500 list as well. Tata steel acquired Anglo-Dutch steel major Corus plc in a deal of $12.1 billion or �6.2 billion at 608 pence per share. This acquisition process began in October last year with a price of 455 pence per share and a price of around $8 billion. The deal finally materialized after lot of competition from Brazilian Steel maker CSN. In the ninth round of auction CSN's 603 pence per share was outbid by Tata steel's 608 pence per share. (b) High Productivity: Corus' well known strength is the production of high-end steel-used in construction automobile and aircraft as well as its impressive research and development will complement Tata Steel. The merger will also give it access to the important markets of Europe. All that will benefit Corus is the management expertise of the Tatas and their cost advantage in producing steel. With their acumen they will bring down the production cost of Corus. Tata Steel expects to earn $300 million per year through cost savings. (c) Gain in New Technology: By acquiring Corus not only helps Tata to increase their consumer base but also helps in gaining new technology. Due to this new precautionary measure can be applied thereby increasing the use of technology in improving safety, mileage. (c) It helps in globalization thereby helps in understanding the cross-cultural organization thereby helping in stopping the brain-drain.

Objections that occur during the deal:
Market has not responded well to this deal as the price of the stocks fell. Investors are worried about cash outflow and the resultant strain on company's balance sheet. Of the total cash to be paid in the deal $4.1 billion will be forked by Tata steel, rest of the money will be as debts and will be returned from Corus cash flows. Apart from that many analysts have opined that the deal had occurred at wrong time. They believe that the deal had occurred when the market was at its peak. But as soon as the deal was finalized the market crashed by a huge margin thereby causes an increase in debt of the company. Also there was much difficulty in integrating Chinese and French management. Some of this surely stemmed from language considerations. To an extent, the Indians' greater command of the world's lingua franca will lubricate the inevitably-difficult integration process.


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