ASSIGNMENT

ON
Corporate Restructuring and Valuation (CRV)
“TATA Corus Deal Case”

Group No: 05

-: Submitted By :-

Enrollment No. Name

198050592023 Hunny Gaiwala
198050592037 Hasti Koticha
198050592050 Vaibhavi Pachchigar
198050592056 Nidhi Parekh
198050592064 Dhara Patel
198050592080 Nirali Reshamwala

-: Submitted to :-
Dr. Delnaz Variva
Assistant Professor
S. R. Luthra Institute of Management
Surat
 TATA Corus Deal

TATA Steel History:

 Name: Tata Steel
 Type: Public Ltd.
 Industry: Steel
 Founder: Dorabji Tata
 Founded: 1907
 Headquarters: Mumbai
 Chairman: Mr. Cyrus Pallonji Mistry
 Parent: Tata Group
 Subsidiaries: Nat Steel, Tata Steel Europe, Tata Steel Thailand
 NSE: TATA STEEL
 BSE: 500470

Introduction of Corus:
 Founded: 1999
 Formation: Merger of British Steel Corp. and Koninklijke N.V
 Type: Subsidiary
 Industry: Steel
 Parent: Tata Steel, Tata Group

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View on Deal:
 TATA steel acquisition of CORUS was a bold and smart move.
 Complementarities in scale, market geography, financials, technology and raw materials offered a
strong rationale for the deal.
 The acquisition of CORUS has been timely done.
 Given the rising momentum of consolidation in the industry and rising valuations of steel companies,
had TATA steel not acted when it did, the opportunity could have been lost forever.

Reasons for Tata Steel to bid:

 To tap European mature market, Cost of acquisition is lower than setting up of green field plant and
marketing and distribution channel.
 TATA manufactures low value, long and flat steel products while Corus produced high value stripped
products.
 Helped to feature in top 10 players in the world.
 Technology benefit
 CORUS holds number of patents and R&D facilities. A chance to bail out of debt and financial crisis.
Total debt of CORUS was 1.6bn GBP.
 Access to cheap high quality iron ore from India.
 Corus facilities were relatively old with high cost of production.
 Corus needed supply of raw material at lower cost.

Reasons for acquisition:

 Increase Market Power Through Horizontal Acquisition
 Overcome Entry Barriers.
 Cost Of New Product Development
 Helped to feature in top 10 players in the world
 Lower Risk Compared To Developing New Products.
 CORUS holds number of patents and R&D facilities.
 To extend its global reach through Tata steel
 Favourability of shareholders over Tata’s deal
 To get access to low cost Indian Ore reserves
 Decline in market share and profit

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  Total debt of Corus was 1.6 Billion
 Corus facilities were relatively old with high cost of production.

How the Acquisition implemented:

 The Tata-Corus Deal Statistics
 Tata acquired Corus on 2nd April 2007
 The deal price was US $ 12.11 Billion
 On 17th Oct 2006 Tata bid was priced at 403 pence per share (Market Price per share at that time
was 390 pence)
 Tata Steel winner of the auction for Corus declares a bid of 608 pence per share
 Tata surpassed the financial bid from Brazilian Steel Maker – COMPAHNIA SIDDERUGGICA NACIONAL
(CSN) – of 603 pence per share

Reasons for Success:

 Success - Corus’ R&D Unit
 Strong Research & Development Unit
 Diversified presence
 Several Patent’s to its credit
 Produces high end steel
 Large Customer base
 The 2nd largest Company of Britain and one of the flagship companies of the Britain’s infrastructure
industry
 Aerospace, Automotive, Construction, Consumer Products, Defence & Security, Energy & Power,
Lifting & Excavation, Packaging

Types of acquisition:
Verdict Acquisition - A SUCCESS

Major Acquisitions:
Big Deals Target Buyer Value ($bn) Year Arcelor Mittal Steel 31 2006 NKK Corp Kawasaki Steel 14.1
2001 LNM Holdings Ispat Intl 13.3 2004 Tata Corus 12 2006 Krupp AG Thyssen 8.0 1997 Dofasco Arcelor 5.2
2005 Intl Steel Mittal Steel 4.8 2005

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Post acquisition Tata:
 Tata Steel has formed a seven member integration committee to spearhead its union with Corus
group
 The day after the acquisition was officially announced, Tata share fell by 10.7% on the Bombay stock
market.
 Tata’s new debt amounting $8 billion due to the acquisition.

