MERGERS & ACQUISITIONS CASELET: TATA CORUS DEAL

By: Kapil Chaudhary 

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 µACQUISITION¶. 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 µCOMPANHIA 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

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