Date 18th September, 2009

TATA & CORUS

Presented To:Ms. Parul Nagar

Presented By:Ankur Keshari Ashish Lal Priyanka Jain Ritu Gautam

Objectives of Research
y Introduction. y Indian Steel Market. y CORUS Steel Industry. y The DEAL. y TATA after Acquisition. y Loss in the 1st Quarter of 2009 y Conclusion and Recommendation
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Indian Steel Market

y Tata steel industry was the first Indian steel industry

established 1907.

y It holds an important place in the Indian business history.

y Tata started other business in India in a short span of 30

years.
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Cont
y Steel industry (heavy industry) is considered as a very

influential factor in the modern economy.

y India is considered as a major exporter of steel on a world

map.

y Due to this, antidumping actions has been taken by

developed countries.

Global Steel Market : Overview

y IISI forecasts the global steel demand would be 1.32 billion

tones by 2010.
y Much of these demand generated from India and China y China highest Steel producing country

Global Steel ranking

Company Arcelor - Mittal Nippon Steel Posco JEF Steel Tata Steel - Corus Bao steel China US Steel Capacity(in million tonnes) 110 32 30.5 30 27.5 23 19

Corus Steel Industry

y Formed on 6th Oct 1999, through merger of 2 companies : British y y y y y

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 Largest steel producer in UK with 10,142 million annual revenue and work force of 50,000 employees

Objectives of Acquisition
y Higher profitability y TATA current EBITDA is 13% production tonnes y Global No. 6 company y By 2012, EBITDA expected is 25%, production of 40 million

tonnes giving it the position of Global number 2. y To gain access to global steel market and expand production capacity to keep pace with growing demand for steel y Jim Leng, Chairman of CorusThis offer from Tata Steel reflects the substantial value created for Corus shareholders

Objectives of Acquisition
y TATA looking for mature market in Europe for its finished

products y Corus holds a number of patients and R & D facility. y Cost of Acquisition lower than setting up a green field plant and marketing and distribution channel. y Corus wanted to reduce its employees cost and TATA is well known for handling its labours efficiently.

Consolidation Synergy
y 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.
y 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)

y 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. y We will continue to be the lowest cost producer of steel in the world by continuous improvement, benchmarking and up gradation. y We will strengthen our partnerships with our customers and suppliers, and create mutually value creating opportunities. y Unleash peoples potential and create more leaders. This Company has had and has many outstanding leaders.
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The DEAL..
y Officially announced on April 2nd 2007. y TATAs motive is to capture the market value. y Total value of this acquisition was $12 Billion (608 pence per share

except 603 per share).

y Corus gained profitable opportunity to exit and a buyer for some

time.
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Ups and down

y Sep 20, 06 : CORUS uses the strategy to work with low cost producer. y Oct 06, 06 : Initial offer by TATA is considered to be too low. y Oct 17, 06: TATA kept its offer to 455 pence per share. y Oct 20, 06 : CORUS accepts the offer of 4.3 billion. y Oct 23, 06 : Brazilian Steel Group CSN counter-offer to TATAs offer. y Oct 27, 06 : CORUS criticized by JCB for acceptance of TATAs offer. y Nov 18, 06 : The CSN approaches Corus With an offer of 475 pence per share y Nov 27, 06 : Board of Corus decides to give more time for shareholders to decide

whether it issue forward a formal offer. y Dec 18,06 : Tata increases its original bid for Corus 500 pence per share, then CSN made its counter bid at 515 pence per share in cash y Jan 31, 07 : Tata had agreed to offer Corus investors 608 pence per share in cash
y Apr 02, 07 : Tata steel manages to win acquisition to CSN and has the full voting

support from Corus shareholders

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TATA After Acquisition

y Seven member team for this DEAL. y TATA has to pay $12 billion, where 2/3rd was being financed. y After the bidding conflict with CSN, TATA ended up paying more

to CORUS.
y Still TATA earned operating profits of $840 million on sales of

5.3 million tonnes of steel, while CORUS earned $860 million on sales of 18.6 million tones of steel.
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SWOT Analysis for TATA

y Strength
y Lowest cost producer in world. y Experience of TATA group in doing global activity. y Stable balance sheet (Low Debt to Equity Ratio).

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

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Swot Analysis
y Opportunity
y Consolidation trend in Steel Industry y CSNs lost image after failure of 2002 negotiations y To get exposed to global steel market

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

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Loss in quarter 1 of 2009 - 2010

y TATA Steel posted a consolidated net loss (including Corus) of Rs

2,209 crore ($461 million). y Incurred a profit of Rs 3,901 crore ($814 million ) in the AprilJune quarter of FY09. y Sales volume of Indian operations was higher by 22 percent but sales from its European operations (Corus) fell heavily. y 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
y Fact finding investigation with adequate interpretation. y Identifies various characteristics of organization. y Prediction is used outside the boundary of research. y Provides facts for planning action program. y Useful in Verifying Focal concepts through empirical
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observation

Reasons for Failure

y Global Economic downturn. y Increase in iron ore and coal prices. y Contraction in demand from the building and automotive sectors. y Bidding Disturbance from CSN to TATA Steel
y 455 pence per share is pushed to 608 pence per share of Corus. y Main Competitors are CSN and SEVERSTAL

y Arcelor Mittal, reported an 85% drop in core profit & Nippon

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Steel, ranked No 2, booked a second consecutive quarterly loss.

Defining The Problem Lower chance of success

y Size of target company Corus y Other bidding companies like CSN etc. y Higher price per share y Less opportunity to build relationship with the targets

management y Local Market reaction y Arranging funds as it was an all cash deal

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

y Profitability
y Could have diversified its investment

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Alternatives
y 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.
y 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
y 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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