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Sec - L
Abhishek Tarun singh Nikhil Nikhil sharma
It involves the use of a large amount of debt to purchase a firm.
LBOs are clear-cut example of a financial merger undertaken to create a high-debt private corporation with improved cash flows and value. Typically, in an LBO, 80% or more of the purchase price is financed with debt. A large part of the borrowing is secured by the acquired firm‟s assets.
Leveraged Buy-Outs Unique Features of LBOs Large portion of buy-out financed by debt Shares of the LBO no longer traded on the open market .
tapering off as the economy goes into recession and fears of increasing default rates escalate • • • . the primary market maker for junk bonds Junk bond financing is highly cyclical.Role of Junk Bonds in Financing LBOs • Junk bonds are non-rated debt. These high yielding bonds represented permanent financing for the LBO Junk bond financing for LBOs dried up due to the following: A series of defaults of over-leveraged firms in the late 1980s Insider trading and fraud at such companies a Drexel Burnham (Michael Milken). Bond quality varies widely Interest rates usually 3-5 percentage points above the prime rate Bridge or interim financing was obtained in LBO transactions to close the transaction quickly because of the extended period of time required to issue “junk” bonds.
•The deal was the largest Indian takeover of a foreign company at the time and made Tata Steel the world's fifth-largest steel group.•On 20 October 2006 the board of directors of Anglo-Dutch steelmaker Corus accepted a $7. •On January 30.6 billion takeover bid from Tata Steel. the Indian steel company. . Tata Steel purchased a 100% stake in the Corus Group at 608 pence per share in an all cash deal. 2007. cumulatively valued at USD 12.04 Billion.
VISION Tata Steel “We aspire to be the global steel industry benchmark for Value Creation and Corporate Citizenship” .
Low Debt Equity Ratio. -Easy access to raw material. -Non availability of latest R&D facility SWOT . . .To Compete with other big global players .To become a World leader in low cost and high quality steel products. .Quality of Steel was not of International standards.SWOT Analysis of Tata Steel -Low Cost production.
. .Lack of Access to raw material SWOT .SWOT Analysis World‟s ninth largest and Europe‟s second largest steel producer. accounting etc.Wide range of products of high technology. .To merge with a company to eliminate duplication and remove overlaps in marketing.To get access to raw material and growth markets through merger. .Increasing losses could result in winding up of company .High operational Cost. .
CORUS was a major player in Europe • • .SYNERGIES UNDERLYING THE BID • TATA was a low cost steel producer in fast developing region of the world. CORUS was a high value product manufacturer in the region of the world demanding value products TATA had self sufficiency in raw material. CORUS was fighting to keep its productions costs under control and was on the look out for sources of iron ore TATA had a strong retail and distribution network in India and SE Asia.
Hence with CORUS there would be a powerful combination of high quality developed and low cost high growth markets • There would be technology transfer and crossfertilization of R&D capabilities between the two companies that specialized in different areas of the value chain Strong culture fit both emphasizing on continuous improvement and ethics („ASPIRE‟ and „The Corus Way‟) • .SYNERGIES UNDERLYING THE BID • TATA was a major supplier to the Indian auto industry and the demand for value added steel products was growing in this market.
long and flat steel products .while Corus produce high value Stripped products • TATA to feature in Top 10 players in world • Technology and Environmental Benefit • • Economies of scale TATA accesses CORUS’ patents and R&D facilities • Forward integration for TATA Steel .Reasons for Tata Steel to Bid • • To tap European Mature Market Cost of acquisition is lower than setting up of Green field plant & marketing and distribution channel • TATA manufactures low value.
as well as virgin market for steel get access to low cost materials market of Europe integration for Corus • Saturated • Decline in market share and profit • Backward .REASONS FOR CORUS TO ACCEPT • To • To • To extend its Global reach through TATA get access to Indian Ore reserves.
4 billion December 11. Offer at 608 pence per share. December 19.04 billion) November 19. 2007 -Tata Steel wins bid for Corus. 2006 . valued at GBP 4. 2006 . valuing it at $8. 2006 – Tata raises offer to 500 pence: CSN counters with 515. valuing Corus at $11. 2006 .UK Watchdog on Takeovers and Mergers announced that the last date for each of Tata and CSN to announce revised offers for the Company is 30 January 2007 January 31.3 billion (USD 8.6 Billion.3bn • • • • .Tata Steel picks up 100% stake in CORUS at 455 pence per share in all cash deal. valuing the deal at $ 9.DEAL DYNAMICS • October 20.CSN launches counter offer at 475 pence per share.
