Case Study Analysis on TATA & CORUS Acquisition

Submitted By Shridhar I Turmari 11XQCMA136 Section Y

Company Backgrounds: Tata Steel

Tata steel industry was the first Indian steel industry established 1907. It holds an important place in the Indian business history. Tata started other business in India in a short span of 30 years. Steel industry (heavy industry) is considered as a very influential factor in the modern economy. India is considered as a major exporter of steel on a world map. Due to this, antidumping actions has been taken by developed countries.

Corus

Formed on 6th Oct 1999, through merger of 2 companies : British 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:
Higher profitability TATA current EBITDA is 13% production tonnes Global No. 6 company By 2012, EBITDA expected is 25%, production of 40 million tonnes giving it the position of Global number 2. To gain access to global steel market and expand production capacity to keep pace with growing demand for steel Jim Leng, Chairman of CorusThis offer from Tata Steel reflects the substantial value created for Corus shareholders TATA looking for mature market in Europe for its finished products Corus holds a number of patients and R & D facility. Cost of Acquisition lower than setting up a green field plant and marketing and distribution channel. Corus wanted to reduce its employees cost and TATA is well known for handling its labours efficiently.

SWOT Analysis:
Strengths Lowest Cost Producer in world Experience of TATA group in doing global acquisitions Stable balance sheet( Low debt to equity ratio) Opportunities Consolidation trend in Steel Industry CSNs tarnished image after failure of 2002 negotiations To get exposed to the global steel market ( will save time and learning space for them) Weaknesses Corus was triple the size of TATA steels in terms of production

Threats Brazilian player CSN Russian player Severstal No committed financers to support the possible deal

Deal:
Officially announced on April 2nd 2007. TATAs motive is to capture the market value. Total value of this acquisition was $12 Billion (608 pence per share except 603 per share). Corus gained profitable opportunity to exit and a buyer for some time. a) Tata Steel will provide $4.1 billion from the various sources indicated above and will invest the above quantum through its wholly owned indirect subsidiary Tata Steel UK. b) Non-recourse debt financing arranged by a consortium of banks of $6.14 billion directly at Tata Steel UK. c) The balance amount of $2.66 billion has presently been raised in the form of bridge finance in Tata Steel Asia Singapore, and discussions are under way to raise these funds through appropriate instruments.

Source: Tata Steel

Financing structure
The long term financing pattern for the net acquisition consideration of Corus was $12.9 billion and Tata Steel UK was funded in the long term from the following sources:

Funding Corus Acquisition

Post-Acquisition Tata
Seven member team for this DEAL. TATA has to pay $12 billion, where 2/3rd was being financed. After the bidding conflict with CSN, TATA ended up paying more to CORUS. Still TATA earned operating profits of $840 million on sales of 5.3 million tons of steel, while CORUS earned $860 million on sales of 18.6 million tons of steel. TATA Steel posted a consolidated net loss (including Corus) of Rs 2,209 crore ($461 million). Incurred a profit of Rs 3,901 crore ($814 million ) in the April-June quarter of FY09. Sales volume of Indian operations was higher by 22 percent but sales from its European operations (Corus) fell heavily. Group consolidated turnover was Rs.23,292 crores as compared to Rs. 43,496 crores.