TATA- CORUS (MERGER

)

Presented to- The WLC’s judgment panel Presented by- Gaurav Manchanda

Defining the problem
Lower chances of success • Size of the target company- CORUS • Other bidding co’s- CSN etc. • Higher price per share • Less opportunity to build relationships with a target’s management

Defining the problem
Other problems • Local market’s reaction • Arranging funds as it was an all cash deal • Management

Objectives..
1. To Meet the ever increasing demand

Objectives..
2. Global presence.

Objectives..
3. Higher profitability • TATA’s current EBITDA is 13% & with production of 25 mt, it is global no. 6 By 2012, EBITDA expected is 25%, production of 40mt, it will be global no. 2

Objectives..
4. Consolidation/Synergy. • As part of its integration process being done at two levels, the steel maker expects to cross the $450 million target by the end of 2010. Synergy targets to be achieved included areas of manufacturing, procurement, research and development, IT, Finance and capital projects

Alternates
1. Global Expansion • Taking the TATA trust globally. • Joint ventures with other steel manufacturers. • Could have searched for reserves in India, Singapore etc. 2. Profitability • Could have diversified its investment

Setting Up Criteria
Alternates Type Time Cost Mgmt Risk Remarks

Alternate 1

Subsidiary

4-5 yrs

Higher costs

less experience

Severe

less info of foreign markets, higher expansion cost less control over management & sharing of profits almost no support from own govt., higher transportation costs

Alternate 2

Joint Venture

1-2 yrs

Shared

less control

moderate

Alternate 3

Locating reserves

6- 12 months

Higher costs

full control

moderate

Analyzing alternates
• Expansion- If Tata Steel were to create, from scratch, 19 million tons of steelmaking capacity comparable in quality to what Corus possesses, it would end up investing 70 percent to 85 percent more than it is paying now. Besides, setting up a new factory, a three- to five-year project if everything goes well, has great execution risk

Recommendations
Analysts took several years to admit that Tata's car project came from vision, not desperation. The wait may be a lot shorter this time. It has helped TATA as: 3. Instant increase in size. 4. They want to have also the latest technology, which is not easily available. 5. The third reason is acquiring a brand 6. It is in the international market for marketing. 7. To gain access to global steel market 8. And expand production capacity to keep pace with growing demand for steel

Contingency Plan
• The contingency plan could have been a joint venture with MITTAL steels as it is already into process of setting up a big steel unit in Orissa. Tata could have provided them with iron-ore reserves & would have expected share in its profits.

M&A, the Indian Way
• Step 1. Cultivate local political and community leaders, and emphasize that your aim is to create higher-value jobs for the local economy. Hire a representative who is already connected to political and labor leaders. • Step 2. Rally the rank-and-file of the acquired firm by presenting your business model as the best way to retain global competitiveness. Build the case that free enterprise is a global phenomenon and that hiding from it is useless

the Indian Way…
• Step 3. Retain as many important operating and functional business leaders in the local company as possible. Keeping local HR leaders is important: they know the ins and outs of the local market better than anyone

Thank You

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