Synergies expected from the deal:

 Tata was one of the lowest cost steel producers & Corus was fighting to keep its productions costs
under control.
 Tata had a strong retail and distribution network in India and SE Asia. 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
 There was a strong culture fit between the two organizations both of which highly emphasized on
continuous improvement and Ethics.
 Economies of Scale
 Increase in profitability
 Backward integration for Corus and Forward integration for Tata Steel

Advantages:
 The acquisition positions the combined group as the fifth largest steel company in the world, with
meaningful presence in both Europe and Asia.
 The powerful combination of low cost stream production in India with the high-end downstream
processing facilities of Corus improves the competitiveness of the Corus' European operation
significantly.
 The combination also allows cross fertilisation of research and development capabilities in the
automotive, packaging and construction sectors, and transfer of technology, best practices and
expertise.
 Tata Steel retains access to low cost raw materials and slab for enlarged group, and exposure to high
growth in emerging markets.
 Tata gets a very good international distribution network.

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  Tata gets access to low cost slabs: Steel makers in India enjoy a 20% cost advantage in slab making
over their European peers. The ability to export surplus slabs, either from Tata Steel facilities or
through acquisitions in low cost regions, is one of the key drivers of the deal.
 It would cost between S1200 and $1300 per tonne to set up a green field capacity anywhere in the
world, going downstream, as much as Corus has, in terms of tin plate capacity, galvanizing and
construction solutions.
 The Corus acquisition will immediately add 19 million tonnes of capacity to Tata Steel, apart from
giving it access to growth markets of Europe where quality of products and services are very
important.

Disadvantages:
 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.
 De-merged firms are likely to be substantially smaller than their parents are, possible making it
harder to tap credit markets and costlier finance that may be affordable only for larger companies.
 The smaller size of the firm may mean it has less representation on major indexes synergy that it had
as a larger entity.
 For instant, the division of expenses such as marketing, administration, research and development (R
& D) into different business units cause redundant costs without increasing overall revenues.

Economies of Corus Acquisition:

Particulars ($ mill) Tata Steel Corus Combined

Sales 5007 19367 24374

EBITDA 1480 1962 3442

Net profit 840 861 1701

Crude Steel Production 5.3 18.2 23.5

Market Capitalisation 6510 8227

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Comparison of Tata and Corus in Pre-acquisition period:

Particulars Corus (in Rs billions) Tata steel (in Rs billions)

Years 2006 2005 2004 2006 2005 2004

Assets 582.7 533.9 487.8 205.5 117.0 147.9

Debt 98.1 105 96 45.9 42 39.9

Liabilities 231.3 178.4 155.5 30.5 33.1 32.7

Revenue 760.5 699.9 596.5 202.4 159.9 111.2

Net income 33.9 33.5 -22.9 37.2 36.03 17.8

Key Finance:
Particular 2004 2005 2006 2007 2008 2009 2010
Sales 15598.63 15998.61 20244.43 27437.29 131790.24 147329.26 102393.12
N.P. 48.30 64.66 67.29 71.82 168.77 66.42 -23.92
Profit margin 15.98 22.32 18.44 16.63 9.37 3.29 -2.07
ROE 38.41 49.12 36.32 28.85 43.02 22.74 -8.72
D/E Ratio 0.75 0.45 0.33 1.72 1.87 2.75 2.31
EPS 48.58 65.24 67.53 72.02 169.15 67.81 -22.66
Current Ratio 1.07 0.79 0.96 2.04 1.79 1.70 1.41
Quick Ratio 0.60 0.40 0.51 1.61 1.12 1.02 0.81
ROE 38.41 49.12 36.32 28.85 43.02 22.74 -8.72
Dividend
20.57 19.91 19.24 22.57 9.45 23.58 -35.29
Purchase

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Conclusion:

With Corus in its fold, Tata Steel can confidently target becoming one of the top-3 steel makers
globally by 2015. The company would have an aggregate capacity of close to 56 million tones per annum, if
all the planned Greenfield capacities go on stream by then.
We can conclude that if the acquisitions well planned, Executed and the necessary precautions taken
for the deal a company can achieve its strategic objectives and thus ensure its growth through Acquisition.