FINANCING THE DEAL • • • • Total Tata – Corus deal . For immediate financing Tata Steel UK raised US $ 2. Debt Component . Acquisition was completed through Tata Steel‟s UK Special Purpose vehicle(SPV) named Tata Steel UK.66 bn through bridge loans. This SPV raised US $ 6.US $13. • • .14 billion.14 billion through a mix of high yield mezzanine and long term debt funding.7 billion Equity component – US $ 7.56 billion.US $ 6.
WHY CASH DEAL???? • Immediate takeover was required • Share Swap deal less attractive to shareholders as Share Swap means FDI and brings regulatory hassles which are unfavorable to Corus shareholders • Share Swap would have diluted Tata Steel’s Equity base which was not in favor of Tata shareholders • Cost of equity .15% is higher than that of debt of around 8%. so paying in cash brings down the cost of acquisition .
creating value in steel.•Tata steel's Continuous Improvement Program „Aspire‟ with the core values :Trusteeship. customer focus. selective growth and respect for our people •As the core values of the two companies were same so Tata used „Light Handed Integration Approach‟ •Top management of the company remained same . Integrity. integrity. respect for individual. credibility and excellence •Corus's Continuous Improvement Program „The Corus Way‟ with the core values : code of ethics.
It was a risky proposition.•High value paid. Approximately 7.14 was raised against the cash flows of Corus (LBO).3 million ( estimated for 50 years at this capacity) to 27 million tons of steel per annum.1 which it was maintaining earlier. •Corus‟ EBITDA was at 8% which was much lower as compared to Tata Steel‟s 30%.74:1 from 1. •Fast consumption of Tata Steel‟s captive iron ore reserves as production capacity increased from 5.7 times its Enterprise Value. •Debt of US $ 6. •Tata‟s debt equity ratio was adversely affected to 2. .
Strengths : •Easy Access to quality raw material. •High Debt equity ratio. . •New technology for producing high value products. •A lot of stress on the cash flows of combined entity. • Economies of Scale and production. •Reach in 4 continents and 45 countries. Weakness : • Cost of production per unit bound to increase. •High dependability on the growth of market.
•Increase in production capacity beyond 56 mn tons by 2015 Threats : •Cultural Diversifications are not easy to integrate. •Takeover more companies successfully. •Rising terrorism and political unrest among nations. •Rising cost of raw material. •Markets should continue to grow. .SWOT ANALYSIS OF TATA CORUS Opportunities : • To become global player in steel industry.
•If TATA steel were to create. a 3 to 5 years project if everything goes well. the company would have an aggregate capacity beyond 50 million tones per annum. setting up a new factory. if all the planned Greenfield capacities go on stream by then •We can conclude that if acquisitions are 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 . 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 •Besides. from scratch. Tata steel can confidently target becoming one of the top 3 steel makers globally by 2015 . has great execution risk •With Corus in its fold.
The Merger of Tata Tea & Tetley Presented By: Group 1 .
largest cross-border acquisition by any Indian company • Tata Tea's strategy of pushing for aggressive growth and worldwide expansion.Tetley • The first ever leveraged buy-out (LBO). .Tata Tea .800 – 2. • The acquisition of Tetley made Tata Tea the second biggest tea company in the world with the expected combined turnover worth Rs.900 crore. owner of Brooke Bond and Lipton). 2. (The first being Unilever.
Structure of the Deal Tata Tata Tea Inc 60mn 10mn Tata Tea (Gr Britain) SPV Raboban k 215mn Prudential Mezzanin e Capital 10mn Equity 70mn Debt 235mn Schroder Ventures 10mn Tetley Acquisition Legal Services & Bank Charges Tetley‟s Working Capital requirements 271mn 25mn 9mn .
Australia.Before Merger TATA TEA Turnover operating profit Employees Tea Estates $207million $36 million 59740 54 TETLEY $417 million $42. Canada. US .6 million 110 0 Key Market India Britain.
Predictable margins Margins inversely correlated to tea cycle Margins hedged Global footprint Domestic operations UK and USA account for bulk sales Global presence .Merger Implications Tata tea acquisition Tetley Pre acquisition Consolidated Post acquisition Position in the value chain 40% of turnover came from packed tea bags 100% turnover came from packed tea bags Company has moved up the value chain 84% of turnover came from packed tea bags Increased outsourcing produced 95% of its tea requirements in house Margins highly correlated with tea cycle outsourced entire requirement from 35 different countries with an estimated procurement of 3 million kgs of tea every week today 70% of TATA Tea requirement is outsources from 20 different countries thus reducing the risk associated with fluctuations in production arising out of various factors.
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