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A CASE OF ACQUISITION
TATA STEEL Founded in 1907,by Jamsetji Nusserwanji Tata and on 1997 Ratan Tata is the chairman.
Tata company listed on BSE and NSE and employs about 82700 (2007) people. Started with a production capacity of 1,00,000 tones -now has been transformed into a global giant . It has a main steel plant located at Jamshedpur. The Company also have three Greenfield steel projects in the states of Jharkhand, Orissa and Chhattisgarh.
CORUS STEEL Corus is Europe's second largest steel producer. Corus group was formed on 6th October 1999 by merging British Steel and Koninklijke Hoogovens Corus main steelmaking operations primarily in the UK and the Netherland. Corus product range is concentrated on highly specialized requirement of aerospace, engineering , automotive and construction. Its products are priced at a premium as compared to Tata Steel’s product. It is listed on London stock exchange. Jim leng, Chairman of corus.
“ We aspire to be the global steel industry benchmark for Value Creation and Corporate Citizenship “
Strengths : Low Debt to equity ratio. (Stable balance sheet) Lowest cost producer in world. Experience in doing global acquisitions
Opportunities: Exposure to global steel market. Consolidation trend in Steel industry. CSN’s failure on 2002
Threats CSN bidder. Severstal bidder. No committed financers to support the deal . Local market reaction.
Weakness Corus was triple the size of TATA steel in terms of production. □ Corus was 4 times bigger than TATA in area.
Strengths : Worlds ninth largest and Europe second largest steel producer. Wide range of products. Presence of operating facilities spread in whole EU.
Opportunities: Consolidation trend in
Steel industry. To get right price at a time when market is less volatile
High operational costs. Huge pension liability Section 201 tariff imposed might have led to collapse
by Bush in 2002 led to loss in Corus clientele.
of the deal. Disagreement of Labor and government due to
CORUS Decides to Sell.. (Reasons) Total debt of Corus was 1.6 billion GBP. Corus could not meet higher cost raw material. Though Corus has revenues of $ 18.06 billion, its profit was just $ 626 million (Tata’s revenue was $4.84 billion and profit $ 824 million) Corus outmoded facilities were not cope up with high cost of production. Employees cost is 15% (TATA STEEL – 9%).
Due to tough competition from ARCELOR – MITTAL. To extend its Global reach. Needs high quality ,developed , low cost and high growth market. Search of virgin market place for their premium steel products.
TATA decides to Bid- (Reasons) Manufacture the products and markets in the Europe. Tata manufactured low valued long and flat steel products with quality. Diversified Product Mix. The Corus group has developed a breakthrough technology to reduce cost of steel production.
Tata also get to lay its hand on technology and saves on R & D. From 55th in world to 5th in production of steel globally. Efficient handling of Labor. Emphasis on continuous improvement. Cost of Acquisition was lower. Already established business in India, then likes effective integration of business over a long time
It is long term investment strategy, Tata needs more caution. Has to work in matured market. To maintaining low cost. High Steel prices threat. Rivals. Financial aspects. Non-Financial aspects
1. Cultural differences. 2. Structures and Compensation models. 3. Foreign ‘political’ environment.
TATA Acquired CORUS on 2nd April 2007 which is 4 times larger than its size. TATA Steel ,the winner of the auction for CORUS declares a bid of 608 Pence per share, the starting price per share was 455 pence. The total deal price was $ 12 Billion. TATA emerged as the winner in the final bid from Brazilian steel maker ‘COMPANHIA SIDERURGICA NACIONAL (CSN) whose bid was 603 pence per ’ share
TATA FUNDING PATTERN
For this deal TATA had finance only 4 Billion $ from internal company resources. TATA had secured funding commitments from its advisors. These advisors were Deutshe bank,ABN Amro and Standard Chartered. All these needed because it was an all cash deal.
Strengths : Big impact globally. Facing Competition.
Opportunities: Pricing power. Strong research & technology
Producing good quality at low price. development. Market Capitalization condition.
Weakness EBITDA Ratio. Requires high level of integration Uncertainties in market condition
Threats Capacity addition by other countries Business performance of Corus Size of the company
Company Arcelor - Mittal Nippon Steel Posco JEF Steel Tata Steel - Corus Bao steel China US Steel
Capacity(in million tonnes) 110 32 30.5 30 27.5 23 19
Loss in quarter 1 of 2009 -2010 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 FY’09. 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.
Global Economic downturn. Increase in iron ore and coal prices. Contraction in demand from the building and automotive sectors. Bidding Disturbance from CSN to TATA Steel 455 pence per share is pushed to 608 pence per share of Corus. Main Competitors are CSN and SEVERSTAL Arcelor-Mittal, reported an 85% drop in core.
Tata had strong retail network in India and SE. It will give the corus road into the emerging Asian market. Strong culture fit and similar work practice emphasizes on continuous improvement. Tata’s new debt amounting to $8 billion due to the acquisition, financed with Corus’ cash flows, is expected to generate up to $640 million in annual interest charges (8% annual interest cost). This amount combined with Corus’ existing interest debt charges of $400 million on an annual basis implies that the combined entity’s interest
Tata after this acquisition will become the 3rd global marketer in 2015. International Iron and Steel Institute ( IISI ) forecasts the global steel demand would be 1.32 billion tones by this 2010 and 1.62 billion tones by 2015 . Increasing demand of steel market it is not possible for a single company to capture the market alone. According to a report by Organization for Economic Co-operation and Development, world steel supply was likely to expand dramatically over the next two to four years. Planned capacity would lead to more mt of production.