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Presented By:- Ranjit Jakhu Deepak Chaudhary Vishal Trehan Gursewak Goyal Satish Kumar TATA & CORUS Date ± 1st April, 2010 Under guidance of : Dr. Subhash Chander
³There are not many opportunities for producers in emerging low cost market to gain access to the market of Europe other than by acquiring a company like Corus´ - John Quigley ( Editor, Industry Publication Steel Week ) Tata acquired Corus which is 3 times larger than its size and largest Steel producer in UK. The deal which creates world¶s 5th largest steel maker is India¶s largest foreign takeover worth US $ 12.11 billion. Previous best being US $ 1 bn by ONGC.
VISION Tata Steel :
VISION Tata Steel ³We aspire to be the global steel industry benchmark for Value Creation and Corporate Citizenship´
Tata Steel Background :
Tata Steel Background Tata Steel a part of the Tata group, one of the largest diversified business conglomerates in India. Founded in 1907,by Jamshedji Nusserwanji Tata. Started with a production capacity of 1,00,000 tones, has transformed into a global giant In the mid- 1990s, Tata steel emerged as Asia¶s first and India¶s largest integrated steel producer in the private sector. In February 2005, Tata steel acquired the Singapore based steel manufacturer NatSteel, that let the company gain access to major Asian markets and Australia. Tata steel acquired the Thailand based Millennium Steel in December 2005. Tata Steel generated net sales of Rs.175 billion in the financial year 2006-07. The company¶s profit before tax in the same year was Rs. 64.14 billion while its profit after tax was Rs. 42.22 billion.
SWOT Analysis of Tata Steel :
SWOT Analysis of Tata Steel
Reasons for Tata Steel to Bid :
Cost of acquisition is lower than setting up of Green field plant & marketing and distribution channel. British Steel and Koninklijke Hoogovens.US $13. Corus holds number of patents and R&D facilities. The deal price was US $ 12. This SPV raised US $ 6.14 billion through a mix of high yield mezzanine and long term debt funding. TATA manufactures Low Value . FINANCING THE DEAL : FINANCING THE DEAL Total Tata ± Corus deal . packaging. For immediate financing Tata Steel UK raised US $ 2. Corus has manufacturing operations in many countries with major plants located in the UK.long and flat steel products . The combined entity has become the world¶s fifth largest steelmaker after the deal.14 billion.11 Billion. Aluminium and Distribution and Building system. the winner of the auction for CORUS declares a bid of 608 Pence per share.while Corus produce High Value Stripped products. To get access to Indian Ore reserves. Company had four divisions: Strip product .56 billion. Technology Benefit. automotive. Decline in market share and profit. Germany. To get access to low cost materials. Economic of scale. Acquisition was completed through Tata Steel¶s UK Special Purpose vehicle(SPV) named Tata Steel UK. 2006 TATA¶s bidded at 455 pence per share and price per share was 390 pence at that time. Debt Component .US $ 6. On 17 Oct. REASONS FOR CORUS FOR ACCEPTING BIDS ABOUT THE DEAL : ABOUT THE DEAL TATA Acquired CORUS on 2nd April 2007 . Long product . Corus Background : Corus Background Corus Group plc was formed on 6th October 1999. TATA Surpassed the final bid from Brazilian steel maker µCOMPANHIA SIDERURGICA NACIONAL¶ (CSN) of 603 pence per share. . Norway and Belgium Supplier to many of the most demanding markets worldwide including construction. through the merger of two companies. TATA Steel. engineering SWOT Analysis : SWOT Analysis Slide 10: To extend its Global reach through TATA.Reasons for Tata Steel to Bid To tap European Mature Market. The Netherlands.66 bn through bridge loans. as well as virgin market for steel. Saturated market of Europe. France. Helped TATA to feature in Top 10 players in world.7 billion Equity component ± US $ 7.
Slide 16: Pitfalls of the deal High value paid. Slide 17: . Backward integration for Corus and Forward integration for Tata Steel. Corus¶ EBITDA was at 8% which was much lower as compared to Tata Steel¶s 30%. There was a strong culture fit between the two organizations both of which highly emphasized on continuous improvement and Ethics. Approximately 7. so paying in cash brings down the cost of acquisition. Debt of US $ 6. Share Swap would have meant FDI and that brings a lot of regulatory hassles which might not have been accepted by Corus shareholders. respect for individual. Hence there would be a powerful combination of high quality developed and low cost high growth markets Technology transfer and cross-fertilization of R&D capabilities . customer focus. Top management of the company remained same. As the core values of the two companies were same so Tata used µLight Handed Integration Approach¶.3 million ( estimated for 50 years at this capacity) to 27 million tons of steel per annum. Slide 15: Synergies from the deal Tata was one of the lowest cost steel producers & Corus was fighting to keep its productions costs under control .Slide 13: Immediate takeover was required. And moreover cost of equity at around 15% is higher than that of debt of around 8%. Economies of Scale. Increase in profitability. Fast consumption of Tata Steel¶s captive iron ore reserves as production capacity increased from 5. selective growth and respect for our people.74:1 from 1. Corus's Continuous Improvement Program µThe Corus Way¶ with the core values : code of ethics. Tata had a strong retail and distribution network in India and SE Asia.1 which it was maintaining earlier. Tata¶s debt equity ratio was adversely affected to 2. Share Swap would have diluted Tata Steel¶s Equity base which was not in favour of Tata shareholders.7 times its Enterprise Value. It was a risky proposition.14 was raised against the cash flows of Corus. credibility and excellence. integrity. creating value in steel. Integrity. Share Swap deal would have been less attractive to the Corus shareholders. WHY CASH DEAL???? Slide 14: Integration efforts Post Acquisition Strategies Tata steel's Continuous Improvement Program µAspire¶ with the core values :Trusteeship.
With Corus in its fold. A lot of stress on the cash flows of combined entity. executed and the necessary precautions taken for the deal a company can achieve its strategic objectives and thus ensure its growth through acquisition. New technology for producing high value products. from scratch. Tata steel can confidently target becoming one of the top 3 steel makers globally by 2015 . Slide 19: Opportunities : To become global player in steel industry. Rising terrorism and political unrest among nations. 19 million tonnes of steel making capacity comparable in quality to what Corus possesses. Slide 18: Critical Analysis Swot analysis of tata corus Strengths : Easy Access to quality raw material. Besides. Takeover more companies successfully. the company would have an aggregate capacity beyond 50 million tones per annum. High Debt equity ratio. Rising cost of raw material. Slide 20: A final word on this deal If TATA steel were to create. Weakness : Cost of production per unit bound to increase. Markets should continue to grow. has great execution risk. High dependability on the growth of market. Slide 21: ³ 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´ . Increasing the capacity of the company beyond 50 million tons by 2015 so as to become one of 3 top steel producers in the world. a 3 to 5 years project if everything goes well. setting up a new factory. Increase in production capacity beyond 56 mn tons by 2015 Threats : Cultural Diversifications are not easy to integrate.Ratan Tata . We can conclude that if the acquisitions well planned . Increasing the EBITDA to 25% for joint entity by executing Tata steel¶s brownfield and greenfield projects well in time. Increasing reach to joint entity to 4 continents and 45 countries including high value market of Europe. It would end up investing 70% to 85% more than it is paying now. if all the planned Greenfield capacities go on stream by then. Reach in 4 continents and 45 countries.The Road Ahead Integration has to be fast and efficient. Economies of Scale and production.